-----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, S9uTdFTG3ea1FurE8z4T8rYldqEaHqogyKjnLjWX86hOe8dwy6fKOS+zc6HXdtFs Fuvl2lJ9KzC6pASIwicR5Q== 0000892569-98-002546.txt : 19980914 0000892569-98-002546.hdr.sgml : 19980914 ACCESSION NUMBER: 0000892569-98-002546 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980801 FILED AS OF DATE: 19980911 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: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08088 FILM NUMBER: 98708013 BUSINESS ADDRESS: STREET 1: 1199 SOUTH CHILLICOTHE RD CITY: AURORA STATE: OH ZIP: 44202 BUSINESS PHONE: 7148315350 FORMER COMPANY: FORMER CONFORMED NAME: FLUOROCARBON CO DATE OF NAME CHANGE: 19900322 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED AUGUST 1, 1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED AUGUST 1, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 000-8088 FURON COMPANY (Exact name of registrant as specified in its charter) California 95-1947155 - ---------------------------- ---------------- (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 29982 Ivy Glenn Drive Laguna Niguel, CA 92677 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (949) 831-5350 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Number of shares of common stock outstanding as of September 4, 1998: 18,297,619 2 FURON COMPANY INDEX PART I - FINANCIAL INFORMATION - ------------------------------ PAGE NO. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets August 1, 1998 and January 31, 1998 3 Condensed Consolidated Statements of Income Three and six months ended August 1, 1998 and August 2, 1997 5 Condensed Consolidated Statements of Cash Flows Three and six months ended August 1, 1998 and August 2, 1997 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II - OTHER INFORMATION 21 - --------------------------- 2 3 ITEM 1. FINANCIAL STATEMENTS FURON COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
August 1, January 31, In thousands 1998 1998 - ------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 3,877 $ -- Accounts receivable, less allowance for doubtful accounts of $1,813 at August 1, 1998 and $1,741 at January 31, 1998 75,252 75,661 Inventories, net 58,299 54,704 Deferred income taxes 11,356 11,052 Prepaid expenses and other current assets 5,840 4,959 --------- --------- Total current assets 154,624 146,376 Property, plant & equipment, at cost: Land 6,780 6,976 Buildings and leasehold improvements 31,108 31,493 Machinery and equipment 167,555 158,999 --------- --------- 205,443 197,468 Less accumulated depreciation and amortization (95,487) (87,832) --------- --------- Net property, plant and equipment 109,956 109,636 Intangible assets, at cost less accumulated amortization of $36,015 at August 1, 1998 and $35,354 at January 31, 1998 93,227 83,129 Other assets 10,891 7,208 --------- --------- TOTAL ASSETS $ 368,698 $ 346,349 ========= =========
See accompanying notes. 3 4 FURON COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
August 1, January 31, In thousands, except share data 1998 1998 - ------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash, less checks outstanding $ -- $ 1,025 Accounts payable 24,595 25,384 Salaries, wages and related benefits payable 13,722 18,203 Income taxes payable 4,780 4,228 Current portion of long-term debt 1,419 966 Facility rationalization and severance 7,374 10,091 Other current liabilities 21,997 14,035 --------- --------- Total current liabilities 73,887 73,932 Long-term debt 158,798 148,657 Other long-term liabilities 26,088 23,883 Deferred income taxes 18,739 18,738 Commitments and contingencies -- -- Shareholders' equity: Preferred stock without par value, 2,000,000 shares authorized, none issued or outstanding -- -- Common stock without par value, 30,000,000 shares authorized, 18,297,619 shares issued and outstanding at August 1, 1998 and 18,227,898 at January 31, 1998 41,084 40,864 Employee Benefit Trust shares (1,345) -- Accumulated other comprehensive income (3,660) (4,236) Unearned ESOP shares (2,630) (3,229) Unearned compensation (174) (232) Retained earnings 57,911 47,972 --------- --------- Total shareholders' equity 91,186 81,139 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 368,698 $ 346,349 ========= =========
See accompanying notes. 4 5 FURON COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended Six months ended -------------------------- -------------------------- August 1, August 2, August 1, August 2, In thousands, except per share amounts 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------ Net sales $ 125,046 $ 118,696 $ 244,851 $ 238,345 Cost of sales 84,849 80,214 167,388 161,544 --------- --------- --------- --------- Gross profit 40,197 38,482 77,463 76,801 Selling, general and administrative expenses 29,271 28,625 56,832 56,764 Nonrecurring charges and facilities rationalization -- -- (417) -- Other (income), expense (971) (175) (1,692) (422) Interest expense, net 3,262 2,681 6,194 5,567 --------- --------- --------- --------- Income before income taxes 8,635 7,351 16,546 14,892 Provision for income taxes 2,720 2,127 5,212 4,691 --------- --------- --------- --------- Net income $ 5,915 $ 5,224 $ 11,334 $ 10,201 ========= ========= ========= ========= Basic income per share $ 0.33 $ 0.29 $ 0.63 $ 0.57 ========= ========= ========= ========= Diluted income per share $ 0.32 $ 0.28 $ 0.61 $ 0.55 ========= ========= ========= ========= Cash dividends per share $ 0.03 $ 0.03 $ 0.06 $ 0.06 ========= ========= ========= =========
See accompanying notes. 5 6 FURON COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended Six months ended ------------------------- -------------------------- August 1, August 2, August 1, August 2, In thousands 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 5,915 $ 5,224 $ 11,334 $ 10,201 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 4,331 4,070 8,604 8,301 Amortization 1,633 1,379 3,161 2,785 Provision for losses on accounts receivable 70 (6) 140 149 Deferred income taxes (5) 2 (374) (27) Nonrecurring charges and facilities rationalization -- -- (417) -- (Gain) loss on sale of assets 40 (11) 102 8 Working capital changes, net of acquisitions and disposals: Accounts receivable (267) 83 1,523 2,146 Inventories 1,386 3,420 (1,678) 4,060 Accounts payable and accrued liabilities (431) 2,643 (4,844) (1,267) Income taxes payable 412 (762) (152) 2,787 Other current assets and liabilities, net 3,907 1,494 3,047 (247) Changes in other long-term operating assets and liabilities (412) (37) (324) 732 -------- -------- --------- -------- Net cash provided by operating activities 16,579 17,499 20,122 29,628 INVESTING ACTIVITIES Acquisition of businesses, net of cash acquired (14,339) -- (11,417) -- Purchases of property, plant and equipment (4,744) (2,625) (9,910) (5,477) Proceeds from sale of businesses 276 170 281 419 Proceeds from sale of equipment 70 16 110 33 Decrease in notes receivable 776 -- 170 -- -------- -------- --------- -------- Net cash used in investing activities (17,961) (2,439) (20,766) (5,025) FINANCING ACTIVITIES Proceeds from long-term debt 14,000 -- 148,194 4,081 Principal payments on long-term debt (13,672) (19,736) (138,013) (26,805) Deferred debt costs (246) -- (4,164) -- Employee benefit trust funding (342) -- (1,642) -- Proceeds, net of cancellations, from issuance of common stock 16 672 153 647 Loan to ESOP -- (266) -- (266) Principal payments received from loan to ESOP 599 529 599 529 Dividends paid on common stock (549) (544) (1,098) (1,084) -------- -------- --------- -------- Net cash provided by (used in) financing activities (194) (19,345) 4,029 (22,898) EFFECT OF EXCHANGE RATE CHANGES ON CASH 48 (811) 492 (1,541) -------- -------- --------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,528) (5,096) 3,877 164 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,405 5,260 -- -- -------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,877 $ 164 $ 3,877 $ 164 ======== ======== ========= ========
See accompanying notes. 6 7 FURON COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS August 1, 1998 (Unaudited) 1. GENERAL The accompanying unaudited consolidated financial statements have been condensed in certain respects and should, therefore, be read in conjunction with the consolidated financial statements and related notes thereto, contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998. Certain reclassifications have been made to prior year amounts in order to be consistent with the current year presentation. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (consisting only of normal recurring adjustments) to present fairly the financial position of the Company as of August 1, 1998, and the results of operations and cash flows for the three and six months ended August 1, 1998 and August 2, 1997. Results of the Company's operations for the three and six months ended August 1, 1998 are not necessarily indicative of the results to be expected for the full year. 2. INVENTORIES Inventories, stated at the lower of cost (first-in, first-out) or market, are summarized as follows:
August 1, January 31, In thousands 1998 1998 ---------------------------------------------------------------- Raw materials and purchased parts $25,523 $24,781 Work-in-process 11,064 11,538 Finished goods 21,712 18,385 ------- ------- $58,299 $54,704 ======= =======
3. INTANGIBLES Intangible assets, primarily acquired in business combinations, net of accumulated amortization, are summarized as follows:
August 1, January 31, In thousands 1998 1998 ------------------------------------------------------ Goodwill $65,917 $54,476 Other intangible assets 27,310 28,653 ------- ------- $93,227 $83,129 ======= =======
7 8 FURON COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS August 1, 1998 (Unaudited) 4. LONG-TERM DEBT Long-term debt is summarized as follows:
August 1, January 31, In thousands 1998 1998 ------------------------------------------------------------------ Senior Subordinated Notes $125,000 $ -- Loans under bank credit agreements due through fiscal year 2002 30,000 142,000 Industrial Revenue Bonds 3,600 6,175 Other 1,617 1,448 -------- -------- Total long-term debt 160,217 149,623 Less current portion 1,419 966 -------- -------- Due after one year $158,798 $148,657 ======== ========
Effective February 3, 1998, the Company amended and restated its credit facility agreement to decrease the aggregate credit facility from $250.0 million to $200.0 million. On March 4, 1998 the Company issued $125.0 million of 8.125% Senior Subordinated Notes (the "Notes") due March 1, 2008 (the "Offering"). The Company used the net proceeds of the Offering to repay a portion of existing indebtedness under the Company's amended credit facility agreement. Interest on the Notes is payable semi-annually on March 1 and September 1 of each year. During the three months ended August 1, 1998, the Company retired approximately $2.6 million of the Industrial Revenue Bonds. For the three and six months ended August 1, 1998, the weighted average interest rate on the loans under the credit facility agreement was 6.2% and 6.3%, respectively. Interest paid for the three and six months ended August 1, 1998 was $0.6 million and $2.6 million, respectively. Interest paid for the three and six months ended August 2, 1997 was $2.7 million and $5.0 million, respectively. 5. INCOME TAXES The Company's effective tax rate for the three and six months ended August 1, 1998 was 31.5% as compared with 28.9% and 31.5% for the same periods in the prior year. The lower effective tax rate was primarily due to increases in research and experimental credits and foreign tax credits. 8 9 FURON COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS August 1, 1998 (Unaudited) 5. INCOME TAXES (CONTINUED) Income taxes paid for the three and six months ended August 1, 1998 were $2.8 million and $4.9 million, respectively. Income taxes paid for the three and six months ended August 2, 1997 were $2.7 million and $2.2 million, respectively. 6. CONTINGENCIES At August 1, 1998, the Company had approximately $1.0 million of foreign currency hedge contracts outstanding consisting of over-the-counter forward contracts. Net unrealized losses from hedging activities were not material as of August 1, 1998. At August 1, 1998, the Company is obligated under irrevocable letters of credit totaling $4.9 million. The Company is currently involved in various litigation. While no assurance can be given, management of the Company is of the opinion that the ultimate resolution of such litigation should not have a material adverse effect on the Company's consolidated financial position or results of operations. Compliance with environmental laws and regulations designed to regulate the discharge of materials into the environment or otherwise protect the environment requires continuing management effort and expenditures by the Company. While no assurance can be given, the Company does not believe that the operating costs incurred in the ordinary course of business to satisfy air and other permit requirements, properly dispose of hazardous wastes and otherwise comply with these laws and regulations form or are reasonably likely to form a material component of its operating costs or have or are reasonably likely to have a material adverse effect on its competitive or consolidated financial positions. 9 10 FURON COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS August 1, 1998 (Unaudited) 6. CONTINGENCIES (CONTINUED) As of August 1, 1998 the Company's reserves for environmental matters totaled approximately $1.6 million. The Company or one or more of its subsidiaries is currently involved in environmental investigation or remediation directly or as an EPA-named potentially responsible party or private cost recovery/contribution action defendant at various sites, including certain "superfund" waste disposal sites. While neither the timing nor the amount of the ultimate costs associated with these matters can be determined with certainty, based on information currently available to the Company, including investigations to determine the nature of the potential liability, the estimated amount of investigation and remedial costs expected to be incurred and other factors, the Company presently believes that its environmental reserves should be sufficient to cover the Company's aggregate liability for these matters and, while no assurance can be given, it does not expect them to have a material adverse effect on its consolidated financial position or results of operations. The actual costs to be incurred by the Company at each site will depend on a number of factors, including one or more of the following: the final delineation of contamination; the final determination of the remedial action required; negotiations with governmental agencies with respect to cleanup levels; changes in regulatory requirements; innovations in investigatory and remedial technology; effectiveness of remedial technologies employed; and the ultimate ability to pay of any other responsible parties. 10 11 FURON COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS August 1, 1998 (Unaudited) 7. SHAREHOLDERS' EQUITY Earnings Per Share On November 20, 1997, the Company's Board of Directors approved a two-for-one stock split. One share of the Company's common stock for each full share of common stock outstanding to holders of record on December 2, 1997 was distributed on December 16, 1997. Accordingly, all numbers of Common Shares, and all per share data have been restated to reflect this stock split. The calculation of earnings per share is presented below:
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------- ---------------------------- IN THOUSANDS, EXCEPT SHARE AND PER AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, SHARE AMOUNTS 1998 1997 1998 1997 ----------------------------------------------------------------------------------------------------- Net income $ 5,915 $ 5,224 $ 11,334 $ 10,201 =========== =========== =========== =========== Weighted average shares outstanding for basic income per share 18,013,968 17,839,938 18,023,521 17,804,048 ----------- ----------- ----------- ----------- Effect of dilutive securities: Employee stock options and awards 545,999 788,048 603,771 681,152 ----------- ----------- ----------- ----------- Weighted average shares outstanding for diluted income per share 18,559,967 18,627,986 18,627,292 18,485,200 ----------- ----------- ----------- ----------- Basic income per share $ 0.33 $ 0.29 $ 0.63 $ 0.57 =========== =========== =========== =========== Diluted income per share $ 0.32 $ 0.28 $ 0.61 $ 0.55 =========== =========== =========== ===========
Employee Benefits Trust On March 24, 1998, the Company entered into an Employee Benefits Trust (the "Trust") with Wachovia Bank, N.A., Trustee. The Trust was established to provide a source of funds to assist the Company in meeting obligations under various employee benefit plans. During the six months ended August 1, 1998, the Company contributed approximately $1.6 million to the Trust to purchase shares of the Company's common stock on the open market. During the first six months of fiscal year 1999, the Trust purchased 75,779 shares of common stock at an average cost of $21.73 per share (75,779 shares held at August 1, 1998). 11 12 FURON COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS August 1, 1998 (Unaudited) 7. SHAREHOLDERS' EQUITY (CONTINUED) For financial reporting purposes, the Trust is consolidated with the Company. The shares are accounted for by the treasury stock method. The fair market value of the shares held by the Trust is shown as a reduction to shareholders' equity in the Company's consolidated balance sheet. Any dividend transactions between the Company and the Trust are eliminated. Shares will be released from the Trust as granted to participants in connection with various benefit plans. Common stock held in the Trust is not considered outstanding for earnings per share calculations until they are granted to participants. The Trustee is responsible for voting the shares of common stock held in the Trust. 8. COMPREHENSIVE INCOME As of February 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or shareholders' equity. SFAS No. 130 requires the change in the minimum pension liability and the foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior years' financial statements have been reclassified to conform to these requirements. The components of comprehensive income, net of related tax, are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ ----------------------- AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, IN THOUSANDS 1998 1997 1998 1997 -------------------------------------------------------------------------------------- Net income $ 5,915 $ 5,224 $ 11,334 $ 10,201 Foreign currency translation adjustments (190) (951) 576 (1,797) -------- -------- -------- -------- Comprehensive income $ 5,725 $ 4,273 $ 11,910 $ 8,404 ======== ======== ======== ========
12 13 FURON COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS August 1, 1998 (Unaudited) 9. SEGMENT INFORMATION The Company operates in two business segments: Industrial Products, including highly engineered seals and bearings, fluid handling, components, tapes, films and coated fabrics, hose and tubing, wire and cable, and plastic formed components; and Medical Device Products, including critical care products and infusion systems for medical and surgical applications. The factors impacting the Company's basis for reportable segments include separate management teams, infrastructures, and discrete financial information about each. Additionally, the long-term financial performance of the Medical Device Products segment is affected by an environment governed by regulatory standards. Sales, operating profit, interest expense, net and identifiable assets are set forth in the following table:
INDUSTRIAL MEDICAL IN THOUSANDS PRODUCTS DEVICE PRODUCTS ADJUSTMENT CONSOLIDATED - --------------------------------------------------------------------------------------------------- Three months ended August 1, 1998: - ---------------------------------- Sales to unaffiliated customers $ 96,544 $ 28,502 $125,046 Operating profit 8,731 2,195 10,926 Interest expense, net -- -- $ 3,262 3,262 Identifiable assets 216,710 151,988 368,698 Six months ended August 1, 1998: - -------------------------------- Sales to unaffiliated customers $194,518 $ 50,333 $244,851 Operating profit 18,740 2,308 21,048 Interest expense, net -- -- $ 6,194 6,194 Identifiable assets 216,710 151,988 368,698 Three months ended August 2, 1997: - ---------------------------------- Sales to unaffiliated customers $ 91,852 $ 26,844 $118,696 Operating profit 5,849 4,008 9,857 Interest expense, net -- -- $ 2,681 2,681 Identifiable assets 204,791 126,014 330,805 Six months ended August 2, 1997: - -------------------------------- Sales to unaffiliated customers $184,298 $ 54,047 $238,345 Operating profit 12,352 7,685 20,037 Interest expense, net -- -- $ 5,567 5,567 Identifiable assets 204,791 126,014 330,805
13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion and analysis is based upon and should be read in conjunction with the historical consolidated financial statements of the Company and related notes thereto. The Company's fiscal 1999 second quarter ended August 1, 1998 and fiscal 1998 second quarter ended August 2, 1997. The fiscal 1999 and 1998 quarters each consisted of 13 weeks. RESULTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 1998 COMPARED WITH THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 1997 Net Sales. Net sales of $125.0 million for the three months ended August 1, 1998 ("Q2 1999 Period") increased $6.3 million, or 5.3%, from $118.7 million for the three months ended August 2, 1997 ("Q2 1998 Period"). Net sales of $244.9 million for the six months ended August 1, 1998 ("YTD Q2 1999 Period") increased $6.6 million, or 2.7%, from $238.3 million for the six months ended August 2, 1997 ("YTD Q2 1998 Period"). The increase in net sales was the result of increased demand for both industrial and medical device products. Net of acquisitions and divestitures, sales for the Q2 1999 Period and YTD Q2 1999 Period increased 2.9% and 2.0%, respectively, over the same periods of the prior year. Gross Profit. Gross Profit of $40.2 million for the Q2 1999 Period increased $1.7 million, or 4.5%, from $38.5 million in the Q2 1998 Period. Gross Profit of $77.5 million for the YTD Q2 1999 Period increased $0.7 million, or 0.9% from $76.8 million for the YTD Q2 1998 Period. The gross profit margin decreased to 32.1% for the Q2 1999 Period and to 31.6% for the YTD Q2 1999 Period from 32.4% and 32.2% in the same periods of the prior year. The decrease in gross profit margin was due to lower margins achieved by the Medical Device Products Segment caused by lower volume and changes in product mix, which more than offset the higher volumes and continued productivity improvements and cost containment achieved by the Industrial Products Segment. Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses of $29.3 million in the Q2 1999 Period increased $0.7 million, or 2.3%, from $28.6 million in the Q2 1998 Period. This increase was primarily due to SG&A expenses incurred as a result of acquisitions. SG&A expenses of $56.8 million in the YTD Q2 1999 Period remained flat compared to $56.8 million in the YTD Q2 1998 Period. SG&A expenses as a percentage of sales decreased to 23.4% in the Q2 1999 Period and 23.2% in the YTD Q2 1999 Period from 24.1% and 23.8%, respectively, in the same periods of the prior year. The decline in SG&A expenses as a percentage of sales was primarily due to an increase in sales volume and a relatively small increase in expenses. Research and development expenses of $3.5 million for the Q2 1999 Period and $7.2 million for the YTD Q2 1999 Period increased $0.1 million and $0.5 million, or 1.6% and 7.2%, respectively, from the same periods of the prior year. This increase reflects the Company's continued commitment to new products and materials development. Other Income. Other income of $1.0 million for the Q2 1999 Period increased $0.8 million from $0.2 million for the Q2 1998 Period. Other income of $1.7 million for the YTD Q2 1999 Period increased $1.3 million from $0.4 million for the YTD Q2 1998 Period. The increase resulted primarily from the settlement of a lawsuit in the Q2 1999 Period and a reduction in losses from foreign exchange transactions compared to the prior periods. 14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Interest Expense, Net. Interest expense, net of $3.3 million for the Q2 1999 Period and $6.2 million for the YTD Q2 1999 Period both increased $0.6 million from the same periods of the prior year. The increase in the Company's interest expense was primarily the result of the higher interest rates attributable to the Company's subordinated debt, as compared to its previous financing vehicle. Income Before Income Taxes. Income before income taxes of $8.6 million in the Q2 1999 Period increased $1.2 million, or 17.5%, from $7.4 million in the Q2 1998 Period. Income before incomes taxes of $16.5 million in the YTD Q2 1999 Period increased $1.6 million, or 11.1%, from $14.9 million in the YTD Q2 1998 Period. Net of acquisitions and divestitures, pretax results of operations were up 20.0% from the Q2 1998 Period and 16.0% from the YTD Q2 1998 Period. This improvement was generally the result of increased volume and continued productivity improvements and cost containment in the Industrial Products Segment, offset partially by lower margins in the Medical Device Products Segment caused by changes in product mix and lower volume. Additionally, small increases in operating and interest expense were offset by an increase in other income. Provision for Income Taxes. The Company's effective tax rate for the Q2 and YTD Q2 1999 Periods was 31.5%, compared with 28.9% and 31.5% for the same respective periods of the prior year. The lower effective tax rate was primarily due to increases in research and experimental credits and foreign tax credits. SEGMENT RESULTS A discussion of the operations of the business segments follows. The Company operates in two business segments: Industrial Products, including highly engineered seals and bearings, fluid handling components, tapes, films and coated fabrics, hose and tubing, wire and cable, and plastic formed components; and Medical Device Products, including critical care products, infusion systems for medical and surgical applications. For additional financial information about industry segments, see Note 9 of the "Notes to Condensed Consolidated Financial Statements." INDUSTRIAL PRODUCTS
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------- ------------------------- AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, IN THOUSANDS 1998 1997 1998 1997 ---------------------------------------------------------------------------------------------- Sales $ 96,544 $ 91,852 $194,518 $184,298 Operating profit 8,731 5,849 18,740 12,352 Operating profit before nonrecurring charges and facilities rationalization 8,731 5,849 18,323 12,352
15 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Net Sales. Industrial net sales for the Q2 1999 Period and YTD Q2 1999 Period increased $4.7 million, or 5% and $10.2 million or 6% over the same periods of the prior year. Net of acquisitions and divestitures, Industrial Products Q2 1999 Period net sales increased 7% compared to the Q2 1998 Period. Domestically, the Company benefited from continued strength in certain markets. Sales to commercial aircraft, truck, off-shore oil exploration, food and beverage and business equipment markets were particularly strong compared to the same period of the prior year. Continued softness in the electronics and semiconductor markets contributed to lower sales for the Q2 1999 Period and YTD Q2 1999 Period over the same periods of the prior year. Sustained demand in Europe across most product lines during the Q2 1999 Period and an acquisition resulted in increased net sales over the same period of the prior year of 36% (a 36.5% increase after removing the effect of foreign currency exchange rate changes and 17% after excluding the acquisition). Gross Profit. The gross profit margin for the Q2 1999 Period and YTD Q2 1999 Period was 29.8%, an increase from 29.2% and 28.9%, respectively, over the same periods of the prior year. This increase was the net result of spending controls in variable and fixed overhead plus increased sales volume, partially offset by additional sales with higher material content, as a percentage of net sales. Selling, General and Administrative Expenses. SG&A expenses as a percentage of net sales decreased 2.1% to 20.8% and 1.8% to 20.4% for the Q2 1999 Period and YTD Q2 1999 Period from the same periods of the prior year. Lower general and administrative expenses in several categories, including lower insurance, legal, recruiting, and travel expenses, were partially offset by higher performance based incentive compensation and rental expense. Operating Profit, before Nonrecurring Charges and Facilities Rationalization. Operating profit, before nonrecurring charges and facilities rationalization, increased 49% to $8.7 million and 48% to $18.3 million for the Q2 1999 Period and YTD Q2 1999 Period from the same periods of the prior year. The improvement in profitability reflects higher net sales volumes, improved margins, and reduced operating expenses. MEDICAL DEVICE PRODUCTS
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ ------------------------ AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, IN THOUSANDS 1998 1997 1998 1997 ------------------------------------------------------------------------------------------- Sales $28,502 $26,844 $50,333 $54,047 Operating profit 2,195 4,008 2,308 7,685 Operating profit before nonrecurring charges and facilities rationalization 2,195 4,008 2,308 7,685
Net Sales. Net sales for the Q2 1999 Period and YTD Q2 1999 Period increased $1.7 million, or 6.2% and decreased $3.7 million or 6.9% over the same periods of the prior year. The sales increase in the Q2 1999 Period was the net result of a 41% increase in European sales, partially offset by a decline in domestic sales. Contributing factors to the lower domestic sales in the Q2 1999 Period included lower volume in the fluid and drug and infusion systems product lines. The YTD Q2 1998 Period included unusually strong sales of infusion systems. Q2 1999 Period sales in Europe increased 41%, primarily due to an acquisition. The impact on sales of unfavorable foreign exchange fluctuation was 0.8% and 1.8% for the Q2 1999 Period and YTD Q2 1999 Period, respectively. 16 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Gross Profit. The gross profit as a percentage of sales for the Q2 1999 Period was 40.0% compared to 43.3% for the Q2 1998 Period. The lower margin was the result of lower domestic volume impact on overhead expense and unfavorable product mix. In addition, gross margins were negatively impacted by costs associated with the relocation of two manufacturing facilities in California to Dublin, Ohio. Gross margins were also negatively impacted by an acquisition of a business during the quarter with lower gross margins. Gross profit margin for the YTD Q2 1999 Period was 38.8% as compared to 43.7% for the same period of the prior year. Selling, General and Administrative Expenses. SG&A expenses as a percentage of net sales for the Q2 1999 Period and YTD Q2 1999 Period, were 32.3% and 34.2%, compared to 28.4% and 29.4% in the same periods of the prior year. This is the result of lower domestic sales, increased product development expenses and costs associated with the integration of a European acquisition. Operating Profit, before Nonrecurring Charges and Facilities Rationalization. Operating profit, before nonrecurring charges and facilities rationalization, decreased 45% to $2.2 million and 70% to $2.3 million for the Q2 1999 Period and YTD Q2 1999 Period, from the same periods of the prior year. This reflects the impact of lower domestic volumes on fixed overhead, unfavorable product mix and increased operating expenses. LIQUIDITY AND CAPITAL RESOURCES On March 4, 1998, the Company completed the Offering of its 8.125% Senior Subordinated Notes (see Note 4 of the "Notes to Condensed Consolidated Financial Statements"). The net proceeds from the Offering were approximately $121.0 million. In conjunction with the Offering, the Company amended the credit facility agreement to, among other things, reduce the maximum principal amount available from $250.0 million to $200.0 million (the "Credit Facility"). The Company used the net proceeds of the Offering to repay a portion of existing indebtedness under the Credit Facility. Amounts borrowed under the Credit Facility mature November 12, 2001. The Notes mature March 1, 2008. Cash provided by operating activities. Cash provided by operating activities for the Q2 FY 1999 Period decreased $0.9 million from $17.5 million in the same period last year to $16.6 million. This decrease is primarily due to working capital changes in inventory, accounts payable and accrued liabilities, income taxes payable and other current assets and other current liabilities, net from a $6.8 million source, to a $5.3 million source of cash for the Q2 FY 1998 Period and Q2 FY 1999 Period, respectively. Cash used in investing activities. During the Q2 FY 1999 Period, the Company completed the acquisition of Corotec GmbH, a medical device supplier based in Mainz, Germany. Purchase price payments were made during the Q2 FY 1999 Period. During the Q2 FY 1999 Period, the Company invested $4.7 million in renovation of existing facilities, leasehold improvements and the replacement of existing equipment, an increase of $2.1 million from the same period of the prior year. The Company believes that it generates sufficient cash flow from its operations to finance near and long-term internal growth, capital expenditures and principal and interest payments on its loans payable to banks and the Notes. The Company continually evaluates its employment of capital resources, including asset management and other sources of financing. 17 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONTINGENCIES For information regarding environmental matters and other contingencies, see the sections entitled "Business - Governmental Regulation" and "Legal Proceedings" in Part I of the Company's 1998 Annual Report on Form 10-K and Note 6 of the "Notes to Condensed Consolidated Financial Statements" in this 10-Q. Year 2000 Problem and the Company's Readiness Program The Year 2000 ("Y2K") Problem in computers arises from the common industry practice of using two digits to represent a date in computer software code and databases to enhance both processing time and save storage space. Therefore, when dates in the year 2000 and beyond are indicated and computer programs read date "00," the computer may default to the year "1900" rather than the correct "2000." This could result in incorrect calculations, faulty data and computer shutdowns, potentially impairing the conduct of business. The Company has instituted a Y2K readiness program (the "Program") to address these issues as they relate to the Company. The Company's Program is divided into two phases and is being conducted in three areas. The two phases of the Program are: (i) identifying potentially non-complaint areas and (ii) addressing those areas to make them Y2K ready. This two phase process is being conducted across three areas. The three areas include: (i) Information Technology Systems and Equipment; (ii) Non-Information Technology Systems and Equipment, and (iii) compliance of third party vendors and suppliers with which the Company has material relationships. The Company believes it has made a great deal of progress in Phase I of the Program. With respect to Information Technology Systems and Equipment, the Company has identified applications systems, hardware/networks, personal computers and telecommunications equipment that is potentially Y2K sensitive. With respect to Non-Information Technology Systems and Equipment, the Company is in the process of identifying manufacturing equipment that is potentially Y2K sensitive. The Company has already completed a survey of its complete product line across both the Industrial Products and Medical Device Products Segments and believes its product offering addresses material Y2K issues. Phase II of the Company's Program is in process. The majority of application systems and personal computers were replaced with Y2K ready systems, and the Company expects the remaining systems to be Y2K ready by the end of 1998. The Company believes a majority of its hardware/networks and telecommunications systems are Y2K ready. With respect to Non-Information Technology Systems and Equipment, the Company is currently in the process of identifying manufacturing equipment that potentially has Y2K issues. The Company is contacting the suppliers of its manufacturing equipment to determine whether the equipment is Y2K ready. Large scale testing to verify that the Company's Y2K ready Information Technology and Non-Information Technology Systems and Equipment are operational is expected to begin the first quarter of 1999 and is expected to be completed by mid-year 1999. 18 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Year 2000 Problem and the Company's Readiness Program (continued) The Company has identified its key third party vendors and suppliers and has asked them to disclose their state of Y2K readiness. The Company expects to identify and audit selected "critical" suppliers, and develop strategies for working with them through Y2K issues and develop contingency plans in the event of a problem with obtaining materials from these "critical" suppliers. The Company intends to survey its key customers to determine their state of Y2K readiness. For the six months ended August 1, 1998, no single customer accounted for more than 4% of the Company's net sales of Industrial Products or more than 7% of the Company's net sales of Medical Device Products. The Company expended approximately $9 million between 1994 and 1997 replacing Information Technology Systems and Equipment with systems and equipment that is Y2K ready. The Company has expended approximately $1 million and expects to have recurring operating costs of approximately $1.2 million per year to lease upgraded personal computers. The system and equipment replacements that have been made were scheduled to occur without regard for the Program and the Program is being conducted by the Company's employees. While no assurance can be given, at this time the Company does not anticipate that the Y2K Problem will have a material adverse impact on the Company's business, financial condition or results of operation. Euro Conversion The Euro is scheduled to be introduced on January 1, 1999, at which time the conversion rates between legacy currencies and the Euro will be set for the eleven participating EMU member countries. However, the legacy currencies in those countries will continue to be used as legal tender through January 1, 2002. Thereafter, the legacy currencies will be canceled and Euro bills and coins will be used in the eleven participating countries. Transition to the Euro creates a number of issues for the Company. Business issues that must be addressed include product pricing policies and ensuring the continuity of business and financial contracts. The increased price transparency resulting from the use of a single currency may affect the ability of the Company to price its products differently in the various European markets. Finance and accounting issues include the conversion of accounting systems, statutory records, tax books and payroll systems to the Euro, as well as conversion of bank accounts and other treasury and cash management activities. The Company is addressing these transition issues and has not yet determined what the effect of the transition to the Euro will have on the results of operations, financial position or cash flows of the Company. 19 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) STATEMENT REGARDING FORWARD LOOKING DISCLOSURE This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements that include the words "believes," "expects," "anticipates," or similar expressions and statements relating to anticipated cost savings, the Company's Year 2000 readiness effort and progress toward that goal, Euro conversion, the Company's strategic plans, capital expenditures, industry trends and prospects and the Company's financial position. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to differ materially from those expressed or implied by such forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. For a more complete discussion of risk factors, please refer to the "Risk Factors" section of the Company's 1998 Annual Report on Form 10-K. All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements contained in this Form 10-Q and Cautionary Statements and the "Risk Factors" section in the Company's 1998 Annual Report on Form 10-K. 20 21 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Annual Meeting of the Shareholders of the registrant was held on June 2, 1998. The following matters were voted upon and approved at the meeting:
VOTES CAST ----------------------------------------- BROKER MATTER FOR AGAINST WITHHELD ABSTENTIONS NONVOTES -------------------------- ------------- -------------- ------------ -------------- ----------- 1. Election of Class II Directors: Cochrane Chase 15,423,167 - 60,182 - - William C. Shepherd 15,416,984 - 66,365 - - 2. Approval of an Amendment to the Company's 1994 Employees' Stock Purchase Plan to Increase the Number of Shares Authorized to be Issued under the Plan From 400,000 to 800,000 Shares 15,082,045 317,406 - 83,898 - 3. Ratification of the Appointment of Ernst & Young LLP as the Company's Independent Auditors for the Fiscal Year Ending January 30, 1999 14,573,595 27,113 - 882,641 -
21 22 PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION. The Company's Bylaws, as amended through the date of this Report, provide that shareholder nominations of directors may be made and other business may be brought by shareholders before an annual or special meeting only in compliance with certain advance notice and informational requirements. In order to be timely with respect to the Company's 1999 Annual Meeting of Shareholders (which is presently expected to be held in June 1999), a shareholder's notice of director nominations or of business to be brought before such Annual Meeting must be delivered to the Secretary of the Company no earlier than February 2, 1999 and no later than March 4, 1999. Such notice must also contain certain additional information required by the Bylaws and otherwise comply with applicable legal requirements. The advance notice and informational requirements set forth in the Company's Bylaws do not alter the requirements or conditions established by the Securities and Exchange Commission for shareholder proposals to be included in the Company's proxy materials for the 1999 Annual Meeting. The advance notice requirements are set forth in the amendments to the Company's Bylaws filed as Exhibit 3.1A to this Report and are incorporated herein by this reference. Shareholders may obtain a complete copy of the Company's Bylaws, as amended, by submitting a request to the Secretary of the Company at the Company's principal executive office, 29982 Ivy Glenn Drive, Laguna Niguel, California 92677-2044, telephone number (949) 831-5350. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 3.1A Bylaw Amendments effective August 25, 1998. 27 Financial Data Schedule. (b) Reports on Form 8-K: None 22 23 PART II (CONTINUED) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FURON COMPANY REGISTRANT ----------------------------------------------------- /S/MONTY A. HOUDESHELL /S/DAVID L. MASCARIN - --------------------------------------- ------------------------------------ Monty A. Houdeshell David L. Mascarin Vice President, Chief Financial Officer Controller September 9, 1998 23 24 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 3.1A Bylaw Amendments effective August 25, 1998. 27 Financial Data Schedule.
EX-3.1A 2 BYLAWS AMENDMENT EFFECTIVE AUGUST 25, 1998 1 Exhibit 3.1A FURON COMPANY Bylaw Amendments Effective August 25, 1998 (Advance Notice Provisions) RESOLVED, that the Bylaws of this corporation are hereby amended to add Section 14 to Article II thereof, to read in its entirety as set forth below: Section 14. PROPER BUSINESS FOR SHAREHOLDER MEETINGS. (a) Nominations and Shareholder Business at Annual Meetings of Shareholders. At an annual meeting of shareholders, only such business shall be proper as shall be brought before the meeting (i) pursuant to the corporation's notice of meeting, (ii) by or at the direction of the Board, or (iii) by any shareholder of the corporation who was a shareholder of record at the time of giving of notice provided for in this Section 14(a), who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 14(a). For nominations of persons for election to the Board or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a) of this Section 14, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive office of the corporation not less than ninety (90) days nor more than one-hundred twenty (120) days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced or delayed by more than thirty (30) days from such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the one-hundred twentieth (120) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. Such shareholder's notice shall set forth (i) as to each person whom the shareholder proposes to nominate for election or reelection as a director, (A) the name, age, business address and residence address of such person, (B) the class and number of shares of capital stock of the corporation that are beneficially owned by such person, and (C) all other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a 2 director if elected); (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner and the class and number of shares of stock of the corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (b) Director Nominations and Shareholder Business at Special Meetings of Shareholders. Only such business shall be proper at a special meeting of shareholders as shall have been brought before the special meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of shareholders at which directors are to be elected pursuant to the corporation's notice of meeting (i) by or at the direction of the Board, or (ii) provided that the Board has determined that directors shall be elected at such special meeting, by any shareholder of the corporation who is a shareholder of record at the time of giving of notice provided for in this Section 14(b), who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 14(b). In the event the corporation calls a special meeting of shareholders for the purpose of electing one or more directors of the Board, any such shareholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the corporation's notice of meeting, if the shareholder delivers a notice meeting the requirements set forth in paragraph (a) of this Section 14 to the Secretary at the principal executive office of the corporation not earlier than the one-hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. (c) General. Only such persons who are nominated in accordance with the procedures set forth in this Section 14 shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 14. For purposes of this Section 14, "public announcement" shall mean disclosure in a press release reported by the Dow Jones New Service, Associated Press, Business Wire or comparable news service or in a document publicly filed -2- 3 by the corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act. Notwithstanding the foregoing provisions of this Section 14, a shareholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 14. Nothing in this Section 14 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act. RESOLVED, that Section 4 of Article II of the Corporation's Bylaws is hereby amended and restated to read in its entirety as set forth below: Section 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Written notice of each annual or special meeting of shareholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, and that no other business may be transacted, or (ii) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of applicable law, any matter that is proper under Section 14 of this Article may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election. Notice of a shareholders' meeting shall be given either personally or by mail or by other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient. RESOLVED, that Section 13 of Article II of the Corporation's Bylaws is hereby amended and restated to read in its entirety as set forth below: -3- 4 Section 13. CONDUCT OF MEETING. The Chairman of the Board shall preside as chairman at all meetings of the shareholders. The chairman shall conduct each such meeting in a businesslike and fair manner, but shall not be obligated to follow any technical, formal or parliamentary rules or principles of procedure. The chairman shall have the power to determine whether any nomination or other business is properly brought before the meeting under these Bylaws and applicable law, and if any such nomination or other business is not properly brought before the meeting, the chairman shall so declare and rule that such nomination shall be disregarded or that such business shall not be transacted (as the case may be). Except as may be limited by applicable law, the chairman's rulings on all procedural matters shall be conclusive and binding on all shareholders. Without limiting the generality of the foregoing, the chairman shall have all of the powers usually vested in the chairman of a meeting of shareholders. -4- EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's unaudited condensed statements of income, condensed balance sheets and condensed statements of cash flows and is qualified in its entirety by reference to such financial statements contained within the Company's Form 10-Q for the three and six months ended August 1, 1998. 1,000 6-MOS JAN-30-1999 AUG-01-1998 3,877 0 77,065 1,813 58,299 154,624 205,443 95,487 368,698 73,887 3,600 0 0 41,084 50,102 368,698 244,851 244,851 167,388 224,220 (2,720) 140 6,805 16,546 5,212 11,334 0 0 0 11,334 .63 .61
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