-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lSRwftZuE7sWtAJQsb7GZB2KZ2cl8kCokDOO8QhUqhIjBaVYepIhWPaxZKOdnKFW jNpJT0jOcmScoMdD9YQE6w== 0000892569-95-000064.txt : 19950616 0000892569-95-000064.hdr.sgml : 19950616 ACCESSION NUMBER: 0000892569-95-000064 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950322 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FURON CO CENTRAL INDEX KEY: 0000037755 STANDARD INDUSTRIAL CLASSIFICATION: GASKETS, PACKAGING AND SEALING DEVICES & RUBBER & PLASTIC HOSE [3050] IRS NUMBER: 951947155 STATE OF INCORPORATION: CA FISCAL YEAR END: 0203 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11425 FILM NUMBER: 95522463 BUSINESS ADDRESS: STREET 1: 29982 IVY GLENN DR CITY: LAGUNA NIGUEL STATE: CA ZIP: 92677 BUSINESS PHONE: 7148315350 FORMER COMPANY: FORMER CONFORMED NAME: FLUOROCARBON CO DATE OF NAME CHANGE: 19900322 10-K405 1 FURON COMPANY -- FORM 10-K ENDING 1/28/95 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 28, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-8088 FURON COMPANY (Exact name of registrant as specified in its charter) California 95-1947155 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 29982 Ivy Glenn Drive, Laguna Niguel, CA 92677 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 831-5350 Securities registered pursuant to Section 12(b) of the Act on the NEW YORK STOCK EXCHANGE: COMMON STOCK, WITHOUT PAR VALUE COMMON STOCK PURCHASE RIGHTS Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- As of January 31, 1995, the aggregate market value of voting stock held by nonaffiliates of the registrant was approximately $184,500,000. As of March 20, 1995, the number of outstanding shares of Common Stock of the registrant was 8,848,014. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the 1995 Annual Meeting of Shareholders (to be held on June 6, 1995) have been incorporated by reference into Part III of this report. 2 PART I ITEM 1. BUSINESS GENERAL Furon(R) designs, develops and manufactures highly engineered components made primarily from specially formulated high performance polymer materials. Most of Furon's products are designed and engineered to meet specific requirements of customers in the industrial process, transportation, industrial equipment, electronics and healthcare industries. The Company has historically expanded its operations through the acquisition and further development of businesses which manufacture and sell components to original equipment manufacturers and which possess similar technologies and serve similar markets. On January 31, 1995 the Company complemented the CHR(TM) brand of products that it acquired in 1989 with the acquisition of Custom Coating & Laminating Corporation's business devoted to the manufacture and sale of customized and standard specialty engineered products which rely on surface chemistry technology. (See Note 10 of the "Notes to Consolidated Financial Statements" for additional information concerning this acquisition.) In addition to its acquisition activities, the Company has developed its business through the introduction of new product lines and improvements in its existing products and capabilities and operational methodologies. For example, in addition to the reorganization of its operations described below, the Company believes that its World Class Performance program continues to improve its operations through improved product quality and performance features, improved customer service, minimization of waste, manufacturing costs and inventories, reduced cycle times and increased employee productivity and involvement. Further, the Company continues to focus its technology center on the development of proprietary polymer compounds that can be used to produce high margin, differentiated polymer products. In January 1992, the Company announced a restructuring program designed to improve profitability and sharpen the Company's focus on its higher margin materials technology operations and other primary objectives and strengths. An integral component of the restructuring was the divestiture of six businesses which were determined to no longer fit the Company's long-term strategic objectives. The Company sold two of the businesses in fiscal 1993 and three in fiscal 1994 and is pursuing the sale of the remaining business. For additional information concerning the restructuring program, see Note 2 of the "Notes to Consolidated Financial Statements." Furon was incorporated in California in 1957 and changed its name from "The Fluorocarbon Company" to "Furon Company" in January 1990. Unless the context otherwise requires, the terms "Furon" and the "Company" are used in this report to refer to Furon Company and its subsidiaries. - ------------------ (R)Furon is a registered trademark and (TM) CHR is a trademark of the Company. 2 3 OPERATIONS Historically, the Company has conducted its operations in independent business units developed and organized around manufacturing capabilities and products and grouped from time to time based on varying product, market or other criteria. As part of the restructuring program, the Company began reorganizing its operations around its customers and strategic industries, rather than products, by introducing a new organizational structure that provided a flatter organization. This eliminated certain levels of operating group management and established a more market oriented focus by combining businesses to maximize the synergies of business units with complementary products and manufacturing capabilities. In fiscal 1995, the Company consolidated the diverse independent business unit operations into one Furon operating unit that is organized around customers in the industrial process, transportation, industrial equipment, electronics and healthcare industries. The Company believes that its current organizational structure will enable it to better serve its customers and grow its customer base, eliminate redundancies and other inefficiencies, and more fully leverage its technologies and other capabilities. MARKETS AND PRODUCTS The Company principally serves the industrial process, transportation, industrial equipment, electronics and healthcare industries, offering the following FURON(R) brand products: CHR(TM) pressure sensitive tapes, solid and sponge silicone rubber, PTFE and silicone coated fabrics, and release liners; DEKORON(R) control and instrumentation cable and wire, self-regulating heating and fiber optics cable; FELSTED(R) cables, control cables, and control systems; FLEXSEAL(TM) spiral wound and heat exchange metallic gaskets; FLOMED(TM) silicone rubber molded and extruded healthcare products; OMNISEAL(R) spring energized PTFE seals, lip seals, hydraulic seals, and metallic O-rings and C-rings; RULON(R) high performance polymer materials and molded, extruded and machined bearings and other components made from those materials; SYNFLEX(R) hydraulic hose, specialty hose, and tubing, couplings and accessories; UNITHERM(R) heated hose and steam traced, preinsulated and electrical traced tubing; and FURON(R) generic fabricated and extruded high performance plastic components, fluid handling products, and custom fabricated composite, urethane and polyimide foam components. Furon's sales are generated primarily by its own salespersons located in most major industrial areas. The remaining sales are made by independent manufacturers' representatives and distributors. Most of the Company's customers are original equipment manufacturers, commercial or industrial construction companies or firms servicing the maintenance and replacement parts market or distributors to these markets. The Company's business is not dependent upon a single customer, or a few customers, and no single customer accounted for more than 5% of Furon's sales volume during any of the last three fiscal years. (For certain financial information concerning the Company's foreign and domestic operations and export sales, see Note 9 of the "Notes to Consolidated Financial Statements.") - ------------------ (R)FURON, DEKORON, FELSTED, OMNISEAL, RULON, SYNFLEX and UNITHERM are registered trademarks, and (TM)CHR, FLEXSEAL and FLOMED are trademarks, of the Company. 3 4 COMPETITION The Company competes with a large number of companies, some of which have greater financial resources, but none of which competes with the Company in more than a limited number of products. Depending on the product, the principal competitive factors for Furon are materials capability, engineering, design and process technology, quality, reliability and the ability to meet delivery dates. The Company believes that trade secrets are important to its proprietary products. To protect its trade secrets, the Company requires all salaried employees to enter into confidentiality agreements. While the Company holds many patents and trademarks with varying degrees of significance to its operations, the Company's business is not dependent upon any particular one. BACKLOG OF ORDERS Furon's backlog of unfilled orders at January 28, 1995 was $50,629,000 and $49,798,000 at January 29, 1994, a 2% increase. The backlog for continuing operations increased 5% to $49,785,000 at the end of fiscal 1995, from $47,450,000 the prior year. The increases in backlog reflect demand from most all industry groups served with the exception of the aerospace and commercial aircraft marketplace, whose orders were virtually flat. The most significant increases in orders resulted from strong demand in chemical processing, transportation and mobile equipment markets. It is estimated that substantially all of Furon's backlog of orders at January 28, 1995 will be filled during the next 12 months, except for approximately $35,000 of backlog which is scheduled to be filled during the subsequent 12-month period. The lead time between receipt of orders and shipment of products, other than products for commercial aircraft, is typically a matter of weeks. Although many of Furon's orders contain cancellation clauses, Furon has seldom experienced significant cancellations of orders. RAW MATERIALS Furon purchases its raw materials, ranging from polymer resins to component parts, from numerous suppliers. The top resins used by the Company are PTFE and related resins, Nylon 11 sold under the trade name Rilsan(R), and silicone polymers. The Company purchases its requirements for PTFE and related resins and silicone polymers from the major suppliers of those resins, while Atochem Polymers is the Company's sole source for Rilsan. Rilsan is used primarily in the production of heavy duty air brake tubing. Alternative sources of material which can be substituted for Rilsan are available in the event a shortage of Rilsan develops. RESEARCH AND DEVELOPMENT For information concerning the amounts spent by the Company during the last three fiscal years on research and development activities, see Note 1 of the "Notes to Consolidated Financial Statements." EMPLOYEES At January 28, 1995, Furon employed 2,217 persons. Furon considers its employee relations to be good. - ------------------ (R)Rilsan is a registered trademark of Atochem Polymers. 4 5 ENVIRONMENTAL LAWS The Company from time to time incurs investigation, remedial response, voluntary clean-up and other costs associated with environmental matters. As of January 28, 1995, the Company's reserves for environmental matters totaled approximately $2,400,000. These reserves primarily relate to environmental costs associated with facilities that have been sold or closed. While neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, management does not expect those matters to have a material adverse effect on the capital expenditures, earnings or competitive position of the Company. One of the Company's subsidiaries has been notified by the Environmental Protection Agency that it has been named as a potentially responsible party in connection with the cleanup of hazardous wastes at two sites, the Solvents Recovery Service of New England site in Southington, Connecticut (notified in June 1992), and the Gallups Quarry site in Plainfield, Connecticut (notified in April 1993). Since these matters are in their preliminary stages, no assurance can be given at this time concerning the ultimate outcome. However, based on preliminary investigations to determine the nature of the subsidiary's potential liability and the estimated amount of remedial costs necessary to clean up the sites, the Company presently does not expect these matters to have a material adverse effect on its consolidated financial position or results of operations. For information concerning an additional environmental proceeding in which the subsidiary is involved, see "Legal Proceedings" at Item 3 (Part I) of this report. 5 6 ITEM 2. PROPERTIES The Company currently manufactures its products at 23 plants of which 20 are in the United States, 2 in Belgium and 1 in England. Furon believes that its facilities are suitable for its business and adequate for its present needs, and that appropriate additional or substitute space is available, if needed, to accommodate physical expansion of the business in the foreseeable future. Certain information regarding the Company's plants is set forth below.
EXPIRATION SQUARE OF LEASE LOCATION FOOTAGE TERM(1) -------- ------- ---------- Mantua, OH 151,000 8/31/32 Aurora, OH 148,000 8/31/32 Seattle, WA 116,000 1/31/97 New Haven, CT 110,000 8/31/32 Bristol, RI 106,000 8/31/32 Anaheim, CA 91,000 7/31/10 Mickleton, NJ 86,000 8/31/32 Worcester, MA 76,000 (2) Los Alamitos, CA 74,000 12/14/03 Mt. Pleasant, TX 67,000 8/31/32 Houston, TX 65,000 4/30/02 Mundelein, IL 60,000 8/31/00 Kent, OH 50,000 1/06/01 Gembloux, Belgium 49,000 (2) Sunnyvale, CA 27,000 10/1/95 Fremont, CA 30,000 7/30/96 Cape Coral, FL 30,000 5/31/06 Aurora, OH 30,000 (2) Kontich, Belgium 30,000 11/30/99 Holmesville, OH 28,000 (2) Rolling Meadows, IL 26,000 (2) Maxey, England 14,000 8/31/96 North Bennington, VT 13,000 10/31/96
(1) Assumes that existing renewal options are exercised. For further information concerning the Company's lease commitments, see Note 5 of the "Notes to Consolidated Financial Statements." (2) Plants owned by the Company; all other plants listed above are leased. 6 7 ITEM 3. LEGAL PROCEEDINGS The Company is from time to time named as a defendant in various lawsuits. The Company vigorously defends all lawsuits brought against it, unless a reasonable settlement appears appropriate. The Company believes that the ultimate resolution of the actions currently pending should not have a material adverse effect on its consolidated financial condition. On January 18, 1995, the Company and CHR Industries, Inc., a wholly owned subsidiary of the Company ("CHR"), were served with a civil complaint filed in the Superior Court of the State of Connecticut by the State's Commissioner of Environmental Protection. The plaintiff alleges that certain aspects of CHR's container management, discharges, record keeping and training violated the State's water pollution control laws and hazardous waste laws. The complaint seeks substantial penalties and injunctive relief from further violations of these laws. CHR is pursuing settlement negotiations with the State and expects to resolve this matter for an amount between $75,000 and $140,000 and appropriate injunctive relief. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the year ended January 28, 1995. OFFICERS OF FURON Furon's executive and other officers are as follows:
Name Age Position/Business Experience - ---- --- ---------------------------- EXECUTIVE OFFICERS J. Michael Hagan 55 Chairman of the Board Mr. Hagan has been employed by the Company since 1967 and was promoted to Division Manager in 1969, elected Vice President in 1975, and served as a director and President from 1980 to June 1991 when he was appointed Chairman of the Board. Terrence A. Noonan 57 President and Director Mr. Noonan has been the President of Furon since June 1991 and was elected as a director in August 1991. From 1989 to June 1991, he served as an Executive Vice President in charge of various operations. He joined Furon in 1987 as a Vice President, having previously served since 1980 as a Group General Manager of Eaton Corporation, a diversified manufacturing company. Monty A. Houdeshell 46 Vice President, Chief Financial Officer and Treasurer Mr. Houdeshell joined the Company in 1988 as Vice President, Chief Financial Officer and Treasurer and also served as Secretary from 1988 to February 1991. From 1985 to 1988, Mr. Houdeshell served as Vice President, Chief Financial Officer and Treasurer of Oak Industries, Inc., a manufacturer of electronic components and controls.
7 8 OTHER OFFICERS Koichi Hosokawa 46 Controller Mr. Hosokawa joined the Company in 1988 as Controller. From 1982 to 1988, Mr. Hosokawa was Corporate Controller of Acme Holding, Inc., a hardware manufacturing subsidiary of The Stanley Works. Donald D. Bradley 39 General Counsel and Secretary Mr. Bradley joined the Company in June 1990 as Senior Attorney and Assistant Secretary and was named Corporate Secretary in February 1991 and General Counsel in February 1992. Previously, he was a Special Counsel with O'Melveny & Myers, an international law firm with which he had been associated since 1982.
All officers of the Company are elected annually by and serve at the pleasure of the Board of Directors. There are no family relationships among any of Furon's officers. 8 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has traded on the New York Stock Exchange under the trading symbol "FCY" since March 8, 1995. Previously, it traded on the NASDAQ National Market System under the trading symbol "FCBN." As of March 20, 1995, the Company had approximately 1,211 holders of record of its Common Stock. The following table sets forth for the periods indicated (i) the high and low closing sale prices per share of the Company's Common Stock as reported by NASDAQ and (ii) the amount per share of cash dividends paid by the Company with respect to its Common Stock.
YEARS ENDED --------------------------------------------------------------------- JANUARY 28, 1995 JANUARY 29, 1994 --------------------------------- -------------------------------- QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND - ------- ---- --- -------- ---- --- -------- First $ 18-1/2 $ 15-1/4 $.06 $ 18-1/2 $ 15-1/4 $.06 Second 18-1/2 14-1/4 .06 17-1/4 14 .06 Third 21 15-3/4 .06 15 14-1/4 .06 Fourth 23 19-1/4 .06 17-1/4 14 .06
Future dividends will be considered by the Board of Directors taking into account the Company's profit levels and capital requirements as well as financial and other conditions existing at the time. ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data for the five years in the period ended January 28, 1995 should be read in conjunction with, and is qualified by, the more detailed information and consolidated financial statements included in Item 8 (Part II), "Consolidated Financial Statements and Supplementary Data." 9 10 ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
Years ended --------------------------------------------------------------------------- IN THOUSANDS, EXCEPT January 28, January 29, January 30, February 1, February 2, SHARE AND PER SHARE AMOUNTS 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------ Net sales $ 312,060 $ 285,194 $ 300,107 $ 306,170 $ 326,920 Cost of sales 217,827 204,727 213,932 224,781 231,768 ---------- ---------- ---------- ---------- ---------- Gross profit 94,233 80,467 86,175 81,389 95,152 Selling, general and administrative expenses 77,368 66,458 71,782 73,491 72,970 Restructuring charge - - - 23,650 - Unusual and nonrecurring charges - - - 8,371 - Other (income), net (3,126) (2,296) (2,363) (2,104) (2,640) Interest expense 2,394 3,337 4,243 5,824 9,420 ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes 17,597 12,968 12,513 (27,843) 15,402 Provision (benefit) for income taxes 6,159 4,798 5,256 (5,501) 6,309 ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 11,438 $ 8,170 $ 7,257 $ (22,342) $ 9,093 ========== ========== ========== ========== ========== Net income (loss) per share: Primary $ 1.27 $ 0.92 $ 0.84 $ (2.65) $ 1.17 ========== ========== ========== ========== ========== Fully diluted N/A N/A N/A N/A $ 1.11 ========== Weighted average number of common shares and equivalents outstanding: Primary 8,992,926 8,859,200 8,681,606 8,439,121 7,803,022 Fully diluted N/A N/A N/A N/A 8,655,347 Cash dividends per share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24 At year end: Total assets $ 179,873 $ 175,224 $ 174,229 $ 181,021 $ 207,197 Total long-term obligations $ 32,791 $ 38,795 $ 43,488 $ 54,088 $ 64,295 Total stockholders' equity $ 91,599 $ 80,815 $ 75,247 $ 71,017 $ 97,412
10 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales during fiscal year 1995 were 9% higher than in fiscal year 1994. When removing the effect of the businesses held for sale, sales increased 14%. The increases came from most all industry groups served with the exception of the aerospace and commercial aircraft marketplace, whose sales were virtually flat. The most significant increases in revenue resulted from strong demand in chemical processing, transportation and mobile equipment markets. Thermoplastic wire and cable, as well as truck controls and brake hose, hydraulic, pneumatic and paint hose, bearing and seals and tubing products were particularly strong. European operations also contributed with improved sales. A healthier economy in Europe provided improved demand across all product lines, and coupled with stronger foreign currency rates resulted in increased dollar sales. When comparing fiscal 1994, consolidated sales were 5% lower than in fiscal 1993. However, when removing the effect of the divested businesses, sales increased slightly. The gross profit percentage for fiscal year 1995 has improved from 28.2% to 30.2% as compared to the prior fiscal year. The improvement in gross margin is primarily attributable to the Company's focus on increasing productivity and cost reduction. All components of cost of sales benefited this improved margin. When removing the impact of the business held for sale, the gross profit percentage improved from 29.2% to 30.7%. Most of this improvement is attributable to lower material and overhead costs as a percentage of sales. The gross profit percentage decreased from 28.7% in fiscal year 1993 to 28.2% in fiscal year 1994. This decrease was the result of increased material usage offset somewhat by reductions in variable overhead. When removing the effect of the divested business gross profit decreased from 30.4% in fiscal year 1993 to 29.2% in fiscal year 1994. Selling, general and administrative expenses as a percentage of sales were 24.8%, 23.3% and 23.9% for fiscal years 1995, 1994 and 1993, respectively. A portion of the increase is due to increased selling expense as the Company put forth significant efforts to improve its customer and market focus. General and administrative expenses have increased over the prior year mainly as a result of the implementation of the new operating structure, as discussed in Item 1 under "Operations". Significant expenditures include professional fees incurred in connection with various consulting projects, travel, communications and early phase out of information systems impacted by implementing the new strategy. Additionally, general and administrative expense was affected by costs associated with the search and evaluation of potential acquisition candidates. Research and development costs were up as the Company increased its focus on new product development. Interest expense decreased by 28% in fiscal year 1995 as compared to fiscal year 1994. Lower expense is due to a $6 million decrease in amounts owing under the Company's bank credit facility. Interest expense decreased 21% in fiscal year 1994 as compared to fiscal year 1993 for the same reason. Pretax results of operations improved 36% from a profit of $13.0 million in fiscal year 1994 to a profit of $17.6 million in fiscal year 1995. This significant improvement in profitability is the result of higher sales volumes and substantially lower manufacturing cost as a percentage of sales. This combination, and a sustained reduction of interest expense, was more than enough to offset increased operating expenses incurred with implementing the new operating structure and strategy. 11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Sales from divested businesses represent 3%, 7%, and 12% of the revenue for fiscal years 1995, 1994 and 1993, respectively. Included in other expense (income) net, is the elimination of $500,000 and $363,000 of pretax profit from fiscal year 1995 and 1994, respectively, and $162,000 pretax loss from fiscal year 1993 for the divested businesses. The Company's effective tax rate for fiscal year 1995 was 35% as compared to 37% in fiscal year 1994 and 42% in fiscal year 1993. The lower effective tax rate in fiscal 1995, as compared to fiscal year 1994, was primarily due to a reduction of the effect of foreign taxes as well as increased tax benefits from the Company's export sales corporation. The lower effective tax rate for the fiscal year 1994, as compared to fiscal year 1993, was primarily due to an increase in tax benefits realized from the amortization of certain intangibles, acquired in 1990, as a result of a resolution of an Internal Revenue Service audit. LIQUIDITY AND CAPITAL RESOURCES During fiscal year 1995, cash provided by operations decreased 62% over fiscal year 1994, to approximately $7.9 million. The decrease is primarily due to cash used to fund noncash working capital increases of $18.3 million ($2.8 million source of cash in fiscal 1994). The significant components of this change was the growth of both accounts receivable and inventory over the respective prior years. Heavy volume of shipments in late January and a build up of stock to improve response time are primarily responsible. Additionally, income taxes payable decreased as a result of cash settlements for various prior years' (1988-1991) Internal Revenue Service audits. On January 28, 1995 the Company's working capital was $54.7 million, an increase of $3.1 million from the prior year. The Company's ratio of current assets to current liabilities was approximately 2.2:1. Capital expenditures totaled $12.9 million and were primarily for renovating existing facilities, leasehold improvements or replacement of existing equipment in addition to implementation of the new operating systems to support the structure referred to above. Bank borrowings were further reduced during the year by $6 million. The Company continues to believe that it generates sufficient cash flow from its operations to finance near and long-term internal growth, capital expenditures and the principal and interest payments on its long-term debt. The Company will continue to evaluate its employment of capital resources including asset management and other sources of financing. On January 31, 1995 the Company acquired certain assets of Custom Coating & Laminating Corporation. The Company paid $24 million ($18 million of which was borrowed under the Company's unsecured revolving facility), assumed certain liabilities approximating $2.4 million, and may pay up to an additional $4 million based on product sales over the next three fiscal years. The Company continually reviews possible acquisitions and should the Company make a substantial acquisition, it would require the utilization of the remaining $30 million (as of January 28, 1995, and $12 million after the acquisition noted above) available from its existing credit facility or financing from other sources. 12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) One of the Company's subsidiaries has been notified by the Environmental Protection Agency that it has been named as a potentially responsible party in connection with the cleanup of hazardous wastes at two sites, the Solvents Recovery Service of New England site in Southington, Connecticut (notified in June 1992), and the Gallups Quarry site in Plainfield, Connecticut (notified in April 1993). Since these matters are in their preliminary stages, no assurance can be given at this time concerning the ultimate outcome. However, based on preliminary investigations to determine the nature of the subsidiary's potential liability and the estimated amount of remedial costs necessary to clean up the sites, the Company presently does not expect these or other known matters to have a material adverse effect on its consolidated financial position, results of operations or liquidity. 13 14 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Furon Company We have audited the accompanying consolidated balance sheets of Furon Company as of January 28, 1995 and January 29, 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended January 28, 1995. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Furon Company at January 28, 1995 and January 29, 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 28, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Orange County, California March 8, 1995 14 15 FURON COMPANY CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED ----------------------------------------------------- JANUARY 28, JANUARY 29, JANUARY 30, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------ Net sales $ 312,060 $ 285,194 $ 300,107 Cost of sales 217,827 204,727 213,932 --------- --------- --------- Gross profit 94,233 80,467 86,175 Selling, general and administrative expenses 77,368 66,458 71,782 Other (income), net (3,126) (2,296) (2,363) Interest expense 2,394 3,337 4,243 --------- --------- --------- Income before income taxes 17,597 12,968 12,513 Provision for income taxes 6,159 4,798 5,256 --------- --------- --------- Net income $ 11,438 $ 8,170 $ 7,257 ========= ========= ========= Net income per share of Common Stock $ 1.27 $ 0.92 $ 0.84 ========= ========= =========
See accompanying notes. 15 16 FURON COMPANY CONSOLIDATED BALANCE SHEETS ASSETS
JANUARY 28, JANUARY 29, IN THOUSANDS 1995 1994 - ----------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 6,475 $ 18,483 Accounts receivable, less allowance for doubtful accounts of $696 in 1995 and $632 in 1994 48,955 38,085 Inventories 31,197 26,279 Deferred tax benefit 8,215 9,154 Prepaid expenses and other assets 6,843 5,836 --------- --------- Total current assets 101,685 97,837 Property, plant and equipment, at cost: Land 456 448 Buildings and leasehold improvements 13,868 13,048 Machinery and equipment 99,718 87,599 --------- --------- 114,042 101,095 Less accumulated depreciation and amortization (61,981) (52,664) ---------- ---------- Net property, plant and equipment 52,061 48,431 Intangible assets, at cost, less accumulated amortization of $23,739 in 1995 and $20,308 in 1994 17,953 21,359 Other assets 8,174 7,597 --------- --------- $ 179,873 $ 175,224 ========= ==========
See accompanying notes. 16 17 FURON COMPANY CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
JANUARY 28, JANUARY 29, IN THOUSANDS, EXCEPT SHARE DATA 1995 1994 - ----------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 19,093 $ 15,465 Salaries, wages and related benefits payable 10,508 10,073 Current portion of long-term debt 8,004 6,013 Income taxes payable 770 4,474 Other current liabilities 8,585 10,173 --------- --------- Total current liabilities 46,960 46,198 Long-term debt due after one year 12,752 20,750 Other long-term liabilities 20,039 18,045 Deferred taxes 8,523 9,416 Commitments and contingencies Stockholders' equity: Capital stock: Preferred stock without par value, 2,000,000 shares authorized, none issued or outstanding - - Common stock without par value, 15,000,000 shares authorized, 8,800,164 and 8,625,706 shares issued and outstanding in 1995 and 1994, respectively. 36,280 35,320 Foreign currency translation adjustment 419 (1,034) Unearned ESOP shares (3,112) (2,688) Unearned compensation (885) (709) Additional pension liability (379) - Retained earnings 59,276 49,926 --------- --------- Total stockholders' equity 91,599 80,815 --------- --------- $ 179,873 $ 175,224 ========= =========
See accompany notes. 17 18 FURON COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY IN THOUSANDS, EXCEPT SHARE AMOUNTS - ------------------------------------------------------------------- YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994 AND JANUARY 30, 1993
Foreign Common Stock Currency Unearned -------------------------- Translation ESOP Shares Amount Adjustment Shares - --------------------------- ------------------------------------------------------------ BALANCE AT FEBRUARY 1, 1992 8,446,029 $33,803 $ 976 $(2,065) - --------------------------- ------------------------------------------------------------ Cash dividends - - - - Exercise of stock options 99,147 668 - - Retired shares (22,432) (329) - - Grant of restricted shares, net of cancellations 40,700 486 - - Amortization of unearned compensation - - - - Foreign currency translation adjustment - - (465) - Loan to ESOP - - - (1,391) Principal payment from ESOP - - - 384 Net income - - - - - --------------------------- ------------------------------------------------------------ BALANCE AT JANUARY 30, 1993 8,563,444 34,628 511 (3,072) - --------------------------- ------------------------------------------------------------ Cash dividends - - - - Exercise of stock options 56,774 539 - - Retired shares (10,412) (172) - - Grant of restricted shares, net of cancellations 15,900 325 - - Amortization of unearned compensation - - - - Foreign currency translation adjustment - - (1,545) - Principal payment from ESOP - - - 384 Net income - - - - - --------------------------- ------------------------------------------------------------ BALANCE AT JANUARY 29, 1994 8,625,706 35,320 (1,034) (2,688) - --------------------------- ------------------------------------------------------------ Cash dividends - - - - Exercise of stock options 349,272 5,018 - - Retired shares (218,529) (4,763) - - Grant of restricted shares, net of cancellations 43,715 705 - - Amortization of unearned compensation - - - - Foreign currency translation adjustment - - 1,453 - Loan to ESOP - - - (808) Principal payment from ESOP - - - 384 Excess of additional pension liability over unrecognized net transition obligation - - - - Net income - - - - - --------------------------- ------------------------------------------------------------ BALANCE AT JANUARY 28, 1995 8,800,164 $36,280 $ 419 $(3,112) - --------------------------- ------------------------------------------------------------
Total Unearned Additional Stock- Compen- Pension Retained holders' sation Liability Earnings Equity - --------------------------- ------------------------------------------------------- BALANCE AT FEBRUARY 1, 1992 $(313) - $38,616 $71,017 - --------------------------- ------------------------------------------------------ Cash dividends - - (2,049) (2,049) Exercise of stock options - - - 668 Retired shares - - - (329) Grant of restricted shares, net of cancellations (486) - - - Amortization of unearned compensation 155 - - 155 Foreign currency translation adjustment - - - (465) Loan to ESOP - - - (1,391) Principal payment from ESOP - - - 384 Net income - - 7,257 7,257 - --------------------------- ------------------------------------------------------- BALANCE AT JANUARY 30, 1993 (644) - 43,824 75,247 - --------------------------- ------------------------------------------------------- Cash dividends - - (2,068) (2,068) Exercise of stock options - - - 539 Retired shares - - - (172) Grant of restricted shares, net of cancellations (325) - - - Amortization of unearned compensation 260 - - 260 Foreign currency translation adjustment - - - (1,545) Principal payment from ESOP - - - 384 Net income - - 8,170 8,170 - --------------------------- ------------------------------------------------------ BALANCE AT JANUARY 29, 1994 (709) - 49,926 80,815 - --------------------------- ------------------------------------------------------ Cash dividends - - (2,088) (2,088) Exercise of stock options - - - 5,018 Retired shares - - - (4,763) Grant of restricted shares, net of cancellations (705) - - - Amortization of unearned compensation 529 - - 529 Foreign currency translation adjustment - - - 1,453 Loan to ESOP - - - (808) Principal payment from ESOP - - - 384 Excess of additional pension liability over unrecognized net transition obligation - (379) - (379) Net income - - 11,438 11,438 - --------------------------- ------------------------------------------------------ BALANCE AT JANUARY 28, 1995 $(885) $(379) $59,276 $91,599 - --------------------------- ------------------------------------------------------
See accompanying notes. 18 19 FURON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED ------------------------------------------- JANUARY 28, JANUARY 29, JANUARY 30, IN THOUSANDS 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 11,438 $ 8,170 $ 7,257 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 9,540 8,547 8,412 Amortization 3,961 3,660 3,742 Provision for losses on accounts receivable 303 254 352 Increase in deferred income taxes 46 65 1,414 Loss on sale of assets and divestitures 15 390 290 Working capital changes: Accounts receivable (11,173) (4,525) 1,569 Inventories (4,918) 1,129 2,755 Accounts payable and accrued liabilities 4,063 3,964 (279) Income taxes payable (3,704) 2,913 1,343 Other current assets and liabilities, net (2,561) (653) 463 --------- -------- --------- (18,293) 2,828 5,851 Changes in other long-term operating assets and liabilities 842 (3,091) 4,531 --------- -------- --------- Net cash provided by operating activities 7,852 20,823 31,849 INVESTING ACTIVITIES Purchases of property, plant and equipment (12,912) (8,458) (6,728) Proceeds from sale of divestitures 543 9,772 1,290 Proceeds from sale of equipment 185 618 219 Proceeds from notes receivable 429 2,416 67 Increase in notes receivable (810) (4,933) (1,013) --------- -------- --------- Net cash used in investing activities (12,565) (585) (6,165) FINANCING ACTIVITIES Proceeds from long-term debt 8 27 - Principal payments on long-term debt (6,015) (8,471) (13,524) Proceeds from issuance of common stock 255 367 339 Principal payments received from ESOP 384 384 384 Dividends paid on common stock (2,088) (2,068) (2,049) Loan to ESOP (808) - (1,391) --------- -------- --------- Net cash used in financing activities (8,264) (9,761) (16,241) EFFECT OF EXCHANGE RATE CHANGES ON CASH 969 (1,441) (478) --------- -------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,008) 9,036 8,965 --------- -------- --------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,483 9,447 482 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,475 $ 18,483 $ 9,447 ========= ======== =========
See accompanying notes. 19 20 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Furon Company and its subsidiaries, all of which are wholly owned. All significant intercompany transactions have been eliminated. Certain reclassifications have been made to prior year amounts in order to be consistent with the current year presentation. Consolidated Statements of Cash Flows Excess cash is invested in income-producing investments including commercial paper, money market accounts, overnight repurchase agreements and short-term certificates of deposit with original maturities of less than three months. These investments are stated at cost which approximates market. Included in other income is interest and dividend income from investments of $677,000, $490,000, and $198,000 in fiscal 1995, 1994 and 1993, respectively. Interest paid in fiscal 1995, 1994 and 1993 was $2,451,000, $3,536,000, and $4,170,000, respectively. Income taxes paid in fiscal 1995, 1994 and 1993 was $8,500,000, $1,800,000, and $2,700,000, respectively. Inventories Inventories, stated at the lower of cost (first-in, first-out) or market, are summarized as follows:
JANUARY 28, JANUARY 29, IN THOUSANDS 1995 1994 - ------------------------------------------------------------------------- Raw materials and purchased parts $ 12,482 $ 11,333 Work-in-process 9,153 6,865 Finished goods 9,562 8,081 -------- -------- $ 31,197 $ 26,279 ======== ========
Property, Plant and Equipment Depreciation is provided on the straight-line method over the following estimated useful lives: Buildings 25-45 years Machinery and equipment 3-18 years Leasehold improvements Term of the lease (including options)
20 21 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Concentration of Credit Risk Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, and their dispersion across many different geographical regions. At January 28, 1995, the Company had no significant concentrations of credit risk. Research and Development Costs Research and development costs are expensed as incurred. Total research and development expense, including application engineering, for fiscal 1995, 1994 and 1993 was $7,125,000, $6,103,000, and $6,259,000, respectively, and is included in selling, general and administrative expenses in the consolidated statements of income. Continuous research and development is necessary for the Company to maintain its competitive position. Intangible Assets Intangible assets acquired in business combinations, net of accumulated amortization, are summarized as follows:
JANUARY 28, JANUARY 29, IN THOUSANDS 1995 1994 - --------------------------------------------------------------------------- Goodwill $ 328 $ 351 Other intangible assets 17,625 21,008 -------- -------- $ 17,953 $ 21,359 ======== ========
Goodwill is amortized over periods ranging from 25 to 40 years. Other intangible assets are amortized over periods ranging from 5 to 25 years. Generally, goodwill is not deductible for income tax purposes, while the Company does receive a tax benefit for amortization of other intangible assets. Translation of Foreign Currencies Foreign subsidiary financial statements are translated into U.S. dollars in accordance with FASB Statement No. 52, "Foreign Currency Translations." The resulting cumulative foreign currency translation adjustment is reported separately in stockholders' equity. Transaction gains and losses included in results of operations were not significant in fiscal 1995, 1994 and 1993. The functional currency of the Company's foreign operations is the respective local currency. Net Income Per Share Net income per share is based on the weighted average number of common shares outstanding and common share equivalents resulting from dilutive stock options outstanding in each of the three years in the period ended January 28, 1995. The number of shares used in the computation was 8,992,926, 8,859,200 and 8,681,606, respectively. 21 22 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 2. RESTRUCTURING CHARGES During fiscal 1992, the Company implemented a comprehensive restructuring program designed to improve profitability and improve the Company's focus on its primary objectives and strengths. Accordingly, a pretax charge of $23.7 million, primarily related to the estimated loss on the disposal of six of the Company's businesses which did not meet its long-term strategy and product line divestitures, was recorded. Two of the businesses were sold in fiscal 1993, three were sold in fiscal 1994, and one business continues to be held for sale. As of January 28, 1995, the remaining reserve was approximately $5.2 million ($7.9 million at January 29, 1994). The change in the reserve during fiscal 1995 was primarily attributable to payments on consulting and non-compete agreements and abandoned leases related to the divested businesses. These payments have been offset by $500,000 of income earned from the business held for sale which has been deferred until the ultimate disposal of the business. The remaining reserve relates primarily to the expected loss on the sale of the remaining business, environmental remediation contingencies, consulting and non-compete obligations, and lease commitments from unutilized facilities related to the divested businesses. The net assets of the business held for sale, carried at their estimated net realizable value, are included in other current and long-term assets and the other remaining reserves are included in other current and long-term liabilities in the accompanying consolidated balance sheet. 22 23 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 3. INCOME TAXES The provision (benefit) for income taxes for the three years ended January 28, 1995 consists of the following:
IN THOUSANDS CURRENT DEFERRED TOTAL - ------------------------------------------------------------------------------- 1995: Federal $ 4,714 $ (79) $ 4,635 Foreign 848 - 848 State 551 125 676 -------- -------- -------- $ 6,113 $ 46 $ 6,159 ======== ======== ======== 1994: Federal $ 3,810 $ (368) $ 3,442 Foreign 472 - 472 State 451 433 884 -------- -------- -------- $ 4,733 $ 65 $ 4,798 ======== ======== ======== 1993: Federal $ 2,124 $ 1,625 $ 3,749 Foreign 1,054 - 1,054 State 664 (211) 453 -------- -------- -------- $ 3,842 $ 1,414 $ 5,256 ======== ======== ========
23 24 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 3. INCOME TAXES (CONTINUED) The provision (benefit) for income taxes differs from the amount computed by applying the statutory income tax rate for the following reasons:
JANUARY 28, 1995 JANUARY 29, 1994 JANUARY 30, 1993 DOLLARS IN THOUSANDS AMOUNT % AMOUNT % AMOUNT % - ------------------------------------------------------------------------------------------------ Statutory federal provision $ 6,159 35.0 $ 4,539 35.0 $ 4,254 34.0 Realization of restruct- uring reserves - - - - (248) (2.0) State and local taxes, net of federal tax benefit 1,076 6.1 832 6.4 640 5.1 Realization of depreciable and amortizable assets 25 0.1 34 0.3 446 3.6 Effect of foreign taxes (145) (0.8) 104 0.8 289 2.3 Research and experimental credit (424) (2.4) (303) (2.3) (65) (0.5) Export sales corporation benefit (393) (2.2) (243) (1.9) (114) (0.9) Other (139) (0.8) (165) (1.3) 54 0.4 -------- -------- -------- -------- -------- -------- $ 6,159 35.0 $ 4,798 37.0 $ 5,256 42.0 ======== ======== ======== ======== ======== ========
24 25 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 3. INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax liabilities and assets are as follows:
JANUARY 28, JANUARY 29, IN THOUSANDS 1995 1994 - ------------------------------------------------------------------------------- Deferred tax liabilities: Tax over book depreciation $ (4,923) $ (6,095) Deferred tax assets: Inventories 1,007 856 Restructuring reserves 5,510 7,008 Accruals recognized in different periods for tax than financial reporting 1,320 1,952 --------- -------- Total assets 7,837 9,816 Valuation allowance for realization of and payment for restructuring reserves and depreciable assets (3,222) (3,983) --------- --------- Net deferred assets 4,615 5,833 --------- --------- Total deferred taxes $ (308) $ (262) ========= =========
Applicable U.S. income and foreign withholding taxes have not been provided on undistributed earnings of certain foreign subsidiaries and affiliates aggregating $6,000,000 at January 28, 1995. Management's intention is to reinvest such undistributed earnings outside the United States for an indefinite period except for distributions upon which incremental U.S. income taxes would not be material. Any withholding taxes ultimately paid, which could approximate $300,000, may be recoverable as foreign tax credits in the United States. 25 26 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 3. INCOME TAXES (CONTINUED) During the fourth quarter of fiscal 1995 the Company resolved the Internal Revenue Service audit for fiscal years 1988 and 1989 relating to the purchase price allocation of an acquisition made in fiscal 1988. This resolution did not have a material effect on the Company's financial position or results of operations. During the fourth quarter of fiscal 1994 the Company resolved the Internal Revenue Service audit for fiscal years 1990 and 1991. It was determined that the Company had provided sufficient income tax expense for the resolution of the 1990 and 1991 audits as of fiscal 1993, and beginning with fourth quarter fiscal 1994, the Company has decreased the taxes provided for the issues resolved in this audit. 4. LONG-TERM DEBT On January 28, 1994, the Company amended and restated its loan agreement with a syndicate of banks. The amended agreement provides the Company with a 364-day $30,000,000 unsecured revolving facility and a four-year $26,750,000 unsecured term facility. Under the terms of the agreement, the Company may borrow at the prevailing prime rate or at a rate based on the LIBOR rate. Any amount which may be outstanding on the revolving facility at the end of the Company's fiscal year will convert to a term loan payable in equal installments over two years. In addition, the Company pays a commitment fee of 1/4% on the unused portion of the revolving facility, and is subject to performance grid pricing based upon a Fixed Charge Coverage Ratio. At January 28, 1995, the balance of the term facility totaled $20,750,000. There were no borrowings outstanding under the revolving facility. Borrowing rates during the year ranged from 3.88% to 6.69% (6.69% at January 28, 1995). The commitment under the term facility reduces by $2,000,000 each quarter and expires on August 29, 1997. In order to reduce the impact of changes in interest rates on its variable rate borrowings, the Company entered into an 8-year Interest Rate Swap agreement with a commercial bank in August 1988. The notional amount of the swap, which decreases $2,000,000 each quarter, totaled $14,000,000 at January 28, 1995. The swap agreement effectively changes the Company's interest rate on the majority of its variable borrowings to a fixed interest rate of 9.938% plus a 3/4% spread. Due to the fact that the swap agreement increases the effective rate of the Company's borrowings, the Company is not exposed to credit risk in the event of nonperformance by the other parties to the interest rate swap agreement. The fair market value of this off balance sheet instrument as determined by an independent third party at January 28, 1995 is $407,000. 26 27 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 4. LONG-TERM DEBT (CONTINUED) Long-term debt is summarized as follows:
JANUARY 28, JANUARY 29, IN THOUSANDS 1995 1994 - ------------------------------------------------------------------------- Loans under bank credit agreements $ 20,750 $ 26,750 Other 6 13 -------- -------- Total 20,756 26,763 Less current portion (8,004) (6,013) -------- -------- Due after one year $ 12,752 $ 20,750 ======== ========
5. COMMITMENTS AND CONTINGENCIES At January 28, 1995, the Company is obligated under non-cancelable leases of real property and equipment used in its operations for minimum annual rentals plus insurance and taxes. Amounts payable under these obligations are as follows:
Fiscal years ended In thousands ------------------ ------------ 1996 $ 8,156 1997 6,984 1998 5,881 1999 5,210 2000 4,205 2001 to 2005 16,575 2006 to 2010 6,885
Certain leases contain escalation provisions for periodic adjustments based on certain indices. Rental expense for the three years in the period ended January 28, 1995 was $7,956,000, $7,952,000, and $7,924,000, respectively. At January 28, 1995, the Company is obligated under irrevocable letters of credit totaling $3,225,000. 27 28 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) At January 28, 1995, the Company had approximately $1.5 million of foreign currency hedge contracts outstanding consisting of over-the-counter forward contracts. The contracts reflect the selective hedging of the Belgium Franc with varying maturities up to six months. Net unrealized gains/losses from hedging activities were not material as of January 28, 1995. The Company is currently involved in litigation arising in the normal course of business. Management of the Company is of the opinion that such litigation will not have a material effect on the Company's consolidated financial position or results of operations. The Company from time to time incurs investigation, remedial response, voluntary clean-up and other costs associated with environmental matters. As of January 28, 1995, the Company's reserves for environmental matters totaled approximately $2,400,000. These reserves primarily relate to environmental costs associated with facilities that have been sold or closed. While neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, management does not expect those matters to have a material adverse effect on the Company's consolidated financial position or results of operations. One of the Company's subsidiaries has been notified by the Environmental Protection Agency that it has been named as a potentially responsible party in connection with the cleanup of hazardous wastes at two sites, the Solvents Recovery Service of New England site in Southington, Connecticut (notified in June 1992), and the Gallups Quarry site in Plainfield, Connecticut (notified in April 1993). Since these matters are in their preliminary stages, no assurance can be given at this time concerning the ultimate outcome. However, based on preliminary investigations to determine the subsidiary's potential liability and the estimated amount of remedial costs necessary to clean up the sites, the Company presently does not expect these matters to have a material adverse effect on its consolidated financial position or results of operations. 28 29 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 6. STOCKHOLDERS' EQUITY Stock Incentive Plan Under the Company's 1982 Stock Incentive Plan, the Compensation Committee, appointed by the Board of Directors, is authorized to grant awards to any officer or key employee of the Company. Awards granted can take the form of non-qualified stock options, stock appreciation rights, restricted stock awards (RSAs), performance share awards, stock depreciation rights and tax-offset bonuses. A maximum of 1,650,000 shares of common stock may be issued under the plan. Options are granted at a price equal to 100% of the fair market value at the date of grant and become exercisable not earlier than six months after the award date and vest at a rate of 25% per year. The options shall remain exercisable until the expiration date but not later than ten years after the award date. At January 28, 1995, 143,165 RSAs have been granted (of which 14,900 have been canceled). The issuance of these RSAs resulted in $1,892,000 (net of cancellations) of unearned compensation which is being amortized over the five year period in which the awards vest. The following summarizes stock option transactions under the Stock Incentive Plan for the year ended January 28, 1995:
NUMBER PER SHARE OF SHARES OPTION PRICE --------- ------------ Options outstanding at January 29, 1994 1,008,600 $ 8.17-18.00 Granted 70,000 16.25 Exercised (349,272) 8.17-13.50 --------- ------------ Options outstanding at January 28, 1995 729,328 $ 8.17-18.00 ========= ============ Exercisable at January 28, 1995 552,353 $ 8.17-18.00 ========= ============ Shares available for grant: January 29, 1994 1,400,950 ========= January 28, 1995 1,506,835 =========
29 30 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 6. STOCKHOLDERS' EQUITY (CONTINUED) Shareholders' Rights Plan On March 21, 1989, the Board of Directors authorized the distribution of one right for each outstanding share of common stock under the Shareholders' Rights Plan. The rights which were distributed on May 23, 1989, become exercisable ten business days after (i) a person has acquired or obtained the right to acquire 20% or more of the Company's general voting power without approval by the Board of Directors, or (ii) a tender or exchange offer which would make a person the beneficial owner of 30% or more of the Company's general voting power, whichever is earlier. When exercisable, each right entitles the shareholder to purchase one-fourth of a share of common stock at a price of $13.75, subject to adjustment. In the event the Company engages in certain business combinations or a 20% shareholder engages in certain transactions with the Company, each holder of a right (other than those of the acquiring person) shall have the right to receive, upon the exercise thereof and payment of four times the then current exercise price, that number of shares of Common Stock of the surviving Company's common stock which at the time of such transaction would have a market value of two times such price paid. 7. EMPLOYEE BENEFIT PLANS The Company and its subsidiaries sponsor various qualified plans which cover substantially all of its domestic employees including a profit- sharing/retirement plan, an employee stock ownership plan, and an employee stock purchase plan. The Company also sponsors a nonqualified defined benefit plan covering certain employees. Profit-Sharing/Retirement Plan The trusteed profit-sharing/retirement plan provides for an employee salary deferral contribution, a company matching contribution and a company primary contribution. Under the deferral provisions (401K), eligible employees are permitted to contribute up to 10% of gross compensation to the profit-sharing/retirement plan. For amounts up to 8% of the employees' gross compensation the Company will match the employee's contribution at a rate determined by the Board of Directors. Under the company primary contribution provision, each eligible employee will receive a contribution to the profit-sharing/retirement plan based on a percentage of qualified wages as determined based on the Company's performance. Total Company contributions for the years ended January 28, 1995, January 29, 1994 and January 30, 1993 were $1,528,000, $1,336,000, and $1,356,000, respectively. 30 31 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 7. EMPLOYEE BENEFIT PLANS (CONTINUED) Employee Stock Ownership Plan The Company sponsors an Employee Stock Ownership Plan (ESOP) covering substantially all of its employees (subject to certain limitations). The Company annually contributes amounts sufficient to cover principal and interest on loans made to the ESOP as determined by the Board of Directors. Prior to December 31, 1992, the Company loaned the ESOP $3,666,000 ($2,304,000 outstanding at January 28, 1995) to purchase 311,000 shares of stock, at interest rates ranging from 7.83% to 9.12%. The loans are payable in ten annual installments of principal and interest. In fiscal 1995 the Company loaned the ESOP $808,125 to purchase 45,000 shares of stock from a former officer and director of the Company, at interest rates ranging from 7.45% to 7.67%. These loans are payable in ten annual installments of principal and interest, beginning in fiscal 1996. Shares are released and allocated to participant accounts annually as loan repayments are made. In fiscal 1995, the Company adopted the provisions of AICPA Statement of Position No. 93-6 (the SOP) which requires that compensation expense be measured based on the fair value of the shares over the period the shares are earned. In addition, the SOP requires that dividends paid on unallocated shares held by the ESOP are reported as a reduction of accrued interest or as compensation expense rather than a charge to retained earnings, and shares not yet committed to be released are not considered outstanding in the calculation of earnings per share. As allowed by the SOP, the Company has elected not to apply the SOP's provisions to shares acquired prior to fiscal 1994. As such, compensation expense related to such shares is measured based on the historical cost of the shares, dividends have been deducted as a charge to retained earnings and the unallocated shares are considered outstanding in the calculation of earnings per share. The adoption of the SOP did not have a material impact on the consolidated financial statements. Of the leveraged shares acquired prior to fiscal 1994, 94,465 and 195,160 are allocated and unallocated, respectively, at January 28, 1995. Of the leveraged shares acquired in fiscal 1995, there were no allocated shares, 1,883 committed-to-be-released shares, and 43,117 unallocated shares at January 28, 1995. The fair value of unallocated shares acquired in fiscal 1995 was $949,000 at January 28, 1995. Total compensation cost recognized by the Company during fiscal 1995, 1994 and 1993, which consists of the annual contribution and plan administrative costs, net of dividend income on unallocated and forfeited shares, totaled $528,000, $339,000, and $423,000, respectively. 31 32 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 7. EMPLOYEE BENEFIT PLANS (CONTINUED) Employee Stock Purchase Plan Effective November 1, 1994 the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have completed one year of service an opportunity to purchase shares of its common stock through payroll deductions, up to 10% of eligible compensation. Annually, on October 31, participant account balances are used to purchase shares of stock at the lesser of 85 percent of the fair market value of shares on November 1 (grant date) or October 31 (exercise date). The aggregate number of shares purchased by an employee may not exceed 5,000 shares annually (subject to limitations imposed by the Internal Revenue Code). The stock purchase plan expires on October 31, 2004. A total of 200,000 shares are available for purchase under the plan. There were no shares issued under the plan during fiscal 1995. Supplemental Executive Retirement Plan In fiscal 1987, the Company adopted an unfunded executive defined benefit retirement plan for certain key officers of the Company, which provides for benefits which supplement those provided by the Company's other retirement plans. Benefits payable under the plan are based upon compensation levels and length of service of the participants. In accordance with FASB Statement No. 87, "Employers' Accounting for Pensions," the Company has recorded an additional liability of $1,156,000 and $862,000 in fiscal 1995 and 1994, respectively, which represents the excess of the accumulated benefit obligation over previously recognized accrued pension costs. In 1994 the Company recorded an intangible asset to reflect the additional liability. In 1995, the excess of additional pension liability over the unrecognized net transition obligation has been recorded as a component of stockholders' equity. 32 33 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 7. EMPLOYEE BENEFIT PLANS (CONTINUED) Actuarial present value of benefit obligations:
JANUARY 28, JANUARY 29, IN THOUSANDS 1995 1994 --------------------------------------------------------------------------- Vested benefit obligation $ 6,574 $ 5,909 ======= ======= Accumulated benefit obligation $ 6,662 $ 5,993 ======= ======= Unfunded projected benefit obligation $ 7,419 $ 8,253 Unrecognized net loss (1,136) (2,260) Unrecognized net transition obligation (777) (862) ------- ------- 5,506 5,131 Additional minimum liability 1,156 862 ------- ------- Accrued pension cost $ 6,662 $ 5,993 ======= ======= Assumptions: Discount rate 8.5% 7.5% Salary increase rate 5.0% 5.0%
Net periodic pension costs for fiscal 1995, 1994 and 1993 were as follows:
YEARS ENDED ----------------------------------------------- JANUARY 28, JANUARY 29, JANUARY 30, IN THOUSANDS 1995 1994 1993 ------------------------------------------------------------------------------------------- Service cost $ 44 $ 41 $ 26 Interest cost 609 605 487 Net amortization and deferral 212 184 158 ----- ----- ----- $ 865 $ 830 $ 671 ===== ===== =====
33 34 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
IN THOUSANDS, EXCEPT INCOME NET INCOME PER SHARE DATA NET SALES GROSS PROFIT BEFORE TAXES NET INCOME PER SHARE - ------------------------------------------------------------------------------------------------------------------- YEAR ENDED JANUARY 28, 1995 1st Quarter $ 74,960 $ 21,960 $ 3,832 $ 2,414 $ .27 2nd Quarter 75,127 22,580 4,234 2,667 .30 3rd Quarter 81,071 25,092 5,119 3,357 .37 4th Quarter 80,902 24,601 4,412 3,000 .33 YEAR ENDED JANUARY 29, 1994 1st Quarter $ 77,173 $ 21,095 $ 2,978 $ 1,757 $ .20 2nd Quarter 70,211 19,661 2,664 1,582 .18 3rd Quarter 70,034 20,209 3,623 2,220 .25 4th Quarter 67,776 19,502 3,703 2,611 .29
34 35 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1995 9. SEGMENT INFORMATION The Company designs, develops and manufactures highly engineered components made primarily from specially formulated high performance polymer materials, a single business segment. The following table provides information as to the geographic areas in which the Company does business.
YEARS ENDED -------------------------------------------------- JANUARY 28, JANUARY 29, JANUARY 30, IN THOUSANDS 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- Net sales to outside customers: United States $ 283,006 $ 261,424 $ 274,661 Europe 29,054 23,770 25,446 --------- --------- --------- $ 312,060 $ 285,194 $ 300,107 ========= ========= ========= Income before income taxes: United States $ 15,096 $ 11,407 $ 9,934 Europe 2,501 1,561 2,579 --------- --------- --------- $ 17,597 $ 12,968 $ 12,513 ========= ========= ========= Identifiable assets: United States $ 160,848 $ 160,905 $ 157,757 Europe 19,025 14,319 16,472 --------- --------- --------- $ 179,873 $ 175,224 $ 174,229 ========= ========= ========= Export sales $ 38,145 $ 27,536 $ 24,761 ========= ========= =========
10. SUBSEQUENT EVENTS On January 31, 1995, the Company acquired certain assets of Custom Coating & Laminating Corporation. The Company paid $24 million ($18 million of which was borrowed under the Company's unsecured revolving facility), assumed certain liabilities approximating $2.4 million, and may pay up to an additional $4 million based upon future product sales over the next three fiscal years. 35 36 PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 6, 1995. Information concerning the Company's executive officers is included in Part I. ITEM 11. EXECUTIVE COMPENSATION Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 6, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 6, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 6, 1995. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Index to Financial Statements Page ---- Report of Independent Auditors 14 Consolidated Statements of Income Years ended January 28, 1995, January 29, 1994 and January 30, 1993 15
36 37 PART IV (CONTINUED) ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (CONTINUED)
Page ---- Consolidated Balance Sheets January 28, 1995 and January 29, 1994 16 Consolidated Statements of Stockholders' Equity Years ended January 28, 1995, January 29, 1994 and January 30, 1993 18 Consolidated Statements of Cash Flows Years ended January 28, 1995, January 29, 1994 and January 30, 1993 19 Notes to Consolidated Financial Statements January 28, 1995 20 2. Index to Financial Statement Schedules Schedule VIII - Valuation and Qualifying Accounts 38
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require the submission of the schedules, or because the information required is included in the consolidated financial statements or the notes thereto. 3. Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed as part of this annual report. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the last quarter of the period covered by this report. 37 38 FURON COMPANY SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994 AND JANUARY 30, 1993
DEDUCTIONS/ BALANCE AT ADDITIONS ACCOUNTS WRITTEN BEGINNING CHARGED TO OFF NET OF BALANCE AT OF YEAR COSTS AND EXPENSES RECOVERIES OTHER END OF YEAR ---------- ------------------ ---------------- --------- ----------- ALLOWANCE FOR DOUBTFUL RECEIVABLES: 1995 $ 631,540 $ 302,954 $ 238,744 $ - $ 695,750 ========= ========= ========= ========= ========= 1994 $ 740,700 $ 253,770 $ 362,930 $ - $ 631,540 ========= ========= ========= ========= ========= 1993 $ 659,705 $ 351,604 $ 270,609 $ - $ 740,700 ========= ========= ========= ========= =========
38 39 FURON COMPANY INDEX TO EXHIBITS
REGULATION S-K SEQUENTIAL ITEM NUMBER PAGE NUMBER ----------- ----------- 3 Restated Articles of Incorporation (Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 3.1 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994 and Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed on September 13, 1994, Commission File 0-8088) 4 Rights Agreement as amended (Incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form 8-A filed March 22, 1989, and Exhibit 4.1 to the Registrant's Annual Report on Form 10-K filed on April 28, 1992, Commission File No. 0-8088) 10.1* 1982 Stock Incentive Plan (as Amended and Restated as of March 22, 1994) (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on September 13, 1994, Commission File No. 0-8088) 10.2* Employee Relocation Assistance Plan as amended (Incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K filed on March 21, 1990, Commission File No. 0-8088) 10.3* Supplemental Executive Retirement Plan as presently in effect (Incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K filed on March 28, 1991, Exhibit 10.4 to the Registrant's Annual Report on Form 10-K filed on March 29, 1993, and Exhibit 10.4A to the Registrant's Quarterly Report on Form 10-Q filed on September 13, 1994, Commission File No. 0-8088) 10.4 Asset Purchase Agreement, dated as of January 31, 1995, by and between the Registrant and Custom Coating & Laminating Corporation (Incorporated by reference to Exhibit 2 to the Registrant's Current Report on Form 8-K/A filed on February 17, 1995, Commission File No. 0-8088)
* A management contract or compensatory plan or arrangement. 39 40 FURON COMPANY INDEX TO EXHIBITS (CONTINUED)
REGULATION S-K SEQUENTIAL ITEM NUMBER PAGE NUMBER ----------- ----------- 10.5* Form of Indemnity Agreement with each of the directors and officers of the Registrant (Incorporated by reference to Exhibit C to the Registrant's definitive Proxy Statement filed May 2, 1988, Commission File No. 0-8088) 10.6* Form of Change-in-Control Agreement between the Registrant and each of its executive officers (Incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K filed on March 28, 1991, Commission File No. 0-8088) 10.7* Deferred Compensation Plan (Incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K filed on March 29, 1993, Commission File No. 0-8088) 10.8* Economic Value Added (EVA) Incentive Compensation Plan, as Amended and Restated (Incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 10.9* Consulting agreement with Peter Churm for fiscal year 1996 46 10.9A* Consulting agreement with Peter Churm for fiscal year 1995 (Incorporated by reference to Exhibit 10.9A to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 10.10* Promissory note and subordination agreement for Terrence A. Noonan relocation (Incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 10.11 Second Amended and Restated Loan Agreement and the First Amendment thereto (the "Loan Agreement") (Incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 10.11A Second Amendment to the Loan Agreement 47
* A management contract or compensatory plan or arrangement. 40 41 w FURON COMPANY INDEX TO EXHIBITS (CONTINUED)
REGULATION S-K SEQUENTIAL ITEM NUMBER PAGE NUMBER ----------- ----------- 10.12 1993 Non-Employee Directors' Stock Compensation Plan (Incorporated by reference to Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q filed on June 2, 1994, Commission File No. 0-8088) 11 Statement re Computation of Net Income Per Share 51 22 Subsidiaries of the Registrant 52 23 Consent of Independent Auditors 53 27 Financial Data Schedule 54
41 42 SIGNATURES AND POWER OF ATTORNEY Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf on March 21, 1995 by the undersigned, thereunto duly authorized. FURON COMPANY By: /S/ MONTY A. HOUDESHELL /S/ KOICHI HOSOKAWA -------------------------------- ------------------------------------ Monty A. Houdeshell Koichi Hosokawa Vice President, Chief Financial Controller Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes and appoints J. Michael Hagan, Terrence A. Noonan, and Monty A. Houdeshell as attorneys-in-fact and agents, each acting alone, to execute and file with the applicable regulatory authorities any amendment to this report on his behalf individually and in each capacity stated below. /S/ J. MICHAEL HAGAN /S/ COCHRANE CHASE - ------------------------------------- ------------------------------------ J. Michael Hagan Cochrane Chase Chairman of the Board Director, March 21, 1995 (Principal Executive Officer), March 21, 1995 /S/ TERRENCE A. NOONAN /S/ H. DAVID BRIGHT - ------------------------------------- ------------------------------------ Terrence A. Noonan H. David Bright President and Director, March 21, 1995 Director, March 21, 1995 /S/ PETER CHURM /S/ WILLIAM D. CVENGROS - ------------------------------------- ------------------------------------ Peter Churm William D. Cvengros Chairman Emeritus, March 21, 1995 Director, March 21, 1995 /S/ MONTY A. HOUDESHELL - ------------------------------------- ------------------------------------ Monty A. Houdeshell William E. Eckhardt Vice President, Chief Financial Director, March 21, 1995 Officer and Treasurer, March 21, 1995 /S/ KOICHI HOSOKAWA /S/ R. DAVID THRESHIE - ------------------------------------- ------------------------------------ Koichi Hosokawa R. David Threshie Controller, March 21, 1995 Director, March 21, 1995 /S/ BRUCE E. RANCK ------------------------------------ Bruce E. Ranck Director, March 21, 1995 42 43 FURON COMPANY INDEX TO EXHIBITS
REGULATION S-K SEQUENTIAL ITEM NUMBER PAGE NUMBER ----------- ----------- 3 Restated Articles of Incorporation (Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 3.1 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994 and Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed on September 13, 1994, Commission File 0-8088) 4 Rights Agreement as amended (Incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form 8-A filed March 22, 1989, and Exhibit 4.1 to the Registrant's Annual Report on Form 10-K filed on April 28, 1992, Commission File No. 0-8088) 10.1* 1982 Stock Incentive Plan (as Amended and Restated as of March 22, 1994) (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on September 13, 1994, Commission File No. 0-8088) 10.2* Employee Relocation Assistance Plan as amended (Incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K filed on March 21, 1990, Commission File No. 0-8088) 10.3* Supplemental Executive Retirement Plan as presently in effect (Incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K filed on March 28, 1991, Exhibit 10.4 to the Registrant's Annual Report on Form 10-K filed on March 29, 1993, and Exhibit 10.4A to the Registrant's Quarterly Report on Form 10-Q filed on September 13, 1994, Commission File No. 0-8088) 10.4 Asset Purchase Agreement, dated as of January 31, 1995, by and between the Registrant and Custom Coating & Laminating Corporation (Incorporated by reference to Exhibit 2 to the Registrant's Current Report on Form 8-K/A filed on February 17, 1995, Commission File No. 0-8088)
* A management contract or compensatory plan or arrangement. 43 44 FURON COMPANY INDEX TO EXHIBITS (CONTINUED)
REGULATION S-K SEQUENTIAL ITEM NUMBER PAGE NUMBER ----------- ----------- 10.5* Form of Indemnity Agreement with each of the directors and officers of the Registrant (Incorporated by reference to Exhibit C to the Registrant's definitive Proxy Statement filed May 2, 1988, Commission File No. 0-8088) 10.6* Form of Change-in-Control Agreement between the Registrant and each of its executive officers (Incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K filed on March 28, 1991, Commission File No. 0-8088) 10.7* Deferred Compensation Plan (Incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K filed on March 29, 1993, Commission File No. 0-8088) 10.8* Economic Value Added (EVA) Incentive Compensation Plan, as Amended and Restated (Incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 10.9* Consulting agreement with Peter Churm for fiscal year 1996 46 10.9A* Consulting agreement with Peter Churm for fiscal year 1995 (Incorporated by reference to Exhibit 10.9A to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 10.10* Promissory note and subordination agreement for Terrence A. Noonan relocation (Incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 10.11 Second Amended and Restated Loan Agreement and the First Amendment thereto (the "Loan Agreement") (Incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088) 10.11A Second Amendment to the Loan Agreement 47
* A management contract or compensatory plan or arrangement. 44 45 FURON COMPANY INDEX TO EXHIBITS (CONTINUED)
REGULATION S-K SEQUENTIAL ITEM NUMBER PAGE NUMBER ----------- ----------- 10.12 1993 Non-Employee Directors' Stock Compensation Plan (Incorporated by reference to Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q filed on June 2, 1994, Commission File No. 0-8088) 11 Statement re Computation of Net Income Per Share 51 22 Subsidiaries of the Registrant 52 23 Consent of Independent Auditors 53 27 Financial Data Schedule 54
45 EX-10.9 2 CONSULTING AGREEMENT WITH PETER CHURM FOR FYE 1996 1 March 21, 1995 Mr. Peter Churm 67 Monarch Bay Dana Point, CA 92629-3459 Re: Consulting Agreement Dear Pete: This will confirm that: 1. Effective January 29, 1995, Furon retained you to provide management consulting services for Furon's fiscal year ending February 3, 1996. You will be paid $90,000 and will be reimbursed for business related expenses incurred in the performance of those services. As part of this arrangement, you are entitled to, and Furon has purchased, general medical insurance coverage for your spouse, as well as medical insurance to supplement Medicare coverage maintained by you, at an aggregate cost to Furon of approximately $600 per month, and Furon will reimburse you and your spouse for any uninsured out-of-pocket medical expenses. It is contemplated that the consulting arrangement will require the commitment of approximately 50% of your business time. 2. In performing your services as a consultant pursuant to that arrangement, you have been and will continue to be an independent contractor, and not an employee of Furon. 3. This consulting arrangement is subject to the annual review and approval of Furon's Board of Directors. If the foregoing accurately sets forth the terms of your consulting agreement with Furon, please so indicate by signing the extra-enclosed copy of this letter at the place provided for your signature and returning it to me. Cordially, /s/ J. MICHAEL HAGAN Chairman of the Board APPROVED AND AGREED EFFECTIVE AS OF JANUARY 29, 1995 /s/ PETER CHURM ------------------- Peter Churm EXHIBIT 10.9 46 EX-10.11.A 3 SECOND AMENDMENT TO THE LOAN AGREEMENT 1 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (The "Second Amendment") is made and dated as of the 28 day of December, 1994 by and among BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, each other bank signatory hereto set forth on the signature pages of this Second Amendment and any such other banks as from time to time may be party hereto (collectively referred to herein as the "Banks" and, individually, a "Bank"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, as agent (in such capacity, the "Agent") and FURON COMPANY, a California corporation ("Borrower"). RECITALS A. Pursuant to that certain Second Amended and Restated Loan Agreement, dated as of January 28, 1994, among the Banks and Borrower (as amended from time to time, the "Agreement"), the Banks agreed to extend credit to Borrower on the terms and subject to the conditions set forth therein. All capitalized terms not otherwise defined herein shall have the meanings given such terms in the Agreement. B. Borrower and the Banks desire to amend the Agreement in certain respects, all as set forth more particularly below. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: AGREEMENT 1. Amendments. The Agreement is amended as follows: 1.1 Amendment to Consolidated Tangible Effective Net Worth. Section 5.7 of the Agreement is hereby deleted in its entirety and is replaced with the following: "5.7 Consolidated Tangible Effective Net Worth. Borrower shall maintain a Consolidated Tangible Effective Net Worth of at least (i) the amount of the Borrower's Consolidate Tangible Effective Net Worth as of October 29, 1994 minus (ii) $8,000,000 plus (iii) 50% of all positive Consolidate Net Income of Borrower earned since October 29, 1994 plus (iv) 100% of the net proceeds from the issuance of equity securities (other than equity securities issued pursuant to any of Borrower's employee benefit plans) minus (v) incremental goodwill attributable to the purchase of Custom Coating and Laminating, which is not to exceed $22,300,000." 1.2 Amendment to Successor Agent Paragraph. Section 8.7 of the Agreement is hereby amended to add to the end thereof the following: "Upon resignation of the Agent, the rights of the Agent under Sections 8.4, 8.5, 8.6, 9.3 and 9.10 shall inure to the benefit of the resigning Agent with respect to the actions taken prior to resignation." 2. Extension of Line A Commitment Termination Date. In accordance with Section 2.5(c) of the Agreement, each of the Banks by its signature below agrees that on the Effective Date of this Second Amendment the Line A Commitment Termination date is extended until January 26, 1996. 3. Effective Date. This Second Amendment shall become effective as of the date that it is fully executed by each of the parties hereto and the Agent shall have received such evidence as it shall reasonably request at the request of the Banks that each of the representations and warranties contained in the Second Amendment are true and correct. EXHIBIT 10.11A 47 2 4. No Other Amendment. Except as expressly amended herein, the Agreement and all other Loan Documents shall remain in full force and effect as currently written. 5. Counterparts. This Second Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. 6. Representations and Warranties. Borrower hereby represents and warrants to the parties hereto as follows: 6.1 Borrower has all corporate power and corporate authority to execute and deliver, and to perform all of its obligations under this Second Amendment. 6.2 The execution and delivery by Borrower and the performance by Borrower of each of its obligations under the Second Amendment have been duly authorized by all necessary corporate action and do not: (a) require any consent or approval not heretofore obtained of any shareholder, security holder or creditor of Borrower; (b) violate any provision of the articles of incorporation or the bylaws of Borrower; (c) result in or require the creation or imposition of any Lien (other than under the Loan Documents) upon or with respect to Property now owned or leased or hereafter acquired by Borrower; (d) violate any provision of any Law, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Borrower which would reasonably be expected to have a materially adverse effect on the Property or business condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole; or (e) result in a breach of or constitute a default under, or cause or permit the acceleration of any obligation owed under, any indenture or loan or credit agreement or any other material agreement, lease or instrument to which Borrower is a party or by which Borrower or any Property of Borrower is bound or affected. 6.3 Borrower and each of its Subsidiaries is not in default under or in violation of any Law, orders, writ, judgment injunction, decree, determination, award, indenture, agreement, lease or instrument in any respect that is materially adverse to the interests of the Banks under this Second Amendment or that could materially impair the ability of the Borrower to perform its obligations under this Second Amendment. 6.4 No authorization, consent, approval, order, license, permit or exemption from, or filing, registration or qualification with, any Governmental Agency is or will be required under applicable law to authorize or permit the execution and delivery by the Borrower of this Second Amendment, and the payment by Borrower of all amounts due under the Loan Documents. 6.5 This Second Amendment, when executed and delivered, will constitute legal, valid and binding obligations of Borrower and is enforceable against Borrower in accordance with its terms except enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally. 6.6 At and as of the date of execution hereof and at and as of the effective date of this Second Amendment (1) the representations and warranties of the Borrower contained in the Agreement are accurate and complete in all material respects, and (2) no event has occurred and is continuing that is a Default or an Event of Default. 48 3 In WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed as of the day and year first above written. FURON COMPANY, a California corporation By:_________________________________ Name: J. Michael Hagan Title: Chairman of the Board of Directors By:_________________________________ Name: Monty A. Houdeshell Title: Vice President and Chief Financial Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: _____________________________ Name: _____________________________ Title: _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: _____________________________ Name: _____________________________ Title: _____________________________ THE BANK OF NEW YORK By: _____________________________ Name: _____________________________ Title: _____________________________ 49 4 BANK ONE, COLUMBUS, NATIONAL ASSOCIATION By: _____________________________ Name: _____________________________ Title: _____________________________ BANK OF AMERICA ILLINOIS By: _____________________________ Name: _____________________________ Title: _____________________________ 50 EX-11 4 STATEMENT RE COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11 FURON COMPANY COMPUTATION OF NET INCOME PER SHARE
YEARS ENDED --------------------------------------------- JANUARY 28, JANUARY 29, JANUARY 30, 1995 1994 1993 --------------------------------------------- PRIMARY INCOME PER SHARE - ------------------------ Earnings Net income $ 11,438,000 $ 8,170,000 $ 7,257,000 ============ =========== =========== Shares Weighted average number of common shares outstanding 8,674,135 8,615,289 8,519,774 Shares issuable from assumed exercise of stock options 318,791 243,911 161,832 ------------ ----------- ----------- Average shares as adjusted 8,992,926 8,859,200 8,681,606 ============ =========== =========== Primary income per share $ 1.27 $ .92 $ .84 ============ =========== =========== FULLY DILUTED INCOME PER SHARE - ------------------------------ Earnings Net income $ 11,438,000 $ 8,170,000 $ 7,257,000 ============ =========== =========== Shares Weighted average number of common shares outstanding 8,674,135 8,615,289 8,519,774 Shares issuable from assumed exercise of stock options 443,300 243,911 161,832 ------------ ----------- ----------- Average shares as adjusted for full dilution 9,117,435 8,859,200 8,681,606 ============ =========== =========== Fully diluted income per share $ 1.25 $ .92 $ .84 ============ =========== ===========
51 EX-22 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 22 Furon Company Significant and Certain Other Subsidiaries January 28, 1995
State or Other Jurisdiction of Name of Subsidiary* Incorporation or Organization - ------------------ ------------------------------ Bunnell Plastics, Inc. New Jersey CHR Industries, Inc. Connecticut Dixon Industries Corporation Rhode Island Fluorocarbon Components, Inc. New York Fluorocarbon Foreign Sales Corporation Barbados Furon B.V. Netherlands Furon Europe, S.A. Belgium Furon Limited England Furon Seals N.V./S.A. Belgium Furon S.A. Belgium Furon S.A.R.L. France Sepco Corporation California
- ------------------ * Each of Furon Company's domestic subsidiaries is a general business corporation with a wholly owned domestic subsidiary. 52 EX-23 6 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement, as amended (Form S-8 No. 33-54031), pertaining to the Furon Company 1982 Stock Incentive Plan and related Prospectus and in the Registration Statement, as amended (Form S-8 No. 2-93028), pertaining to the Furon Company Employees' Profit-Sharing/Retirement Plan and related Prospectus and in the Registration Statement, as amended (Form S-8 No. 33-55535), pertaining to the Furon Company Employee Stock Purchase Plan and related Prospectus and in the Registration Statement, as amended (Form S-8 No. 33-53987), pertaining to the Furon Company 1993 Non-Employee Directors' Stock Compensation Plan and related Prospectus of our report dated March 8, 1995, with respect to the consolidated financial statements and schedule of Furon Company included in the Annual Report (Form 10-K) for the year ended January 28, 1995. ERNST & YOUNG LLP Orange County, California March 21, 1995 53 EX-27 7 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows and is qualified in its entirety by reference to such financial statements contained within the Company's Form 10-K for the year ended January 28, 1995. 1 U.S. DOLLARS YEAR JAN-28-1995 JAN-28-1995 1 6,475 0 49,651 696 31,197 101,685 114,042 61,981 179,873 46,960 0 36,280 0 0 55,319 179,873 312,060 312,060 217,827 217,827 0 303 2,394 17,597 6,159 11,438 0 0 0 11,438 1.27 0
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