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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 APRIL 30, 1994
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
29982 Ivy Glenn Drive
Laguna Niguel, CA 92677
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 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
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Number of shares of common stock outstanding as of April 30, 1994: 8,664,822
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FURON COMPANY
INDEX
PART I
PAGE NO.
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Financial Statements
Condensed Consolidated Balance Sheets
April 30, 1994 and January 29, 1994 3-4
Condensed Consolidated Statements of Income
Three months ended April 30, 1994 and May 1,1993 5
Condensed Consolidated Statements of Cash Flows
Three months ended April 30, 1994 and May 1, 1993 6
Notes to Condensed Consolidated Financial Statements 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II
Other Information 13
Exhibit 10.12 14
Exhibit 11 28
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FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
April 30, January 29,
In thousands 1994 1994
- - ---------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 13,159 $ 18,483
Accounts receivable, less allowance for
doubtful account of $695 at April 30, 1994
and $632 at January 29, 1994. 40,617 38,085
Inventories 27,084 26,279
Deferred tax benefit 8,911 9,154
Prepaid expenses and other assets 6,432 5,836
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Total current assets 96,203 97,837
Property, plant & equipment, at cost:
Land 450 448
Buildings and leasehold improvements 13,170 13,048
Machinery and equipment 89,731 87,599
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103,351 101,095
Less accumulated depreciation and amortization (54,764) (52,664)
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Net property, plant and equipment 48,587 48,431
Intangible assets at cost less accumulated
amortization of $21,155 at April 30, 1994
and $20,308 at January 29, 1994. 20,515 21,359
Other assets 7,664 7,597
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Total assets $172,969 $175,224
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See accompanying notes.
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FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
April 30, January 29,
In thousands, except share amounts 1994 1994
- - ----------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 15,509 $ 15,465
Salaries, wages and related benefits payable 7,784 10,073
Current portion of long-term debt 6,509 6,013
Accrued restructuring charges 4,643 4,832
Income taxes payable 3,747 4,474
Other current liabilities 7,994 8,436
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Total current liabilities 46,186 49,293
Long-term debt due after one year 18,750 20,750
Other long-term liabilities 15,413 14,950
Deferred taxes 9,388 9,416
Commitments and contingencies
Stockholders' equity
Capital stock:
Preferred stock without par value,
2,000,000 shares authorized, none
issued or outstanding - -
Common stock without par value,
15,000,000 shares authorized,
8,664,822 shares issued and
outstanding at April 30, 1994 and
8,625,706 at January 29, 1994. 35,450 35,320
Foreign currency translation adjustment (784) (1,034)
Loan to ESOP (2,688) (2,688)
Unearned compensation (565) (709)
Retained earnings 51,819 49,926
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Total stockholders' equity 83,232 80,815
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$172,969 $175,224
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See accompanying notes.
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FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
---------------------
April 30, May 1,
In thousands, except per share amounts 1994 1993
- - -----------------------------------------------------------------------
Net sales $74,960 $77,173
Cost of sales 53,000 56,078
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Gross profit 21,960 21,095
Selling, general and administrative expenses 17,821 17,568
Other (income), net (336) (369)
Interest expense 643 918
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Income before income taxes 3,832 2,978
Provision for income taxes 1,418 1,221
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Net income $ 2,414 $ 1,757
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Net income per share $ 0.27 $ 0.20
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See accompany notes.
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FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
---------------------
April 30, May 1,
In thousands 1994 1993
- - -----------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 2,414 $ 1,757
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 2,188 2,146
Amortization 906 888
Provision for losses on accounts receivable 89 133
Increase in deferred income taxes 215 978
Loss on sale of assets (7) 113
Working capital changes:
Accounts receivable (2,621) (4,621)
Inventories (805) 496
Accounts payable and accrued liabilities (2,244) 1,862
Accrued restructuring (105) (540)
Income taxes payable - current (728) 135
Other current assets and liabilities, net (1,542) (2,056)
Changes in other long-term operating assets
and liabilities 444 (368)
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Net cash provided by (used in) operating activities (1,796) 923
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,328) (1,874)
Proceeds from sale of divestitures - 2,200
Proceeds from sale of equipment 63 18
Proceeds from notes receivable 711 429
Increase in notes receivable (198) (997)
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Net cash used in investing activities (1,752) (224)
FINANCING ACTIVITIES
Proceeds from long-term debt - 27
Principal payments on long-term debt (1,504) (1,311)
Proceeds from issuance of common stock 131 284
Dividends paid on common stock (520) (517)
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Net cash used in financing activities (1,893) (1,517)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 117 (251)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,324) (1,069)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,483 9,447
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,159 $ 8,378
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See accompanying notes.
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FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1994
(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 to Shareholders
on Form 10-K for the fiscal year ended January 29,1994. 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 accruals) to present fairly the
financial position of the Company as of April 30, 1994, and the
results of its operations and cash flows for the three months ended
April 30, 1994 and May 1, 1993. The results of its operations for the
three months ended April 30, 1994 are not necessarily indicative of
the results to be expected for the full year.
For the purpose of the Condensed Consolidated Statements of Cash
Flows, the Company considers all highly liquid debt instruments
purchased with original maturities of three months or less to be cash
equivalents.
Income taxes paid for the three months ended April 30, 1994 and May 1,
1993 were $1,900,000 and $450,000, respectively.
2. INVENTORIES
Substantially all inventories are valued at the lower of cost
(first-in, first-out) or market, and are summarized as follows:
April 30, January 29,
In thousands 1994 1994
------------------------------------------------------------
Raw materials and purchased parts $11,199 $11,333
Work-in-process 7,264 6,865
Finished goods 8,621 8,081
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$27,084 $26,279
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FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1994
(Unaudited)
3. INTANGIBLES
Intangible assets acquired in business combinations are summarized as
follows:
April 30, January 29,
In thousands 1994 1994
------------------------------------------------------------------
Goodwill $ 340 $ 351
Other intangible assets 20,175 21,008
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$20,515 $21,359
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4. LONG-TERM DEBT
Long-term debt is summarized as follows:
April 30, January 29,
In thousands 1994 1994
------------------------------------------------------------------
Loans under bank credit agreements due
through fiscal 1998 $25,250 $26,750
Other 9 13
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Total long-term debt 25,259 26,763
Less current portion (6,509) (6,013)
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Due after one year $18,750 $20,750
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At April 30, 1994, the weighted average interest rate on the loans
under bank credit agreements was 9.4%.
On August 29, 1988, the Company entered into an 8-year Interest Rate
Swap agreement. The notional amount of the swap totaled $20,000,000
at April 30, 1994. The swap agreement effectively changes the
Company's interest rate exposure on its borrowings to a fixed interest
rate of 9.938 plus a .75% spread, on the notional portion of the
facility.
Interest paid for the three months ended April 30, 1994 and May 1,
1993, was $623,000 and $895,000, respectively.
5. CONTINGENCIES
At April 30, 1994, the Company has approximately $1,315,000 of
foreign currency hedge contracts outstanding consisting of 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 April 30,
1994.
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FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1994
(Unaudited)
5. CONTINGENCIES (CONTINUED)
At April 30, 1994, the Company is obligated under irrevocable letters
of credit totaling $3,453,000.
The Company is currently involved in litigation arising in the normal
course of business. Management of the Company is of the opinion that
such litigation will have no material effect on the Company's
consolidated financial position or results of operations.
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FURON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated sales for the three months ended April 30, 1994 of $75 million
represented a 2.9% decrease compared with the same period in the prior year.
When removing the effect of the businesses to be divested, sales from
continuing operations increased 6.5%.
The Company continues to benefit from a recovering U.S. economy. Total
Consolidated sales in the first quarter were 11% above the fourth quarter of FY
1994. Strong improvements were seen in Industrial Capital Goods and Mobile
Equipment markets. Improvement was also noted in the Electronics, Medical and
Beverage sectors. Commercial Aircraft and Aerospace/Defense markets, however,
remain soft. Despite a continued weak European economy, the Company's foreign
divisions realized strong demand in Italy and the U.K., with Germany lagging.
Gross profit as a percentage of sales for the first quarter ended April 30,
1994 was up 2% over the same period the prior year to 29.3%. Similarly, when
removing the effect of the businesses to be divested, gross profit as a
percentage of sales for continuing operations increased from 28.8% to 29.6%.
The higher gross profit percentage is the result of improvements in material
cost by approximately 1% as a percentage of sales; primarily due to scrap
reduction and process improvements. In addition, manufacturing overhead
improved by approximately 1%. When removing the effect of the three businesses
sold in the prior year, manufacturing overhead increased slightly, partially
offsetting the improvement in material cost.
Selling, general and administrative expense as a percentage of sales was 23.8%
during the three months ended April 30, 1994 compared to 22.8% for the same
period in the prior year. Contributing to higher general and administrative
expenses were salary increases, as well as, increased expenditures on
marketing, process redesign and organizational structure improvements. An
increase in product development expenses reflects a higher emphasis on material
technology research and development activity.
Interest expense for the three months ended April 30, 1994 decreased 30% from
the same period of the prior year. The decrease is due to the reduction in
outstanding debt. Amounts owing under the Company's bank credit facility
decreased $8.75 million from the prior year first quarter. As debt continues
to be repaid, a higher proportion of the remaining debt is covered by a fixed
interest rate swap agreement.
Pretax results of operations improved 28.7% to a profit of $3.8 million from
$2.9 million for the three months ended April 30, 1994 and May 1, 1993,
respectively. With revenues from continuing operations up, profitability
continues to improve. Major contributors to this sustained performance are
higher gross profit due to sales volume increase, as well as, reductions in
interest expense. Income before taxes also includes lower than expected group
insurance expenses resulting from a sustained trend of lower than expected
claims experience.
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FURON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
The following table presents the Company's results of continuing operations and
divestiture operation(s) to be divested during the first quarter of the current
and prior year:
Three months ended
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In thousands April 30, 1994 May 1, 1993
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Continuing Divestiture Continuing Divestiture
Operations Operation Total Operations Operations Total
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Sales $72,386 $2,574 $74,960 $67,994 $9,179 $77,173
Cost of sales 50,937 2,063 53,000 48,378 7,700 56,078
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Gross profit 21,449 511 21,960 19,616 1,479 21,095
Selling, general
and administrative
expenses 17,610 211 17,821 16,252 1,316 17,568
Other expense
(income), net (636) 300 (336) (525) 154 (369)
Interest expense 643 - 643 911 7 918
------- ------ ------- ------- ------ -------
Income before income
taxes $ 3,832 $ - $ 3,832 $ 2,978 $ - $ 2,978
======= ====== ======= ======= ====== =======
Included in Other expense (income) net, is the elimination of $286,000 of
pretax profit from the first quarter ended April 30, 1994 and $73,000 of pretax
profit from the first quarter ended May 1, 1993 for the divested businesses.
The Company's effective tax rate for the first quarter ended April 30, 1994 was
37% as compared to 41% for the same period in the prior year. The decrease in
the effective tax rate was primarily due to the increase in tax benefits
realized from the amortization of certain intangible assets, acquired in fiscal
1990, as a result of the resolution of an Internal Revenue Service audit.
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FURON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong at April 30, 1994. Working
capital increased $1.5 million during the first quarter to a total of $50.0
million. This increase occurred despite a $5.3 million decrease in cash and
cash equivalents. The decrease is partially due to increases in accounts
receivable and inventory resulting from improved first quarter sales volume.
Also contributing to the decrease was the timing of incentive compensation
payments, salaries and wages accruals, and the payment of $1.5 million of prior
period income taxes related to the settlement of the aforementioned Internal
Revenue Service audit.
When compared to the same period of the prior fiscal year the cash and cash
equivalents balance increased $5 million while long term debt decreased nearly
$9 million. The Company's current debt to equity ratio is .3:1.0.
The Company continues to believe that it generates sufficient cash flow from
its operations to finance near and long-term internal growth, capital
expenditures and the principal and interest payments on its loan payable to
banks. 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 the Company
make a substantial acquisition, it could require the utilization of the
remaining $30 million available from its existing credit facility or financing
from other sources. Cash and cash equivalents at April 30, 1994 was $13
million.
One of the Company's subsidiaries was notified by the Environmental Protection
Agency that it has been named as a potentially responsible party in connection
with the clean up of hazardous wastes at two sites: The Solvents Recovery
Service of New England site in Southington, Connecticut (notified in June
1992); and the Gallups Quarry site in Plainfield, Connecticut (notified April
1993). Since these matters are in their preliminary stages, no assurance can
be given at this time concerning the ultimate outcome. However, based on
preliminary investigations to determine the nature of the subsidiary's
potential liability and the estimated amount of remedial costs necessary to
clean up the sites, the Company presently does not expect these matters to have
a material adverse effect on its consolidated financial position or results of
operations.
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FURON COMPANY
PART II
OTHER INFORMATION
Items 1 through 5 are not applicable.
Item 6. Exhibits and Reports Form 8-K.
(a) Exhibits
10.12 1993 Non-employee Directors' Stock Compensation Plan
11. Statement re: computation of net income per share.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months
ended April 30, 1994.
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
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REGISTRANT
/S/ MONTY A. HOUDESHELL /S/ KOICHI HOSOKAWA
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Monty Houdeshell, Vice President, Koichi Hosokawa
Chief Financial Officer and Treasurer Controller
May 23, 1994
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