-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VMUpr5vZX6SOXTTaVW5aXkxA1NpBlSkLSt7uSq1WY3W/xmE6rjdjUcTj4LixvRLf t13B2fFW6XKYpM2SmsR2ew== 0000892569-97-000816.txt : 19970329 0000892569-97-000816.hdr.sgml : 19970329 ACCESSION NUMBER: 0000892569-97-000816 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970201 FILED AS OF DATE: 19970328 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08088 FILM NUMBER: 97567114 BUSINESS ADDRESS: STREET 1: 1199 SOUTH CHILLICOTHE ROAD CITY: AURORA STATE: OH ZIP: 44202 BUSINESS PHONE: 7148315350 FORMER COMPANY: FORMER CONFORMED NAME: FLUOROCARBON CO DATE OF NAME CHANGE: 19900322 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended FEBRUARY 1, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-8088 FURON COMPANY (Exact name of registrant as specified in its charter) CALIFORNIA 95-1947155 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 29982 IVY GLENN DRIVE, LAGUNA NIGUEL, CA 92677 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 831-5350 Securities registered pursuant to Section 12(b) of the Act on the NEW YORK STOCK EXCHANGE: COMMON STOCK, WITHOUT PAR VALUE COMMON STOCK PURCHASE RIGHTS Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] As of February 5, 1997, the aggregate market value of voting stock held by non-affiliates of the registrant was approximately $206,167,000. As of March 25, 1997, the number of outstanding shares of Common Stock of the registrant was 9,003,240. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the 1997 Annual Meeting of Shareholders (to be held on June 3, 1997) have been incorporated by reference into Part III of this report. 1 2 PART I ITEM 1. BUSINESS GENERAL Furon(R) designs, develops and manufactures highly engineered components made primarily from specially formulated high performance polymer materials. Most of Furon's products are designed and engineered to meet specific requirements of customers in the industrial process, transportation, industrial equipment, electronics and health care industries. The Company has expanded its operations through the acquisition and further development of complementary businesses. In January 1997, the Company completed the acquisition of Medex(R), Inc. and its subsidiaries (collectively, "Medex"), with approximately $100 million in health care product sales, as part of its strategy to penetrate further the higher margin health care market. Medex offers a broad range of polymer- based critical care accessories and infusion systems for the diagnosis and treatment of patients receiving care in hospitals, alternative health care facilities and the home health care environment. In February 1996, the Company acquired the Fluorglas(R) business of AlliedSignal Inc. Fluorglas' principal product offerings are pressure-sensitive adhesive tapes, PTFE flexible composites and fabrications, and PTFE films. This acquisition, coupled with the acquisition in January 1995 of Custom Coating & Laminating Corporation's business devoted to the manufacture and sale of release liners and other specialty engineered products incorporating surface chemistry technology, enabled the Company to expand and complement its CHR(R) brand of products. (See Note 2 of the "Notes to Consolidated Financial Statements" for additional information concerning these acquisitions.) In addition to its acquisition activities, the Company has developed its business through the introduction of new product lines and improvements in its existing products and capabilities and operational methodologies. Approximately 27% of the Company's sales (excluding Medex) were generated by "new products" during fiscal 1997, as compared to 15% in fiscal 1996. The Company defines a "new product" as one that has been introduced into the market place and either uses new material, is substantially different from an existing product based upon performance levels or satisfies new markets or applications for current products that require different specifications or standards. Through its new organizational structure described below and its World Class Performance program, the Company continually strives to improve its operations with improved product quality and performance features, improved customer service, minimization of waste, manufacturing costs and inventories, reduced cycle times and increased employee productivity and involvement. Further, the Company's technology center continues to pursue the development of proprietary polymer compounds that can be used to produce high margin, differentiated polymer products. During fiscal 1997, the Company sold three peripheral businesses: the Fluorglas metal clad PTFE/glass laminates (August 1996) and yarn (January 1997) product lines; and the Company's structural bearings business (November 1996). Furon was incorporated in California in 1957. Unless the context otherwise requires, the terms "Furon" and the "Company" are used in this report to refer to Furon Company and its subsidiaries. - -------------- (R)Furon, Medex, Fluorglas and CHR are registered trademarks of the Company. 2 3 OPERATIONS Prior to fiscal 1995, the Company conducted its operations in independent business units developed and organized around manufacturing capabilities and products and grouped from time to time based on varying product, market or other criteria. In fiscal 1995, the Company consolidated the diverse independent business unit operations into one Furon operating unit that is organized around customers in the industrial process, transportation, industrial equipment, electronics and health care industries. The Company believes that its current organizational structure enables it to better serve its customers and grow its customer base, eliminate redundancies and other inefficiencies, and more fully leverage its technologies and other capabilities. MARKETS AND PRODUCTS The Company principally serves the industrial process, transportation, industrial equipment, electronics and health care industries, offering the following FURON(R) brand products: fabricated and extruded high performance plastic and silicone components, fluid handling products, release liners, and custom fabricated composite, urethane and polyimide foam components; CHR(R) and FLUORGLAS(R) pressure sensitive tapes and PTFE and silicone coated fabrics; CHR(R) solid and sponge silicone rubber; DEKORON(R) instrument and control wire and cable and self-regulating heating and fiber optics cable; FELSTED(R) cables and electronic and mechanical control systems; OMNISEAL(R) spring energized PTFE seals, lip seals, hydraulic seals, and metallic O-rings and C-rings; RULON(R) and MELDIN(R) high performance polymer materials and molded and machined bearings and other components made from those materials; SYNFLEX(R) hydraulic hose, specialty hose, tubing, couplings and accessories; UNITHERM(R) heated hose and steam traced, preinsulated and electrical traced tubing; and MEDEX(R) critical care accessories and infusion systems. Furon's sales are generated primarily by its own salespersons located in most major industrial areas. The remaining sales are made by independent manufacturers' representatives and distributors. Most of the Company's customers for its industrial products are original equipment manufacturers, commercial or industrial construction companies or firms servicing the maintenance and replacement parts market or distributors to these markets, while those for its MEDEX health care products are hospitals and other end users or independent hospital supply dealers. The Company's business is not dependent upon a single customer, or a few customers, and no single customer accounted for more than 5% of Furon's sales volume during any of the last three fiscal years. (For certain financial information concerning the Company's foreign and domestic operations and export sales, see Note 10 of the "Notes to Consolidated Financial Statements"). - ------------ (R)FURON, CHR, FLUORGLAS, DEKORON, FELSTED, OMNISEAL, RULON, MELDIN, SYNFLEX, UNITHERM and MEDEX are registered trademarks of the Company. 3 4 COMPETITION The Company competes with a large number of companies, some of which have greater financial resources, but none of which competes with the Company in more than a limited number of products. Depending on the product, the principal competitive factors for Furon's industrial products are materials capability, engineering, design and process technology, quality, reliability and the ability to meet delivery dates, while those for its health care products are price, scope of product line, service and quality. The Company believes that trade secrets are important to its proprietary products. To protect its trade secrets, the Company requires all salaried employees to enter into confidentiality agreements. While the Company holds many patents and trademarks with varying degrees of significance to its operations, the Company's business is not dependent upon any particular one. BACKLOG OF ORDERS Furon's backlog of unfilled orders at February 1, 1997 was $66.4 million. This is a 22% increase over the February 3, 1996 backlog amount of $54.2 million. Excluding the effects of acquisitions and divestitures, Furon's backlog increased 11.8%. It is estimated that substantially all of Furon's backlog of orders at February 1, 1997 will be filled during the next 12 months, with approximately $2.0 million of the backlog scheduled to be filled in the subsequent 12 month period. The lead time between receipt of orders and shipment of products, other than products to commercial aircraft, is typically a matter of weeks. Although many of Furon's orders contain cancellation clauses, Furon has seldom experienced significant cancellations of orders. RAW MATERIALS Furon purchases its raw materials, ranging from polymer resins to component parts, from numerous suppliers. The top resins used by the Company are PTFE and related resins, Nylon 11 sold under the trade name Rilsan(R), and silicone polymers. The Company purchases its requirements for PTFE and related resins and silicone polymers from the major suppliers of those resins, while ELF Atochem is the Company's sole source for Rilsan. Rilsan is used primarily in the production of heavy duty air brake tubing. Alternative sources of material which can be substituted for Rilsan are available in the event a shortage of Rilsan develops. RESEARCH AND DEVELOPMENT For information concerning the amounts spent by the Company during the last three fiscal years on research and development activities, see Note 1 of the "Notes to Consolidated Financial Statements." EMPLOYEES At February 1, 1997, Furon employed 3,456 persons. Furon considers its employee relations to be good. - ------------ (R)Rilsan is a registered trademark of ELF Atochem. 4 5 GOVERNMENTAL REGULATION FDA The manufacture and sale of health care products like the MEDEX critical care accessories and infusion systems are subject to regulation by the U.S. Food and Drug Administration ("FDA") and certain foreign agencies. These regulations range from prescribing "good manufacturing practices" to generally requiring FDA clearance of new health care products before they can be marketed. Medex has historically been able to seek this clearance for its products through the FDA's "510(k)" pre-market notification program which, as compared to the FDA's pre-market approval process, requires less time and the submission of limited clinical and supporting information. The Company expects any new Medex products to continue to qualify for the 510(k) pre-market notification program. The FDA routinely conducts inspections to confirm compliance with its regulations and failure to comply with them can, among other things, result in product recalls and bans, operating restrictions, and civil and criminal penalties. The Company believes that Medex is currently in compliance with these governmental regulations. Environmental Matters Compliance with environmental laws and regulations designed to regulate the discharge of materials into the environment or otherwise protect the environment requires continuing management effort and expenditures by the Company. The Company does not believe that the operating costs incurred in the ordinary course of business to satisfy air and other permit requirements, properly dispose of hazardous wastes and otherwise comply with these laws and regulations form or will form a material component of its operating costs or have or will have a material adverse effect on its competitive or consolidated financial positions. As of February 1, 1997, the Company's reserves for environmental matters totaled approximately $1.6 million. The Company or one or more of its subsidiaries is currently involved in environmental investigation or remediation directly or as an EPA-named potentially responsible party or private cost recovery/contribution action defendant at various sites, including the following "superfund" waste disposal sites: Solvents Recovery Service of New England in Southington, Connecticut; Gallup's Quarry in Plainfield, Connecticut; Davis Liquid Waste and Picillo in Coventry, Rhode Island; Malvern in Malvern, Pennsylvania; and Granville in Granville, Ohio. While neither the timing nor the amount of the ultimate costs associated with these matters can be determined with certainty, based on information currently available to the Company, including investigations to determine the nature of the potential liability, the estimated amount of investigation and remedial costs expected to be incurred and other factors, the Company presently believes that its environmental reserves should be sufficient to cover the Company's aggregate liability for these matters and, accordingly, does not expect them to have a material adverse effect on its consolidated financial position or results of operations. The actual costs to be incurred by the Company at each site will depend on a number of factors, including one or more of the following: the final delineation of contamination; the final determination of the remedial action required; negotiations with governmental agencies with respect to cleanup levels; changes in regulatory requirements; innovations in investigatory and remedial technology; effectiveness of remedial technologies employed; and the ultimate ability to pay of any other responsible parties. 5 6 ITEM 2. PROPERTIES Furon has organized its domestic manufacturing facilities according to the principal process used by each facility in the production of Furon's products. These domestic "Centers of Excellence" and the Company's foreign manufacturing facilities are identified below. Furon believes that these and its other facilities are suitable for its business and adequate for its present needs, and that appropriate additional or substitute space is available, if needed, to accommodate physical expansion of the business in the foreseeable future. For further information regarding the Company's lease commitments, see Note 6 of the "Notes to Consolidated Financial Statements."
EXPIRATION OF SQUARE MAXIMUM CENTERS OF EXCELLENCE FOOTAGE LEASE TERM --------------------- ------- ---------- Machining: Anaheim, CA 91,000 7/31/10 Los Alamitos, CA 63,000 12/14/03 Molding: Bristol, RI 106,000 8/31/32 Mundelein, IL 60,000 8/31/00 Extrusion: Mantua, OH 151,000 8/31/32 Aurora, OH 148,000 8/31/32 Mickleton, NJ 86,000 8/31/32 Mt. Pleasant, TX 67,000 8/31/32 Cape Coral, FL 30,000 5/31/06 Plastic Forming: Seattle, WA 116,000 2/28/02 Coating/Films: New Haven, CT 110,000 8/31/32 Hoosick Falls, NY 109,000 Owned Worcester, MA 76,000 Owned Clean Room Manufacturing: Hilliard, OH 150,000 Owned Dublin, OH 100,000 Owned Duluth, GA 52,000 Owned Fremont, CA 30,000 7/01/03
6 7 ITEM 2. PROPERTIES (CONTINUED) Assembly & Metal Fabrication: Kent, OH 50,000 1/06/01 Holmesville, OH 28,000 Owned Compounding: Aurora, OH 30,000 Owned Foreign: Rossendale, England 93,000 Owned Gembloux, Belgium 49,000 Owned Rugby, England 37,000 12/07/04 Kontich, Belgium 30,000 11/30/99
ITEM 3. LEGAL PROCEEDINGS The Company is from time to time named as a defendant in various lawsuits. The Company vigorously defends all lawsuits brought against it, unless a reasonable settlement appears appropriate. While the outcome of pending proceedings cannot be predicted with certainty, the Company believes that the ultimate resolution of the actions currently pending should not have a material adverse effect on its consolidated financial condition. Medex has been named as a defendant in McBrayer, et al. v. Laidlaw Environmental Services (WT), Inc., et al., which was commenced in the United States District Court for the Southern District of Ohio (Eastern Division) in October 1996 and in the Franklin County, Ohio Common Pleas Court in January 1997. The plaintiffs are two former students of a local elementary school and their parents. In addition to Laidlaw, which operates an industrial waste treatment facility near the school, the named defendants include two neighboring manufacturers, Beaver Adhesives, Inc. and OSF America, Inc., and the City of Hilliard, Ohio and the Board of Education of the Hilliard City School District. The plaintiffs seek compensatory damages of $15 million and punitive damages of $100 million from the defendants for the alleged release of allegedly hazardous substances, pollutants and contaminants (ethylene oxide and freon gas in the case of Medex) into the elementary school's environment, which allegedly resulted in personal injuries to the two former students. Based upon the Company's preliminary investigation, the Company believes that Medex has substantial defenses to the claims and that the prayer for punitive damages against Medex is without substantial legal or factual basis. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the year ended February 1, 1997. 7 8 OFFICERS OF FURON Furon's executive and other officers are as follows: Name Age Position/Business Experience - ----- --- ---------------------------- EXECUTIVE OFFICERS J. Michael Hagan 57 Chairman of the Board Mr. Hagan has been employed by the Company since 1967 and was promoted to Division Manager in 1969, elected Vice President in 1975, and served as a director and President from 1980 to June 1991 when he was appointed Chairman of the Board. Terrence A. Noonan 59 President and Director Mr. Noonan has been the President of Furon since June 1991 and was elected as a director in August 1991. From 1989 to June 1991, he served as an Executive Vice President in charge of various operations. He joined Furon in 1987 as a Vice President, having previously served since 1980 as a Group General Manager of Eaton Corporation, a diversified manufacturing company. Monty A. Houdeshell 48 Vice President, Chief Financial Officer and Treasurer Mr. Houdeshell joined the Company in 1988 as Vice President, Chief Financial Officer and Treasurer and also served as Secretary from 1988 to February 1991. From 1985 to 1988, Mr. Houdeshell served as Vice President, Chief Financial Officer and Treasurer of Oak Industries, Inc., a manufacturer of electronic components and controls. Dominick A. Arena 54 Vice President - Health Care and President of Medex, Inc. Mr. Arena joined the Company's Operating Team in January 1997 to manage its health care business, having served as the Company's health care consultant since February 1996. He was elected President of Medex following the acquisition of that subsidiary in January 1997 and an executive officer of the Company in March 1997. Previously, Mr. Arena was the President of three medical device manufacturers, AnaMed International from 1993 to 1996, Hudson Respiratory Care, Inc. from 1989 to 1993 and Respiratory Care, Inc. (a subsidiary of The Kendall Company) from 1986 to 1989, when it was acquired by Hudson. Joseph R. Grewe 48 Vice President - Operations Mr. Grewe joined the Company's Operating Team in March 1996 to manage its manufacturing operations and was elected an executive officer of the Company in March 1997. He came to the Company from MascoTech Inc., where he had been the President of MascoTech Sintered Components, a manufacturer of automotive industrial components and assemblies since 1988. Previously, he held a wide range of manufacturing 8 9 OFFICERS OF FURON (CONTINUED) Joseph R. Grewe 48 Vice President - Operations (continued) positions since 1968 with General Motors Corporation, Rockwell International and a start-up company in which he was a principal. OTHER OFFICERS David L. Mascarin 42 Controller Mr. Mascarin joined the Company in August 1996 as Controller. Prior to joining the Company, Mr. Mascarin served for more than five years as a Site Controller for the Power Train Operations of Ford Motor Company, with which he had been employed for 18 years. Donald D. Bradley 41 General Counsel and Secretary Mr. Bradley joined the Company in June 1990 as Senior Attorney and Assistant Secretary and was named Corporate Secretary in February 1991 and General Counsel in February 1992. Previously, he was a Special Counsel with O'Melveny & Myers, an international law firm with which he had been associated since 1982. All officers of the Company are elected annually by and serve at the pleasure of the Board of Directors. There are no family relationships among any of Furon's officers. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE Except for the historical information contained in this report, certain matters discussed herein, including (without limitation) "Business - Governmental Regulation" (Item 1) and "Legal Proceedings" (Item 3) in Part I and "Management's Discussion and Analysis of Financial Condition and Results of Operations" (Item 7) in Part II, are forward looking statements. These statements involve risks and uncertainties, including (without limitation) the matters identified in those sections and the following: the effect of economic and market conditions and raw material price increases; the impact of costs, insurance recoveries and governmental, judicial and other third party interpretations and determinations in connection with legal and environmental proceedings; and the impact of current or pending legislation regulation; and also in the case of the Company's health care business, pricing pressures and further industry consolidation. 9 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has traded on the New York Stock Exchange ("NYSE") under the trading symbol "FCY" since March 8, 1995. Previously, it traded on the NASDAQ National Market System under the trading symbol "FCBN." As of March 25, 1997, the Company had approximately 1,100 holders of record of its Common Stock. The following table sets forth for the periods indicated (i) the high and low closing sale prices per share of the Company's Common Stock as reported by the NYSE since March 8, 1995 and by NASDAQ prior to that date and (ii) the amount per share of cash dividends paid by the Company with respect to its Common Stock.
YEARS ENDED ------------------------------------------------------------------------------------------------- FEBRUARY 1, 1997 FEBRUARY 3, 1996 ----------------------------- ----------------------------- QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND - ------- ---- --- -------- ---- --- -------- First $22- 3/8 $18- 3/4 $0.06 $22- 1/2 $18- 7/8 $0.06 Second 26- 7/8 20- 1/2 0.06 23- 1/4 20 0.06 Third 25- 1/2 20- 1/2 0.06 21 16- 1/2 0.06 Fourth 24- 5/8 19- 3/8 0.06 20- 1/2 15- 1/2 0.06
Future dividends will be considered by the Board of Directors taking into account the Company's profit levels and capital requirements as well as financial and other conditions existing at the time. 10 11 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data for the five years in the period ended February 1, 1997 should be read in conjunction with, and is qualified by, the more detailed information and consolidated financial statements included in Item 8 (Part II), "Consolidated Financial Statements and Supplementary Data."
YEARS ENDED ----------------------------------------------------------------------------------------- IN THOUSANDS, EXCEPT FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30, SHARE AND PER SHARE AMOUNTS 1997 (a) 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ Net sales $ 390,105 $344,886 $312,060 $ 285,194 $ 300,107 Cost of sales 281,581 249,102 217,827 204,727 213,932 --------- -------- -------- --------- --------- Gross profit 108,524 95,784 94,233 80,467 86,175 Selling, general and administrative expenses 84,325 78,337 77,368 66,458 71,782 Write-off of acquired in-process research and development 53,700 - - - - Nonrecurring charges 4,329 - - - - Other (income) expense (4,940) (3,866) (3,126) (2,296) (2,363) Interest expense 3,344 2,899 2,394 3,337 4,243 ---------- -------- -------- --------- --------- Income (loss) before income taxes (32,234) 18,414 17,597 12,968 12,513 Provision for income taxes 7,517 5,245 6,159 4,798 5,256 ---------- -------- -------- --------- --------- Net income (loss) $ (39,751) $ 13,169 $ 11,438 $ 8,170 $ 7,257 ========== ======== ======== ========= ========= Net income (loss) per share $ (4.47) $ 1.46 $ 1.27 $ 0.92 $ 0.84 ========== ======== ======== ========= ========= Weighted average number of common shares and equivalents outstanding 8,885,769 9,040,262 8,992,926 8,859,200 8,681,606 Cash dividends per share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24 At year end: Total assets $344,343 $211,484 $179,873 $175,224 $174,229 Total long-term obligations 198,916 59,250 32,791 38,795 43,488 Total stockholders' equity 61,344 102,882 91,599 80,815 75,247
- ------------------ (a) Includes the acquisition of Medex effective January 2, 1997. 11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Analyzing Furon from a statistical perspective, sales for fiscal 1997 rose 13% over the prior year. There were a number of divestitures during the course of fiscal 1997 that had the effect of lowering sales. There also were contributions from companies that were acquired during the year, which accounted for a net 12% sales increase over fiscal 1996. Domestically, sales increases were achieved in several of the markets Furon serves, including semiconductors, commercial aircraft, mobile equipment and appliances. In the truck market, the Company was able to maintain approximately the same sales level as it did in the prior year, even though that industry was down approximately 15-20%. Furon's sales to the general industrial and electronic assembly markets declined from last year. Excluding Medex, European sales improved 18% for fiscal 1997. Before the impact of a stronger U.S. dollar, the improvement in sales was 26%. The gain principally reflected contributions from Econocruise, which was acquired in April, 1996. Without Medex and Econocruise, European sales were down 7%, or 1% before the impact of exchange rates. For fiscal 1996, consolidated sales were 11% higher than in fiscal 1995. However, when removing the effect of acquisitions and divestitures, sales improved 7%. On January 2, 1997, Furon completed a tender offer for the outstanding shares of Medex, Inc., based in Hilliard, Ohio. With sales of $99.3 million for its fiscal year ended June 30, 1996, Medex manufactures polymer-based critical care products and infusion systems for medical and surgical applications. Medex products are sold in more than 50 countries, primarily to hospitals and alternate care facilities and to a lesser extent, to original equipment manufacturers serving the health care industry worldwide. For the period from January 2 through February 1, 1997, Medex sales were $9.4 million and accounted for 2.4% of Furon's consolidated sales for the year ended February 1, 1997. The gross profit percentage for fiscal 1997 was 27.8%, which was the same as in fiscal 1996. When the impact of acquisitions and divestitures is removed, the gross profit percentage declined from 28.5% in fiscal 1996 to 28.2% in fiscal 1997. Higher raw material costs as a percentage of sales were experienced over the prior year, partially offset by cost reductions in manufacturing labor and overhead, productivity gains and price increases. The gross profit percentage declined from 30.2% in fiscal 1995 to 27.8% in fiscal 1996. This decrease was primarily attributable to higher raw material costs, a change in the sales mix compared with the prior year and expenses related to the Company's new operating structure. Selling, general and administrative expenses as a percentage of sales declined to 21.6% in fiscal 1997, compared with 22.7% for fiscal 1996 and 24.8% for fiscal 1995. After removing the effect of acquisitions and divestitures, operating expenses were 22.9%, 23.1% and 24.8% for fiscal years 1997, 1996 and 1995, respectively. In terms of dollars, operating expenses increased in fiscal 1997 from the prior fiscal year, primarily as a result of acquisitions. Selling expenses also increased as part of Furon's intensified new customer and market focus structure. Offsetting the higher selling expenses were lower general and administrative expenses, reflecting lower costs incurred related to the implementation of the Company's new operating structure. Cost reductions were achieved in several categories, including professional fees in connection with various consulting projects, travel, and relocation. Investments in research and development were up, as the Company continued to increase its focus on new product development. New products accounted for approximately 27% of sales in fiscal 1997 compared with 15% a year earlier. 12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) During fiscal 1997, Furon incurred approximately $58.0 million of nonrecurring charges to income. These charges included $53.7 million relating to the write-off of in-process research and development at Medex. In addition, as a result of the acquisition, Furon incurred $4.3 million of charges consisting of severance and facilities rationalization. Other (income) expense, for fiscal 1997, increased 27.8% over fiscal 1996, primarily as a result of foreign exchange transaction gains. For fiscal 1996, other (income) expense, increased 23.7% over fiscal 1995, mostly from higher licensee fees and a decrease in expenses attributable to the elimination of income related to businesses held for sale. Included in other (income) expense, was the elimination of $0 from fiscal 1997 and $0.2 million of pretax loss and $0.5 million of pretax profit from fiscal years 1996 and 1995, respectively, for the divested businesses. Interest expense increased by 15.4% in fiscal 1997 over the prior fiscal year. As a result of the Medex acquisition, amounts owing under the Company's bank credit facility increased by approximately $140 million. Interest expense increased 21% in fiscal 1996 compared with fiscal 1995. This increase reflects amounts owing under the Company's bank credit facility that rose by approximately $17 million due to the acquisition of the Custom Coating & Laminating Corporation (CC&L) and Fluorglas businesses. Operating results on a pre-tax basis decreased from a profit of $18.4 million in fiscal 1996 to a loss of $32.2 million in fiscal 1997. If the impact of the nonrecurring charges is removed, the Company would have had a pretax profit of $25.8 million in fiscal 1997, which would represent a 40% increase from the prior fiscal year. The improvement in profitability reflects higher sales volumes that were more than sufficient to offset increased operating expenses and higher interest expense, resulting from acquisitions and the implementation of the new customer focused structure and strategy. Pre-tax results of operations improved 5% from a profit of $17.6 million in fiscal 1995 to a profit of $18.4 million in fiscal 1996. The results of operations for Medex are included in the Company's consolidated financial statements for the period from January 2, 1997 through February 1, 1997. During this period, Medex recorded sales of $9.4 million, gross profit of $4.0 million (42.5% of sales) and operating expenses of $3.3 million (35.1% of sales), resulting in operating profit of $0.8 million (8.5% of sales). Interest expense attributable to the acquisition for the period was approximately $0.8 million. The Company's effective tax rate for fiscal year 1997 was 23.3% on the loss before income taxes for the year as compared to 28.5% on income before income taxes in fiscal 1996 and 35.0% in fiscal 1995. For fiscal 1997, the effective tax rate before the one time charge for in-process research and development was 35.0% for combined Furon and Medex income. For Furon, the effective tax rate was 34.0%, which was 1.0% below the combined tax rate due to goodwill amortization and higher foreign taxes included in the Medex results. The lower effective tax rate in 1996, as compared to fiscal 1995, resulted from the realization of certain reserves and tax credits of approximately $1.2 million, due to the completion of IRS audit cycles and closure of earlier fiscal years. 13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES During fiscal 1997, cash provided by operations increased 73% over fiscal 1996, to approximately $44.0 million. Included in fiscal 1997 was a source of cash from the change in working capital of $7.5 million versus $5.1 million used in fiscal 1996. The most significant component is the favorable change in inventory as a result of various inventory improvement programs implemented throughout the year. Additionally, a favorable change in income taxes payable, primarily the result of refunds received during the year and deferral of tax payments, further contributed to the improvement. At February 1, 1997 the Company's working capital was $78.8 million, an increase of $18.4 million from the prior year. At February 1, 1997, the Company's ratio of current assets to current liabilities was approximately 2.2:1. Capital expenditures totaled $18.9 million and were primarily for renovating existing facilities, leasehold improvements or replacement of existing equipment, in addition to implementation of the Company's new operating structure. Furon continues to believe that it generates sufficient cash flow from its operations to finance near and long-term internal growth, capital expenditures and the principal and interest payments on its long-term debt. The Company will continue to evaluate its employment of capital resources including asset management and other sources of financing. The Company continually reviews possible acquisitions, and should it make a substantial acquisition, it would require utilization of the remaining $31.0 million available at February 1, 1997 from its existing credit facility or financing from other sources. Effective March 27, 1997, the aggregate principal amount of the existing credit facility was increased from $200.0 million to $250.0 million. (For additional information concerning the credit facility, see Note 5 of the "Notes to Consolidated Financial Statements.") CONTINGENCIES For information regarding environmental matters and other contingencies, see the sections entitled "Business - Governmental Regulation" and "Legal Proceedings" in Part I. 14 15 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Furon Company We have audited the accompanying consolidated balance sheets of Furon Company as of February 1, 1997 and February 3, 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended February 1, 1997. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Furon Company at February 1, 1997 and February 3, 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended February 1, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP ------------------------- Orange County, California March 10, 1997 15 16 FURON COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED ------------------------------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- Net sales $ 390,105 $ 344,886 $ 312,060 Cost of sales 281,581 249,102 217,827 ---------- ---------- ---------- Gross profit 108,524 95,784 94,233 Selling, general and administrative expenses 84,325 78,337 77,368 Write-off of acquired in-process research and development 53,700 - - Nonrecurring charges 4,329 - - Other (income) expense (4,940) (3,866) (3,126) Interest expense 3,344 2,899 2,394 ---------- ---------- ---------- Income (loss) before income taxes (32,234) 18,414 17,597 Provision for income taxes 7,517 5,245 6,159 ---------- ---------- --------- Net income (loss) $ (39,751) $ 13,169 $ 11,438 =========== ========== ========= Net income (loss) per share of common stock $ (4.47) $ 1.46 $ 1.27 =========== ========== =========
See accompanying notes. 16 17 FURON COMPANY CONSOLIDATED BALANCE SHEETS
FEBRUARY 1, FEBRUARY 3, IN THOUSANDS 1997 1996 - ------------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ - $ - Accounts receivable, less allowance for doubtful accounts of $2,093 in 1997 and $1,367 in 1996 72,315 51,681 Inventories 58,611 39,827 Deferred income taxes 10,411 5,178 Prepaid expenses and other assets 5,389 5,367 ---------- ---------- Total current assets 146,726 102,053 Property, plant and equipment, at cost: Land 7,096 1,305 Buildings and leasehold improvements 30,712 18,044 Machinery and equipment 152,998 128,396 ---------- ---------- 190,806 147,745 Less accumulated depreciation and amortization (76,214) (68,093) ---------- ---------- Net property, plant and equipment 114,592 79,652 Intangible assets, at cost, less accumulated amortization of $29,971 in 1997 and $26,612 in 1996 74,640 23,543 Other assets 8,385 6,236 ---------- ---------- TOTAL ASSETS $ 344,343 $ 211,484 ========== ==========
See accompanying notes. 17 18 FURON COMPANY CONSOLIDATED BALANCE SHEETS
FEBRUARY 1, FEBRUARY 3, IN THOUSANDS, EXCEPT SHARE DATA 1997 1996 - ------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Cash, less checks outstanding $ 1,665 $ 1,052 Accounts payable 24,319 18,851 Salaries, wages and related benefits payable 14,141 11,101 Current portion of long-term debt 1,001 278 Facility rationalization and severance 10,369 - Other current liabilities 16,407 10,345 --------- --------- Total current liabilities 67,902 41,627 Long-term debt 176,983 38,443 Other long-term liabilities 21,933 20,807 Deferred income taxes 16,181 7,725 Commitments and contingencies Stockholders' equity: Preferred stock without par value, 2,000,000 shares authorized, none issued or outstanding - - Common stock without par value, 15,000,000 shares authorized, 9,003,140 and 8,906,905 shares issued and outstanding in 1997 and 1996, respectively 38,787 37,575 Foreign currency translation adjustment (977) 403 Unearned ESOP shares (3,224) (3,205) Unearned compensation (238) (556) Additional pension liability (1,413) (1,649) Retained earnings 28,409 70,314 --------- --------- Total stockholders' equity 61,344 102,882 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 344,343 $ 211,484 ========= =========
See accompanying notes. 18 19 FURON COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY IN THOUSANDS, EXCEPT SHARE AMOUNTS YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
Foreign Total Common Stock Currency Unearned Unearned Additional Stock- --------------------- Translation ESOP Compen- Pension Retained holders' Shares Amount Adjustment Shares sation Liability Earnings Equity - --------------------------------- ------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 29, 1994 8,625,706 $35,320 $(1,034) $(2,688) $ (709) $ - $49,926 $80,815 - --------------------------------- ----------------------------------------------------------------------------------------------- Cash dividends - - - - - - (2,088) (2,088) Exercise of stock options 349,272 5,018 - - - - - 5,018 Retired shares (218,529) (4,763) - - - - - (4,763) Grant of restricted shares, net of cancellations 43,715 705 - - (705) - - - Amortization of unearned compensation - - - - 529 - - 529 Foreign currency translation adjustment - - 1,453 - - - - 1,453 Loan to ESOP, net - - - (424) - - - (424) Minimum pension liability adjustment - - - - - (379) - (379) Net income - - - - - - 11,438 11,438 - --------------------------------- ----------------------------------------------------------------------------------------------- BALANCE AT JANUARY 28, 1995 8,800,164 36,280 419 (3,112) (885) (379) 59,276 91,599 - --------------------------------- ----------------------------------------------------------------------------------------------- Cash dividends - - - - - - (2,131) (2,131) Exercise of stock options 90,312 1,133 - - - - - 1,133 Retired shares (11,852) (251) - - - - - (251) Grant of restricted shares 10,610 215 - - (215) - - - Cancellations of restricted shares (13,420) (212) - - 112 - - (100) Stock issued under Employee Stock Purchase Plan 31,091 410 - - - - - 410 Amortization of unearned compensation - - - - 432 - - 432 Foreign currency translation adjustment - - (16) - - - - (16) Loan to ESOP, net - - - (93) - - - (93) Minimum pension liability adjustment - - - - - (1,270) - (1,270) Net income - - - - - - 13,169 13,169 - --------------------------------- ----------------------------------------------------------------------------------------------- BALANCE AT FEBRUARY 3, 1996 8,906,905 37,575 403 (3,205) (556) (1,649) 70,314 102,882 - --------------------------------- ----------------------------------------------------------------------------------------------- Cash dividends - - - - - - (2,154) (2,154) Exercise of stock options 109,304 1,690 - - - - - 1,690 Retired shares (38,750) (836) - - - - - (836) Grant of restricted shares 4,278 102 - - (102) - - - Cancellations of restricted shares (12,835) (206) - - 67 - - (139) Stock issued under Employee Stock Purchase Plan 34,238 462 - - - - - 462 Amortization of unearned compensation - - - - 353 - - 353 Foreign currency translation adjustment - - (1,380) - - - - (1,380) Loan to ESOP, net - - - (19) - - - (19) Minimum pension liability adjustment - - - - - 236 - 236 Net loss - - - - - - (39,751) (39,751) - --------------------------------- ------------------------------------------------------------------------------------------------ BALANCE AT FEBRUARY 1, 1997 9,003,140 $ 38,787 $ (977) $(3,224) $ (238) $ (1,413) $ 28,409 $ 61,344 - --------------------------------- -----------------------------------------------------------------------------------------------
See accompanying notes. 19 20 FURON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED ------------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, IN THOUSANDS 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) $(39,751) $ 13,169 $ 11,438 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 13,615 11,292 9,540 Amortization 3,544 3,783 3,961 Provision for losses on accounts receivable 364 724 303 Increase (decrease) in deferred income taxes (1,417) 2,239 46 Write-off of acquired in-process research and development 53,700 - - Nonrecurring charges 4,329 - - (Gain) loss on sale of assets and divestitures 46 (2,385) 15 Working capital changes, net of acquisitions and disposals: Accounts receivable 2,288 2,467 (11,173) Inventories 5,294 (2,059) (4,918) Accounts payable and accrued liabilities (2,977) (3,663) 4,063 Income taxes payable 4,276 (1,790) (3,704) Other current assets and liabilities, net 474 (43) (2,561) --------- --------- ---------- 9,355 (5,088) (18,293) Changes in other long-term operating assets and liabilities 238 1,783 842 --------- --------- ---------- Net cash provided by operating activities 44,023 25,517 7,852 INVESTING ACTIVITIES Acquisition of businesses, net of cash acquired (157,752) (43,497) - Purchases of property, plant and equipment (18,936) (13,570) (12,912) Proceeds from sale of businesses 4,204 8,517 543 Proceeds from sale of equipment 1,563 334 185 Proceeds from notes receivable 286 844 429 Increase in notes receivable (444) (242) (810) --------- --------- ---------- Net cash used in investing activities (171,079) (47,614) (12,565) FINANCING ACTIVITIES Proceeds from long-term debt 182,000 46,756 8 Principal payments on long-term debt (51,430) (29,506) (6,015) Deferred debt costs (1,326) - - Proceeds from issuance of common stock 715 782 255 Principal payments received from ESOP 458 384 384 Dividends paid on common stock (2,154) (2,131) (2,088) Loan to ESOP (566) (579) (808) --------- --------- ---------- Net cash provided by (used in) financing activities 127,697 15,706 (8,264) EFFECT OF EXCHANGE RATE CHANGES ON CASH (641) (84) 969 --------- --------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS - (6,475) (12,008) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR - 6,475 18,483 --------- --------- ---------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ - $ - $ 6,475 ========= ========= ==========
See accompanying notes. 20 21 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Furon Company and its subsidiaries, all of which are wholly owned. All significant intercompany transactions have been eliminated. Certain reclassifications have been made to prior year amounts in order to be consistent with the current year presentation. Fiscal Year The Company's fiscal year ends on the Saturday closest to January 31. The fiscal year refers to the year in which the period ends (e.g. fiscal 1997 ended February 1, 1997). Fiscal year 1997 consists of 52 weeks and fiscal years 1996 and 1995 consisted of 53 weeks and 52 weeks, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Consolidated Statements of Cash Flows Excess cash is invested in income-producing investments including commercial paper, money market accounts, overnight repurchase agreements and short-term certificates of deposit with original maturities of less than three months. These investments are stated at cost which approximates market. Included in other (income) expense in the consolidated statements of operations is interest and dividend income from investments of $0.8 million, $0.1 million, and $0.7 million in fiscal 1997, 1996 and 1995, respectively. Interest paid in fiscal 1997, 1996 and 1995 was $3.2 million, $2.9 million, and $2.5 million, respectively. Income taxes paid in fiscal 1997, 1996 and 1995 were $3.5 million, $4.1 million and $8.5 million, respectively. 21 22 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Inventories Inventories, stated at the lower of cost (first-in, first-out) or market, are summarized as follows:
FEBRUARY 1, FEBRUARY 3, IN THOUSANDS 1997 1996 - ------------------------------------------------------------------------------------------------------ Raw materials and purchased parts $ 22,841 $ 13,604 Work-in-process 14,121 11,503 Finished goods 21,649 14,720 ---------- ---------- $ 58,611 $ 39,827 ========= =========
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)
Concentrations of Credit Risk Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, and their dispersion across many different geographical regions. At February 1, 1997, the Company had no significant concentrations of credit risk. Research and Development Costs Research and development costs are expensed as incurred. Total research and development expense, including application engineering, for fiscal 1997, 1996 and 1995 was $12.5 million, $8.5 million and $7.1 million, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations. Continuous research and development is necessary for the Company to maintain its competitive position. 22 23 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Intangible Assets Intangible assets acquired in business combinations, net of accumulated amortization, are summarized as follows:
FEBRUARY 1, FEBRUARY 3, IN THOUSANDS 1997 1996 - ------------------------------------------------------------------------------------------------------ Goodwill $ 42,016 $ 9,113 Other intangible assets 32,624 14,430 --------- -------- $ 74,640 $ 23,543 ========= ========
Goodwill is amortized over 25 years. Other intangible assets are amortized over periods ranging from 7 to 25 years. Translation of Foreign Currencies Foreign subsidiary financial statements are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translations." The resulting cumulative foreign currency translation adjustment is reported separately in stockholders' equity. Transaction gains and losses included in results of operations were not significant in fiscal 1997, 1996 and 1995. The functional currency of the Company's foreign operations is the respective local currency. Net Income (Loss) Per Share Net income (loss) per share is based on the weighted average number of common shares outstanding and common share equivalents resulting from dilutive stock options, if any, outstanding in each of the three years in the period ended February 1, 1997. The number of shares used in the computation was 8,885,769, 9,040,262 and 8,992,926, respectively. Long-Lived Assets In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." In accordance with SFAS No. 121, management evaluates the recoverability of the long-lived assets on an ongoing basis taking into consideration such factors as recent operating results, projected cash flows and plans for future operations. The implementation of SFAS No. 121 did not have an impact on the Company's consolidated financial statements. 23 24 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Stock-Based Compensation The Company accounts for stock-based employee compensation in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." 2. ACQUISITIONS AND DISPOSITIONS Acquisitions On January 2, 1997, the Company completed a tender offer for the outstanding shares of Medex, Inc., ("Medex"). The aggregate purchase price of $159.4 million, plus $5.6 million of costs directly attributable to the completion of the acquisition, has been preliminarily allocated to the assets and liabilities acquired, including $6.1 million related to facilities rationalization and severance, using the purchase method of accounting. Management believes that any resulting adjustments will not have a material effect on the Company's financial position or results of operations. Of the total purchase price, $53.7 million represented the value of in-process research and development which was expensed at the time of acquisition. The remainder of the purchase price in excess of the estimated fair value of net assets acquired was $30.0 million and is being amortized using the straight-line method over 25 years. Medex is engaged in the business of manufacturing polymer-based critical care products and infusion systems for medical and surgical applications. Medex's results of operations have been included in the consolidated financial statements since January 2, 1997. Effective April 1, 1996, the Company completed the acquisition of the net assets of Econocruise Ltd. based in Rugby, England. Econocruise manufactures electronic control systems for mobile equipment and major truck manufacturers in Europe. This acquisition has been recorded using the purchase method of accounting and the results of operations have been included since the date of acquisition. The purchase price of $4.6 million has been allocated to the net assets acquired based on their estimated fair values with no goodwill being recorded. On February 2, 1996, the Company acquired certain assets and assumed certain liabilities of the Fluorglas business ("Fluorglas") from AlliedSignal Inc., for $19.0 million in cash. Fluorglas manufactures a broad line of pressure sensitive adhesive tapes and PTFE flexible composites and fabrications in facilities located in Hoosick Falls, New York. On January 31, 1995 the Company acquired certain assets of Custom Coating & Laminating Corporation ("CC&L") for a cash purchase price of $24.0 million. In addition, the Company assumed certain liabilities approximating $2.4 million, and may pay up to an additional $4.0 million based upon future product sales over the next two fiscal years. The business manufactures release liners and other specialty engineered products incorporating surface chemistry technology. Its manufacturing facilities are located in Worcester, Massachusetts. These acquisitions have been recorded using the purchase method of accounting, and their results of operations have been included in the consolidated financial statements since the respective dates of acquisition. The excess purchase price over the estimated fair value of net assets acquired for Fluorglas of approximately $2.3 million and CC&L of approximately $9.3 million is being amortized using the straight-line method over 25 years. 24 25 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 2. ACQUISITIONS AND DISPOSITIONS (CONTINUED) Summarized below are the unaudited consolidated results of operations of the Company, including the Medex, Fluorglas and Econocruise businesses on a pro forma basis, as though the acquisitions had occurred at the beginning of each respective fiscal year, after giving effect to certain adjustments, including amortization of intangible assets, increased interest expense as a result of the incremental debt, decrease in depreciation and amortization resulting from the write-down of tangible assets to fair value and related income tax effects. Excluded from these adjustments is the Company's write-off of in-process research and development of $53.7 million. The Company's nonrecurring charges of $4.3 million are reflected in the fiscal 1996 pro forma amounts. The pro forma financial information is presented for informational purposes only and may not be indicative of the results of operations had the transactions been effected, nor is it necessarily indicative of the results of operations which may occur in the future. In addition, the pro forma information is not intended to be a projection of future results and does not reflect synergies or cost reductions expected to result from the combined operations.
YEARS ENDED FEBRUARY 1, FEBRUARY 3, IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1996 - ------------------------------------------------------------------------------- Net sales $ 488,766 $ 494,075 Net income 8,035 6,800 Net income per share of common stock 0.88 0.75
Dispositions During fiscal year ended February 1, 1997 the Company sold three businesses for $4.2 million in cash. No gain or loss resulted from these sales. During the fiscal year ended February 3, 1996 the Company sold two businesses for a net pre-tax gain of $2.7 million and accrued approximately $0.7 million for insurance reserves relative to one of the businesses. These amounts are included in other (income) expense in the accompanying consolidated statements of operations. 3. NONRECURRING CHARGES In conjunction with the acquisitions and divestitures made during fiscal years ended February 1, 1997 and February 3, 1996, the Company has developed plans to close and consolidate certain businesses. Operating income for fiscal year 1997 includes total nonrecurring charges of $4.3 million. The charges include $1.5 million for severance and $2.8 million for facilities rationalization. 25 26 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 4. INCOME TAXES The provision (benefit) for income taxes for the three years ended February 1, 1997, consists of the following:
IN THOUSANDS CURRENT DEFERRED TOTAL - ------------------------------------------------------------------------------- 1997: Federal $ 7,535 $ (1,730) $ 5,805 Foreign 969 - 969 State 529 214 743 --------- --------- -------- $ 9,033 $ (1,516) $ 7,517 ========= ========= ======== 1996: Federal $ 954 $ 2,300 $ 3,254 Foreign 1,197 - 1,197 State 855 (61) 794 --------- --------- -------- $ 3,006 $ 2,239 $ 5,245 ========= ========= ======== 1995: Federal $ 4,714 $ (79) $ 4,635 Foreign 848 - 848 State 551 125 676 --------- --------- -------- $ 6,113 $ 46 $ 6,159 ========= ========= ========
26 27 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 4. INCOME TAXES (CONTINUED) The provision (benefit) for income taxes differs from the amount computed by applying the statutory income tax rate for the following reasons:
FEBRUARY 1, 1997 FEBRUARY 3, 1996 JANUARY 28, 1995 IN THOUSANDS AMOUNT % AMOUNT % AMOUNT % - ------------------------------------------------------------------------------------------------------------------------ Statutory federal provision $ (11,282) (35.0) $6,445 35.0 $6,159 35.0 Acquired in-process research and development 18,795 58.3 - - - - State and local taxes, net of federal tax benefits 667 2.1 801 4.4 1,076 6.1 Effect of foreign taxes 103 0.3 (164) (0.9) (145) (0.8) Research and experimental credit (230) (0.7) (195) (1.1) (424) (2.4) Export sales corporation benefit (456) (1.4) (376) (2.0) (393) (2.2) Realization of reserves due to completed audit cycles and closure of earlier fiscal years - - (1,200) (6.5) - - Other (80) (0.3) (66) (0.4) (114) (0.7) -------- ------- ------ ------ ------ ------ $ 7,517 23.3 $5,245 28.5 $6,159 35.0 ======== ======= ====== ====== ====== ======
27 28 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 4. INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax liabilities and assets are as follows:
FEBRUARY 1, FEBRUARY 3, IN THOUSANDS 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Tax over book depreciation $ (7,172) $ (5,844) Intangible assets (7,656) - ----------- -------- Total liabilities (14,828) (5,844) ---------- --------- Deferred tax assets: Inventories 3,897 923 Net operating losses 860 - Nonrecurring charges 2,281 - Accruals recognized in different periods for tax than financial reporting 3,759 4,113 ---------- -------- Total assets 10,797 5,036 Valuation allowance for realization of and payment for reserves (1,739) (1,739) --------- ------- Net deferred tax assets 9,058 3,297 ---------- -------- Total deferred taxes $ (5,770) $ (2,547) ========== ========
Applicable U.S. income and foreign withholding taxes have not been provided on undistributed earnings of certain foreign subsidiaries and affiliates aggregating $6.0 million at February 1, 1997. Management's intention is to reinvest such undistributed earnings outside the United States for an indefinite period except for distributions upon which incremental U.S. income taxes would not be material. Any withholding taxes ultimately paid, which could approximate $0.3 million, may be recoverable as foreign tax credits in the United States. 28 29 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 4. INCOME TAXES (CONTINUED) During the fourth quarter of fiscal 1995 the Company resolved the Internal Revenue Service audit for fiscal years 1988 and 1989 relating to the purchase price allocation of an acquisition made in fiscal 1988. This resolution did not have a material effect on the Company's financial position or results of operations. A subsidiary of the Company has federal net operating loss carryforwards available against its taxable income of approximately $2.4 million that expire from fiscal 2000 through fiscal 2004. 5. LONG-TERM DEBT Long-term debt is summarized as follows:
FEBRUARY 1, FEBRUARY 3, IN THOUSANDS 1997 1996 - --------------------------------------------------------------------------------------------------------------- Loans under bank credit agreements $ 169,000 $ 38,000 Industrial Revenue Bonds 6,775 - Other 2,209 721 ----------- ---------- Total long-term debt 177,984 38,721 Less current portion 1,001 278 ----------- ---------- Due after one year $ 176,983 $ 38,443 =========== ==========
Under a Credit Agreement, dated as of November 12, 1996 (the "Credit Agreement"), by and among Furon, the lenders party thereto (the "Lenders") and The Bank of New York ("BNY"), as Swing Line Lender and as Administrative Agent, Furon may borrow up to an aggregate principal amount not to exceed $200.0 million (the "Facility") (such amount subject to increase to $250.0 million in aggregate principal amount upon request of Furon and the agreement of Lenders to provide such additional amounts). Effective March 27, 1997, the aggregate principal amount was increased to $250.0 million. Amounts borrowed under the Credit Agreement will mature November 12, 2001 and may be prepaid by Furon at any time in whole, or from time to time in part. Borrowings under the Credit Agreement will bear interest, at Furon's option, at a rate per annum equal to either: (i) the greater of (a) BNY's prime commercial lending rate as publicly announced to be in effect from time to time and (b) 1/2% plus the federal funds rate (as published by Federal Reserve Bank of New York); or (ii) LIBOR (adjusted for reserves) plus an applicable margin subject to performance grid pricing for interest periods of one, two, three or six months or (iii) with respect to swing line loans a rate negotiated between BNY and Furon. Any amounts not paid when due bear interest at the rate otherwise applicable plus two percent. 29 30 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 5. LONG-TERM DEBT (CONTINUED) The Credit Agreement provides for the payment of a commitment fee of a certain rate per annum subject to performance grid pricing on the average daily unused amount of the Facility. At February 1, 1997, the unused portion of the credit facility was $31.0 million ($81.0 million as of March 27, 1997). Borrowing rates during the year ranged from 5.7% to 8.3% (6.3% at February 1, 1997). At February 1, 1997, the outstanding principal balance of the Industrial Revenue Bonds consisted of two separate bond issues. The first outstanding issue is at approximately $2.8 million with varying annual principal payments due June 1998 through June 2002 and annual interest at an average rate of 6.18%. The issue is secured by a $3.0 million bank letter of credit. Any borrowings made under the letter of credit bear interest at the bank's prime rate plus two percent and are secured by land and buildings with an approximate net book value of $3.2 million. The letter of credit agreement automatically renews every month through the maturity of the bond, subject to a 13-month notification from the issuer of their intention not to renew the letter. The second outstanding issue is at $4.0 million with annual principal payments of $0.2 million due July 1997 through July 2016 and bears interest at a weekly competitive adjustable rate. The issue is secured by a $4.0 million bank letter of credit. Any borrowings under the letter of credit bear interest at a weekly adjustable rate. The letter of credit is unsecured and expires in July 2001. 6. COMMITMENTS AND CONTINGENCIES At February 1, 1997, the Company is obligated under non-cancelable leases of real property and equipment used in its operations for minimum annual rentals plus insurance and taxes. Amounts payable under these obligations are as follows:
FISCAL YEARS ENDED IN THOUSANDS ------------ ------------ 1998 $ 8,751 1999 7,255 2000 5,624 2001 4,586 2002 4,025 Thereafter 19,352
30 31 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 6. COMMITMENTS AND CONTINGENCIES (CONTINUED) Certain leases contain escalation provisions for periodic adjustments based on certain indices. Rental expense for operating leases for the three years in the period ended February 1, 1997 was $8.7 million, $8.6 million and $8.0 million, respectively. At February 1, 1997, the Company is obligated under irrevocable letters of credit totaling $9.1 million, including those related to the Industrial Revenue Bonds as described in Note 5. At February 1, 1997, the Company had approximately $1.6 million of foreign currency hedge contracts outstanding consisting of over-the-counter forward contracts. The contracts reflect the selective hedging of the Belgium Franc with varying maturities up to six months. Net unrealized gains/losses from hedging activities were not material as of February 1, 1997. The Company is currently involved in various litigation. Management of the Company is of the opinion that the ultimate resolution of such litigation should not have a material adverse effect on the Company's consolidated financial position or results of operations. The manufacture and sale of health care products like the MEDEX critical care accessories and infusion systems are subject to regulation by the U.S. Food and Drug Administration ("FDA") and certain foreign agencies. These regulations range from prescribing "good manufacturing practices" to generally requiring FDA clearance of new health care products before they can be marketed. Medex has historically been able to seek this clearance for its products through the FDA's "510(k)" pre-market notification program which, as compared to the FDA's pre-market approval process, requires less time and the submission of limited clinical and supporting information. The Company expects any new Medex products to continue to qualify for the 510(k) pre-market notification program. The FDA routinely conducts inspections to confirm compliance with its regulations and failure to comply with them can, among other things, result in product recalls and bans, operating restrictions, and civil and criminal penalties. The Company believes that Medex is currently in compliance with these governmental regulations. Compliance with environmental laws and regulations designed to regulate the discharge of materials into the environment or otherwise protect the environment requires continuing management effort and expenditures by the Company. The Company does not believe that the operating costs incurred in the ordinary course of business to satisfy air and other permit requirements, properly dispose of hazardous wastes and otherwise comply with these laws and regulations form or will form a material component of its operating costs or have or will have a material adverse effect on its competitive or consolidated financial positions. As of February 1, 1997, the Company's reserves for environmental matters totaled approximately $1.6 million. The Company or one or more of its subsidiaries is currently involved in environmental investigation or remediation directly or as an EPA-named potentially responsible party or private cost recovery/contribution action defendant at various sites, including the following "superfund" waste disposal sites: Solvents Recovery Service of New England in Southington, Connecticut; Gallup's Quarry in Plainfield, Connecticut; Davis Liquid Waste and Picillo in Coventry, Rhode Island; Malvern in Malvern, Pennsylvania; and Granville in Granville, Ohio. While neither the timing nor the amount of the ultimate costs associated with these matters can be determined with certainty, based on information currently available to the Company, including investigations to determine the nature of the potential liability, the estimated amount of investigation and remedial costs expected to be incurred and other factors, the Company presently believes that its environmental reserves should be sufficient to cover the Company's aggregate liability for these matters and, accordingly, does not expect them to have a material adverse effect on its consolidated financial position or results of operations. The actual costs to be incurred by the Company at each site will depend on a number of factors, including one or more of the following: the final delineation of contamination; the final determination of the remedial action required; negotiations with governmental agencies with respect to cleanup levels; changes in regulatory requirements; innovations in investigatory and remedial technology; effectiveness of remedial technologies employed; and the ultimate ability to pay of any other responsible parties. 7. STOCKHOLDERS' EQUITY STOCK COMPENSATION PLANS At February 1, 1997, the Company has three stock-based compensation plans (two stock incentive plans and an Employee Stock Purchase Plan), which are described below. The Company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock option awards and its stock purchase plan because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant. Had compensation expense for the Company's stock option awards under its stock incentive plans and its stock purchase plan been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:
1997 1996 ---- ---- Net income (loss) As reported $(39,751) $13,169 Pro forma (40,236) 13,005 Earnings (loss) per share As reported $(4.47) $1.46 Pro forma (4.53) 1.44
The stock based compensation for fiscal 1997 and 1996 reflected in the above pro forma information may not be indicative of such compensation in future periods as it only reflects options granted in fiscal 1997 and 1996. 31 32 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 7. STOCKHOLDERS' EQUITY (CONTINUED) Stock Incentive Plans The Company has a 1995 Stock Incentive Plan and a 1982 Stock Incentive Plan. Under both plans, the Compensation Committee, appointed by the Board of Directors, is authorized to grant awards to any officer or key employee of the Company. Awards granted can take the form of non- qualified stock options, stock appreciation rights, restricted stock awards (RSAs), and performance share awards. The 1995 Stock Incentive Plan does not provide for depreciation rights and tax-offset bonuses which are components of the 1982 Stock Incentive Plan. The 1995 Stock Incentive Plan provides for the annual grant of awards in a maximum number of shares of common stock of 1.8% of the Company's issued and outstanding shares as of the last day of the preceding fiscal year, commencing with the fiscal year beginning February 4, 1996. Options are granted at a price equal to 100% of the fair market value at the date of grant and become exercisable not earlier than six months after the award date and vest at a rate of 25% per year. The options shall remain exercisable until the expiration date but not later than ten years after the award date. At February 1, 1997, 158,053 RSAs have been granted (of which 41,155 have been canceled) under the Stock Incentive Plans. The issuance of these RSAs resulted in $1.8 million (net of cancellations) of unearned compensation which is being amortized over the five year period in which the awards vest. The fair value of each stock option grant is estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal years 1997 and 1996, respectively: dividend yield of 1.2% for both years; expected volatility of 38% and 37%; risk-free interest rates of 6.3% and 7.1%; and expected lives of 6 years for both option grants. A summary of the status of the Company's non-qualified stock option plans as of February 1, 1997 and February 3, 1996, and changes during the years ending on those dates is presented below:
1997 1996 --------------------------------- --------------------------------- SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE (000) EXERCISE PRICE (000) EXERCISE PRICE ----- ----------------- ------- ---------------- Outstanding at beginning of year 750,516 $ 14.153 729,328 $ 12.793 Granted 136,500 19.750 118,000 19.375 Exercised (109,304) 11.896 (90,312) 9.617 Forfeited (9,000) 19.479 (6,500) 19.375 -------- -------- Outstanding at end of year 768,712 15.406 750,516 14.153 ======== ======== Options exercisable at year-end 506,274 531,516 ======== ======== Weighted-average fair value of options granted during the year $ 8.27 $ 8.32 ======== ========
32 33 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 7. STOCKHOLDERS' EQUITY (CONTINUED) The following table summarizes information about stock options outstanding at February 1, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------------------------------- -------------------------------- WEIGHTED RANGE OF AVERAGE WEIGHTED WEIGHTED EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE ---------------- ----------- ---------------- -------------- ----------- -------------- $ 9.75 - $ 13.50 386,837 3.1 years $12.190 385,712 $12.197 16.25 - 19.75 381,875 7.9 years 18.664 120,562 17.738 9.75 - 19.75 768,712 5.5 years 15.406 506,274 13.516
Employee Stock Purchase Plan Effective November 1, 1994 the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have completed one year of service an opportunity to purchase shares of its common stock through payroll deductions, up to 10% of eligible compensation. Annually, on October 31, participant account balances are used to purchase shares of stock at the lesser of 85 percent of the fair market value of shares on November 1 (grant date) or October 31 (exercise date). The aggregate number of shares purchased by an employee may not exceed 5,000 shares annually (subject to limitations imposed by the Internal Revenue Code). The Employee Stock Purchase Plan expires on October 31, 2004. A total of 200,000 shares are available for purchase under the plan. There were 34,238 and 31,091 shares issued under the plan during fiscal years 1997 and 1996, respectively. Compensation expense is recognized for the fair value of the employee's purchase rights, estimated using the Black-Scholes model, with the following assumptions for fiscal years 1997 and 1996, respectively: dividend yield of 1.1% and 1.5%; expected life of 1 year for both years; expected volatility of 33% and 31%; and risk-free interest rates of 5.4% and 5.3%. The weighted-average fair value of those purchase rights granted in fiscal years 1997 and 1996 was $5.76 and $4.22, respectively. 33 34 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 SHAREHOLDERS' RIGHTS PLAN On March 21, 1989, the Board of Directors authorized the distribution of one right for each outstanding share of common stock under the Shareholders' Rights Plan. The rights which were distributed on May 23, 1989, become exercisable ten business days after (i) a person has acquired or obtained the right to acquire 20% or more of the Company's general voting power without approval by the Board of Directors, or (ii) a tender or exchange offer which would make a person the beneficial owner of 30% or more of the Company's general voting power, whichever is earlier. When exercisable, each right entitles the shareholder to purchase one-fourth of a share of common stock at a price of $13.75, subject to adjustment. In the event the Company engages in certain business combinations or a 20% shareholder engages in certain transactions with the Company, each holder of a right (other than those of the acquiring person) shall have the right to receive, upon the exercise thereof and payment of four times the then current exercise price, that number of shares of common stock of the surviving Company's common stock which at the time of such transaction would have a market value of two times such price paid. 8. EMPLOYEE BENEFIT PLANS The Company and its subsidiaries sponsor various qualified plans which cover substantially all of its domestic employees including a profit- sharing/retirement plan, an employee stock ownership plan, and an employee stock purchase plan as described in Note 7. The Company also sponsors a nonqualified defined benefit plan covering certain employees. Profit-Sharing/Retirement Plan The trusteed profit-sharing/retirement plan provides for an employee salary deferral contribution, a company matching contribution and a company primary contribution. Under the deferral provisions (401K), eligible employees are permitted to contribute up to 10% of gross compensation to the profit-sharing/retirement plan. For amounts up to 8% of the employee's gross compensation the Company will match the employee's contribution at a rate determined by the Board of Directors. Under the company primary contribution provision, each eligible employee will receive a contribution to the profit-sharing/retirement plan based on a percentage of qualified wages as determined based on the Company's performance. Total Company contributions for fiscal 1997, 1996 and 1995 were $2.2 million, $1.9 million and $1.5 million, respectively. Employee Stock Ownership Plan The Company sponsors an Employee Stock Ownership Plan ("ESOP") covering substantially all of its employees (subject to certain limitations). The Company annually contributes amounts sufficient to cover principal and interest on loans made to the ESOP as determined by the Board of Directors. Prior to December 31, 1992, the Company loaned the ESOP $3.7 million ($1.6 million outstanding at February 1, 1997) to purchase 311,000 shares of stock, at interest rates ranging from 7.83% to 9.12%. The loans are payable in ten annual installments of principal and interest. The plan subsequently entered into loan agreements with the Company according to the table below. The proceeds of the loans were used to purchase shares of stock from a former officer and director of the Company. These loans are payable in ten annual installments of principal and interest beginning in fiscal 1996. Shares are released and allocated to participant accounts annually as loan repayments are made. 34 35 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 8. EMPLOYEE BENEFIT PLANS (CONTINUED) Employee Stock Ownership Plan (continued)
Interest Original Outstanding Loan Date Rate Loan Amount at Feb. 1, 1997 Shares Purchased - --------------------------------------------------------------------------------------------------------------------- June 9, 1994 7.52 % $ 217,500 $ 187,436 15,000 August 26, 1994 7.67 268,125 235,243 15,000 November 23, 1994 7.45 322,500 289,240 15,000 June 14, 1995 7.31 231,250 216,744 10,000 September 5, 1995 6.91 206,250 196,475 10,000 December 14, 1995 6.36 141,563 137,570 7,500 March 26, 1996 6.07 322,500 320,162 15,000 June 11, 1996 7.04 243,750 243,750 10,000 ---------- ---------- ------ $1,953,438 $1,826,620 97,500 ========== ========== =======
In fiscal 1995, the Company adopted the provisions of AICPA Statement of Position No. 93-6 ("SOP") which requires that compensation expense be measured based on the fair value of the shares over the period the shares are earned. In addition, the SOP requires that dividends paid on unallocated shares held by the ESOP are reported as a reduction of accrued interest or as compensation expense rather than a charge to retained earnings, and shares not yet committed to be released are not considered outstanding in the calculation of earnings per share. As allowed by the SOP, the Company has elected not to apply the SOP's provisions to shares acquired prior to fiscal 1994. As such, compensation expense related to such shares is measured based on the historical cost of the shares, dividends have been deducted as a charge to retained earnings and the unallocated shares are considered outstanding in the calculation of earnings per share. The adoption of the SOP did not have a material impact on the consolidated financial statements. Of the leveraged shares acquired prior to fiscal 1994, 135,241 and 134,428 are allocated and unallocated, respectively, at February 1, 1997. Of the leveraged shares acquired beginning in fiscal 1994, there were 6,654 allocated shares, 14,796 committed-to-be-released shares, and 76,050 unallocated shares at February 1, 1997. The fair value of unallocated shares was $1.8 million at February 1, 1997. Total compensation cost recognized by the Company during fiscal 1997, 1996 and 1995, which consists of the annual contribution and plan administrative costs, net of dividend income on unallocated and forfeited shares, totaled $0.8 million, $0.7 million and $0.5 million, respectively. Supplemental Executive Retirement Plan In fiscal 1987, the Company adopted an unfunded executive defined benefit retirement plan for certain key officers of the Company, which provides for benefits which supplement those provided by the Company's other retirement plans. Benefits payable under the plan are based upon compensation levels and length of service of the participants. In accordance with SFAS No. 87, "Employers' Accounting for Pensions," the Company has recorded an additional liability of $2.0 million and $2.3 million in fiscal 1997 and 1996, respectively, which represents the excess of the accumulated benefit obligation over previously recognized accrued pension costs. In 1997 and 1996, the excess of additional pension liability 35 36 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 8. EMPLOYEE BENEFIT PLANS (CONTINUED) Supplemental Executive Retirement Plan (continued) over the unrecognized net transition obligation has been recorded as a component of stockholders' equity. Actuarial present value of benefit obligations:
FEBRUARY 1, FEBRUARY 3, IN THOUSANDS 1997 1996 - --------------------------------------------------------------------------------------------------------------- Vested benefit obligation $ 8,364 $ 8,200 ========== ========== Accumulated benefit obligation $ 8,527 $ 8,345 ========== ========== Unfunded projected benefit obligation $ 8,781 $ 8,652 Unrecognized net loss (1,667) (1,956) Unrecognized net transition obligation (608) (693) ---------- ---------- 6,506 6,003 Additional minimum liability 2,021 2,342 ---------- ---------- Accrued pension cost $ 8,527 $ 8,345 ========== ========== Assumptions: Discount rate 7.75% 7.50% Salary increase rate 5.00% 5.00%
Net periodic pension costs for fiscal 1997, 1996 and 1995 were as follows:
YEARS ENDED -------------------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, IN THOUSANDS 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------ Service cost $ 41 $ 37 $ 44 Interest cost 638 618 609 Net amortization and deferral 192 211 212 ------ ------ ------ $ 871 $ 866 $ 865 ====== ====== ======
36 37 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
IN THOUSANDS, EXCEPT INCOME (LOSS) NET INCOME (LOSS) PER SHARE DATA NET SALES GROSS PROFIT BEFORE TAXES NET INCOME (LOSS) PER SHARE (a) - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED FEBRUARY 1, 1997 1st Quarter $ 94,763 $ 26,497 $ 6,906 $ 4,558 $ 0.50 2nd Quarter 96,216 26,046 5,901 3,895 0.43 3rd Quarter 96,227 25,668 6,144 4,055 0.44 4th Quarter 102,899 30,313 (51,185)(b) (52,259) (5.86) YEAR ENDED FEBRUARY 3, 1996 1st Quarter $ 88,453 $ 25,560 $ 5,162 $ 3,355 $ 0.37 2nd Quarter 82,300 22,343 4,169 2,710 0.30 3rd Quarter 85,401 23,065 4,457 3,797 0.42 4th Quarter 88,732 24,816 4,626 (c) 3,307 0.37
(a) Net income (loss) per share is computed independently for each of the quarters based on the weighted average number of shares outstanding for each period, and the sum of the quarters may not necessarily be equal to the full year net income (loss) per share amount. (b) The fourth quarter of fiscal year ended February 1, 1997 includes the write-off of acquired in-process research and development of $53.7 million and nonrecurring charges of $4.3 million as described in Notes 2 and 3. (c) The fourth quarter of fiscal year ended February 3, 1996 includes a gain on sale of businesses of approximately $2.7 million, a charge of approximately $1.4 million relative to various compensation plans and a charge of approximately $1.3 million in connection with the closing of certain facilities. 37 38 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 1, 1997 10. SEGMENT INFORMATION The Company designs, develops and manufactures highly engineered components made primarily from specially formulated high performance polymer materials, a single business segment. Most of Furon's products are designed and engineered to meet specific requirements of customers in the industrial process, transportation, industrial equipment, electronics and health care industries. The following table provides information as to the significant geographic areas in which the Company has operations.
YEARS ENDED ------------------------------------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, IN THOUSANDS 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- Net sales to outside customers: United States $ 344,727 $ 309,683 $ 283,006 Europe 45,378 35,203 29,054 ---------- --------- --------- $ 390,105 $ 344,886 $ 312,060 =========== ========= ========= Income (loss) before income taxes: United States $ (33,690) $ 15,333 $ 15,096 Europe 1,456 3,081 2,501 ----------- --------- --------- $ (32,234) $ 18,414 $ 17,597 =========== ========= ========= Identifiable assets: United States $ 295,737 $ 190,463 $ 160,848 Europe 48,606 21,021 19,025 ---------- --------- --------- $ 344,343 $ 211,484 $ 179,873 =========== ========= ========= Export sales $ 42,529 $ 35,967 $ 38,145 ========== ========= =========
38 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 3, 1997. Information concerning the Company's executive officers is included in Part I. ITEM 11. EXECUTIVE COMPENSATION Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 3, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 3, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 3, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Page ---- (a) 1. Index to Financial Statements Report of Independent Auditors 15 Consolidated Statements of Operations Years ended February 1, 1997, February 3, 1996 and January 28, 1995 16
39 40 PART IV (CONTINUED) ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (CONTINUED)
Page ---- Consolidated Balance Sheets February 1, 1997 and February 3, 1996 17 Consolidated Statements of Stockholders' Equity Years ended February 1, 1997, February 3, 1996 and January 28, 1995 19 Consolidated Statements of Cash Flows Years ended February 1, 1997, February 3, 1996 and January 28, 1995 20 Notes to Consolidated Financial Statements February 1, 1997 21 2. Index to Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts 41
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require the submission of the schedules, or because the information required is included in the consolidated financial statements or the notes thereto. 3. Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed as part of this annual report. (b) Reports on Form 8-K: On January 17, 1997, the Registrant filed with the Commission a Form 8-K dated that date, which reported the acquisition of Medex, Inc. in Item 2 and included Medex's consolidated financial statements for its fiscal year ended June 30, 1996 (audited) and fiscal quarter ended September 30, 1996 (unaudited). 40 41 FURON COMPANY SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
DEDUCTIONS/ BALANCE AT ADDITIONS ACCOUNTS WRITTEN BEGINNING CHARGED TO COSTS OFF NET OF BALANCE AT OF YEAR AND EXPENSES RECOVERIES OTHER END OF YEAR ----------- ------------ --------- ---------- ---------- ALLOWANCE FOR DOUBTFUL RECEIVABLES: 1997 $ 1,366,935 $ 364,164 $ (453,421) $ 815,633 (a) $ 2,093,311 =========== ============ ========== ========== =========== 1996 $ 695,750 $ 724,147 $ (256,851) $ 203,889 (a) $ 1,366,935 =========== ============ ========== ========== =========== 1995 $ 631,540 $ 302,954 $ (238,744) $ - $ 695,750 =========== ============ ========== ========== ===========
(a) Relates to opening balances of acquisitions. 41 42 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 Agreement and Plan of Merger, dated November 12, 1996, by and among the Registrant, FCY, Inc. and Medex, Inc. (Incorporated by reference to Exhibit 99.10 to the Registrant's Schedule 14D-1 filed on November 15, 1996, Commission File No. 0-8088).
* A management contract or compensatory plan or arrangement. 42 43 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 1997 (Incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K filed on March 25, 1996, Commission File No. 0-8088). 10.10* Promissory note and subordination agreement for Terrence A. Noonan relocation (Incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088).
* A management contract or compensatory plan or arrangement. 43 44 FURON COMPANY INDEX TO EXHIBITS (CONTINUED)
REGULATION S-K SEQUENTIAL ITEM NUMBER PAGE NUMBER ----------- ----------- 10.11 1993 Non-Employee Directors' Stock Compensation Plan, as amended (Incorporated by reference to Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q filed on June 2, 1994 and Exhibit 10.12A to the Registrant's Quarterly Report on Form 10-Q filed on August 24, 1995, Commission File No. 0-8088). 10.12* 1995 Stock Incentive Plan (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement filed May 1, 1995, Commission File No. 0-8088). 10.12A* Amendment 1996-1 to 1995 Stock Incentive Plan. 10.13 Credit Agreement, dated as of November 12, 1996, between the Registrant, the Lenders party thereto, the Bank of New York, as swing line lender and administrative agent, and BNY Capital Markets, Inc., as arranging agent (Incorporated by reference to Exhibit 99.9 to the Registrant's Schedule 14D-1 filed on November 15, 1996, Commission File No. 0-8088). 10.14 Asset Purchase Agreement, dated November 9, 1995, by and among the Registrant, as Purchaser, AlliedSignal Laminate Systems, Inc., as Seller, and AlliedSignal Inc., as Parent (Incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K filed on March 25, 1996, Commission File No. 0-8088). 11 Statement re: Computation of Net Income (Loss) Per Share 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors 27 Financial Data Schedule
* A management contract or compensatory plan or arrangement. 44 45 SIGNATURES AND POWER OF ATTORNEY Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf on March 25, 1997 by the undersigned, thereunto duly authorized. FURON COMPANY By: /s/ MONTY A. HOUDESHELL /s/ DAVID L. MASCARIN ------------------------- ---------------------------------- Monty A. Houdeshell David L. Mascarin 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 25, 1997 (Principal Executive Officer), March 25, 1997 /s/ TERRENCE A. NOONAN /s/ H. DAVID BRIGHT ---------------------------------- ---------------------------------- Terrence A. Noonan H. David Bright President and Director, March 25, 1997 Director, March 25, 1997 /s/ PETER CHURM /s/ WILLIAM D. CVENGROS ---------------------------------- ------------------------- Peter Churm William D. Cvengros Chairman Emeritus, March 25, 1997 Director, March 25, 1997 /s/ MONTY A. HOUDESHELL /s/ R. DAVID THRESHIE ---------------------------------- ---------------------------------- Monty A. Houdeshell R. David Threshie Vice President, Chief Financial Director, March 25, 1997 Officer and Treasurer, March 25, 1997 /s/ BRUCE E. RANCK ---------------------------------- /s/ DAVID L. MASCARIN Bruce E. Ranck ---------------------------------- Director, March 25, 1997 David L. Mascarin Controller, March 25, 1997 /s/ WILLIAM C. SHEPHERD ------------------------- William C. Shepherd Director, March 25, 1997
45 46 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 Agreement and Plan of Merger, dated November 12, 1996, by and among the Registrant, FCY, Inc. and Medex, Inc. (Incorporated by reference to Exhibit 99.10 to the Registrant's Schedule 14D-1 filed on November 15, 1996, Commission File No. 0-8088).
* A management contract or compensatory plan or arrangement. 46 47 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 1997 (Incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K filed on March 25, 1996, Commission File No. 0-8088). 10.10* Promissory note and subordination agreement for Terrence A. Noonan relocation (Incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088).
* A management contract or compensatory plan or arrangement. 47 48 FURON COMPANY INDEX TO EXHIBITS (CONTINUED)
REGULATION S-K SEQUENTIAL ITEM NUMBER PAGE NUMBER ----------- ----------- 10.11 1993 Non-Employee Directors' Stock Compensation Plan, as amended (Incorporated by reference to Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q filed on June 2, 1994, and Exhibit 10.12A to the Registrant's Quarterly Report on Form 10-Q filed on August 24, 1995, Commission File No. 0-8088). 10.12* 1995 Stock Incentive Plan (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement filed May 1, 1995, Commission File No. 0-8088). 10.12A* Amendment 1996-1 to 1995 Stock Incentive Plan. 10.13 Credit Agreement, dated as of November 12, 1996, between the Registrant, the Lenders party thereto, the Bank of New York, as swing line lender and administrative agent, and BNY Capital Markets, Inc., as arranging agent (Incorporated by reference to Exhibit 99.9 to the Registrant's Schedule 14D-1 filed on November 15, 1996, Commission File No. 0-8088). 10.14 Asset Purchase Agreement, dated November 9, 1995, by and among the Registrant, as Purchaser, AlliedSignal Laminate Systems, Inc., as Seller, and AlliedSignal Inc., as Parent (Incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K filed on March 25, 1996, Commission File No. 0-8088). 11 Statement re: Computation of Net Income (Loss) Per Share. 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 27 Financial Data Schedule.
* A management contract or compensatory plan or arrangement. 48 EX-10.12A 2 1995 STOCK INCENTIVE PLAN 1 EXHIBIT 10.12A AMENDMENT 1996-1 FURON COMPANY 1995 STOCK INCENTIVE PLAN WHEREAS, Furon Company (the "Company") maintains the Furon Company 1995 Stock Incentive Plan (the "Plan"); and WHEREAS, the Company has the right to amend the Plan, and the Company desires to amend the Plan to reflect recent resolutions adopted by the Board of Directors; NOW, THEREFORE, the Plan is hereby amended, effective as of November 1, 1996, as follows: 1. Section 1.9 of the Plan is amended in its entirety to read as follows: "1.9 No Transferability: Limited Exception to Transfer Restrictions. (a) Limit On Exercise and Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 1.9, by applicable law and by the Award Agreement, as the same may be amended, (i) all Awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; Awards shall be exercised only by the Participant; and (ii) amounts payable or shares issuable pursuant to an Award shall be delivered only to (or for the account of) the Participant. (b) Exceptions. The Committee may permit Awards to be exercised by and paid to certain persons or entities related to the Participant, including but not limited to members of the Participant's immediate family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant's immediate family and/or charitable institutions, pursuant to such conditions and procedures as the Committee may establish. Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes on a gratuitous or donative basis and without consideration (other than nominal consideration). Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock Awards shall be subject to any and all additional transfer restrictions under the Code. (c) Further Exceptions to Limits On Transfer. The exercise and transfer restrictions in Section 1.9(a) shall not apply to: (i) transfers to the Corporation, (ii) the designation of a beneficiary to receive benefits in the event of a Participant's death or, if the Participant has died, transfers to or exercise by the Participant's beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution, 49 2 (iii) transfers pursuant to a QDRO order if approved or ratified by the Committee, (iv) if the Participant has suffered a disability, permitted transfer or exercises on behalf of the Participant by his or her legal representative, or (v) the authorization by the Committee of "cashless exercise" procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of Awards consistent with applicable laws and the express authorization of the Committee. Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock Awards shall be subject to any and all additional transfer restrictions under the Code." 5. Section 6.6 of the Plan should be amended in its entirety to read as follows: "a) Shareholder Approval. Any amendment that would (i) materially increase the benefits accruing to Participants under this Plan, (ii) materially increase the aggregate number of securities that may be issued under this Plan, or (iii) materially modify the requirements as to eligibility for participation in this Plan, shall be subject to stockholder approval only to the extent then required by section 422 of the Code or applicable law, or deemed necessary or advisable by the Board." 6. Section 6.9(d) of the Plan is deleted in its entirety. 7. The definition of "Committee" contained in Section 7.1(h) of the Plan is amended in its entirety to read as follows: "(h) 'Committee' shall mean the Board or the committee appointed by the Board to administer this Plan, which committee shall be comprised only of two or more directors or such greater number of directors as may be required under applicable law, each of whom, (i) during such time as one or more Participants may be subject to section 16 of the Exchange Act shall be a "Non-Employee Director" within the meaning of Rule 16b-3(b), and (ii) during such time as one or more Participants may be subject to Code section 162(m), shall be an "outside director" (as such term is defined in section 162(m) of the Code)." 8. Section 7.1(I) of the Plan should be amended in its entirety to read as follows: "(i) 'Reserved'." IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this amendment to the Plan on this 21st day of November, 1996. FURON COMPANY By:_____________________________________________ Its:____________________________________________ 50 EX-11 3 STATEMENT RE: COMPUTATION OF NET INCOME 1 EXHIBIT 11 FURON COMPANY COMPUTATION OF NET INCOME (LOSS) PER SHARE
YEARS ENDED -------------------------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ PRIMARY INCOME (LOSS) PER SHARE Earnings: Net income (loss) $(39,751,000) $13,169,000 $11,438,000 =========== =========== =========== Shares: Weighted average number of common shares outstanding 8,885,769 8,821,297 8,674,135 Shares issuable from assumed exercise of stock options - 218,965 318,791 ----------- ----------- ----------- Average shares as adjusted 8,885,769 9,040,262 8,992,926 =========== =========== =========== Primary income (loss) per share $(4.47) $1.46 $1.27 =========== =========== =========== FULLY DILUTED INCOME (LOSS) PER SHARE Earnings Net income (loss) $(39,751,000) $13,169,000 $11,438,000 =========== =========== =========== Shares Weighted average number of common shares outstanding 8,885,769 8,821,297 8,674,135 Shares issuable from assumed exercise of stock options - 220,961 443,300 ----------- ----------- ----------- Average shares as adjusted for full dilution 8,885,769 9,042,258 9,117,435 =========== =========== =========== Fully diluted income (loss) per share $(4.47) $1.46 $1.25 =========== =========== ===========
51 EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Furon Company Significant and Certain Other Subsidiaries February 1, 1997
State or Other Jurisdiction of Name of Subsidiary Incorporation or Organization ------------------ ----------------------------- MEDEX, INC. AND SUBSIDIARIES: Medex, Inc. Ohio Ashfield Medical Systems Limited United Kingdom Medex Exports, Inc. Virgin Islands Medex Medical France SARL France Medex Medical GmbH Germany Medex Medical S.r.l. Italy Medex Medical, Inc. Ohio Medex Medical Limited United Kingdom Medex Medical Instrumentation, Inc. Ohio OTHER: Bunnell Plastics, Inc.* New Jersey CHR Industries, Inc.* Connecticut Dixon Industries Corporation* Rhode Island Fluorocarbon Components, Inc.* New York Fluorocarbon Foreign Sales Corporation Barbados Furon B.V. Netherlands Furon Europe, S.A. Belgium Furon Limited England Furon Seals N.V./S.A. Belgium Furon S.A. Belgium Sepco Corporation* California
_____ * A general business corporation with a wholly owned domestic subsidiary. 52 EX-23 5 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 10, 1997, with respect to the consolidated financial statements and schedule of Furon Company included in the Annual Report (Form 10-K) for the year ended February 1, 1997. ERNST & YOUNG LLP ------------------------- Orange County, California March 27, 1997 53 EX-27 6 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 FEBRUARY 1, 1997. 1,000 YEAR FEB-01-1997 FEB-01-1997 0 0 74,408 2,093 58,611 146,726 190,806 76,214 344,343 67,902 6,775 0 0 38,787 22,557 344,343 390,105 390,105 281,581 365,906 53,089 364 3,344 (32,234) 7,517 (39,751) 0 0 0 (39,751) (4.47) (4.47)
-----END PRIVACY-ENHANCED MESSAGE-----