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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JULY 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
- - ------------------------------------ -------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
29982 Ivy Glenn Drive 92677
- - ------------------------------------ -------------------------
Laguna Niguel, CA (Zip Code)
(Address of principal executive offices)
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
----- -----
Number of shares of common stock outstanding as of July 30, 1994: 8,708,937
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FURON COMPANY
INDEX
PART I
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PAGE NO.
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Financial Statements
Condensed Consolidated Balance Sheets
July 30, 1994 and January 29, 1994 3-4
Condensed Consolidated Statements of Income
Three and Six Months Ended
July 30, 1994 and July 31, 1993 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended July 30, 1994 and
July 31, 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
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Other Information 13-15
Exhibits 16-39
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FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
July 30, January 29,
In thousands 1994 1994
- - -----------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 16,261 $ 18,483
Accounts receivable, less allowance for
doubtful accounts of $735 at July 30, 1994
and $632 at January 29, 1994 39,568 38,085
Inventories 28,216 26,279
Deferred tax benefit 9,123 9,154
Prepaid expenses and other assets 6,224 5,836
-------------- -------------
Total current assets 99,392 97,837
Property, plant & equipment, at cost:
Land 453 448
Buildings and leasehold improvements 13,381 13,048
Machinery and equipment 92,431 87,599
-------------- -------------
106,265 101,095
Less accumulated depreciation
and amortization (56,784) (52,664)
--------------- --------------
Net property, plant and equipment 49,481 48,431
Intangible assets at cost less accumulated
amortization of $22,009 at July 30, 1994
and $20,308 at January 29, 1994 19,665 21,359
Other assets 7,336 7,597
-------------- -------------
Total assets $ 175,874 $ 175,224
============== =============
See accompanying notes.
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FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
July 30, January 29,
In thousands, except share amounts 1994 1994
- - ------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 16,731 $ 15,465
Salaries, wages and related benefits payable 9,020 10,073
Current portion of long-term debt 7,008 6,013
Accrued restructuring charges 3,896 4,832
Income taxes payable 2,835 4,474
Other current liabilities 7,701 8,436
------------- -------------
Total current liabilities 47,191 49,293
Long-term debt due after one year 16,753 20,750
Other long-term liabilities 16,286 14,950
Deferred taxes 9,246 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,
8,708,937 shares issued and
outstanding at July 30, 1994 and
8,625,706 at January 29, 1994 36,161 35,320
Foreign currency translation adjustment (113) (1,034)
Unearned ESOP shares (2,521) (2,688)
Unearned compensation (1,093) (709)
Retained earnings 53,964 49,926
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Total stockholders' equity 86,398 80,815
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Total liabilities and stockholders' equity $ 175,874 $ 175,224
============= =============
See accompanying notes.
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FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
-------------------------------- -------------------------------
July 30, July 31, July 30, July 31,
In thousands, except per share amounts 1994 1993 1994 1993
- - ------------------------------------------------------------------------------------------------------------------
Net sales $ 75,127 $ 70,211 $ 150,087 $ 147,384
Cost of sales 52,547 50,550 105,547 106,628
------------- ----------- ------------- -------------
Gross profit 22,580 19,661 44,540 40,756
Selling, general and
administrative expenses 18,433 16,606 36,254 34,174
Other (income), net (710) (501) (1,046) (870)
Interest expense 623 892 1,266 1,810
------------- ----------- ------------- -------------
Income before income taxes 4,234 2,664 8,066 5,642
Provision for income taxes 1,567 1,082 2,985 2,303
------------- ----------- ------------- -------------
Net income $ 2,667 $ 1,582 $ 5,081 $ 3,339
============= =========== ============= =============
Net income per share $ .30 $ .18 $ .57 $ .38
============= =========== ============= =============
See accompanying notes.
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FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
------------------------------
July 30, July 31,
In thousands 1994 1993
- - ------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 5,081 $ 3,339
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 4,358 4,255
Amortization 1,879 1,770
Provision for losses on accounts receivable 175 228
Increase (decrease) in deferred income taxes (139) 724
(Gain) loss on sale of assets (10) 126
Working capital changes:
Accounts receivable (1,658) (1,945)
Inventories (1,937) 775
Accounts payable and accrued liabilities 214 1,237
Accrued restructuring charges (618) (1,500)
Income taxes payable (1,639) 955
Other current assets and liabilities, net (1,336) (1,681)
Changes in other long-term operating assets and
liabilities 829 (335)
------------ -----------
Net cash provided by operating activities 5,199 7,948
INVESTING ACTIVITIES
Purchases of property, plant and equipment (5,253) (4,147)
Proceeds from sale of equipment 142 31
Proceeds from sale of operations - 4,136
Proceeds from notes receivable 898 1,049
Increase in notes receivable (62) (1,000)
------------ -----------
Net cash (used) provided by investing activities (4,275) 69
FINANCING ACTIVITIES
Proceeds from long-term debt 8 27
Principal payments on long-term debt (3,009) (2,575)
Proceeds from issuance of common stock 131 332
Increase in loan to ESOP (218) -
Principal payments received from loan to ESOP 384 384
Dividends paid on common stock (1,043) (1,034)
------------ -----------
Net cash used by financing activities (3,747) (2,866)
Effect of exchange rate changes on cash 601 (1,133)
------------ -----------
Increase (decrease) in cash and cash equivalents (2,222) 4,018
------------ -----------
Cash and cash equivalents at beginning of period 18,483 9,447
------------ -----------
Cash and cash equivalents at end of period $ 16,261 $ 13,465
============ ===========
See accompanying notes.
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FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 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 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 adjustments) to present fairly,
the financial position of the Company as of July 30, 1994, results of
operations for the three and six months ended July 30, 1994 and July
31, 1993 and cash flows for the six months ended July 30, 1994 and
July 31, 1993. The results of its operations for the six months ended
July 30, 1994 are not necessarily indicative of the results to be
expected for the full year.
Income taxes paid for the six months ended July 30, 1994 and July 31,
1993 were $4,500,000 and $925,000, respectively.
2. INVENTORIES
Substantially all inventories are valued at the lower of cost
(first-in, first out) or market, and are summarized as follows:
July 30, January 29,
In thousands 1994 1994
----------------------------------------------------------------------------------------------------
Raw materials and purchased parts $ 11,803 $ 11,333
Work-in-process 8,474 6,865
Finished goods 7,939 8,081
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$ 28,216 $ 26,279
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3. INTANGIBLE ASSETS
Intangible assets acquired in business combinations are summarized as
follows:
July 30, January 29,
In thousands 1994 1994
----------------------------------------------------------------------------------------------------
Goodwill $ 331 $ 351
Other intangible assets 19,334 21,008
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$ 19,665 $ 21,359
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FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 30, 1994
(Unaudited)
4. LONG-TERM DEBT
Long-term debt is summarized as follows:
July 30, January 29,
In thousands 1994 1994
---------------------------------------------------------------------------------------------------
Loans under bank credit agreements due
through fiscal 1998 $ 23,750 $ 26,750
Other 11 13
------------ ------------
Total long-term debt 23,761 26,763
Less current portion (7,008) (6,013)
------------ ------------
Due after one year $ 16,753 $ 20,750
============ ============
At July 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 $18 million
at July 30, 1994. The swap agreement effectively changes the
Company's interest rate exposure on the majority of 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 six months ended July 30, 1994 and July 31,
1993, was $1,273,000 and $1,818,000, respectively.
5. STOCKHOLDERS' EQUITY
During June, 1994 the Company contributed $562,000 to the Employee
Stock Ownership Plan (ESOP) for the plan year ended April 30, 1994.
Of this amount $384,000 served to reduce loans previously made to the
plan. In addition, the Company advanced an additional $218,000 to the
ESOP which has been presented as unearned ESOP shares in the
accompanying condensed consolidated balance sheet. The ESOP used the
funds to acquire 15,000 shares of the Company's common stock from a
Director of the Company.
Excluded from the Statement of Cash Flows is a noncash transaction
that related to the issuance of restricted shares. This transaction
resulted in a $711,000 increase to common stock and unearned
compensation which is being amortized to expense over the shares' five
year vesting period.
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6. CONTINGENCIES
At July 30, 1994, the Company had approximately $1,029,000 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 losses from
hedging activities totaled $63,000 at July 30, 1994.
At July 30, 1994, the Company is obligated under irrevocable letters
of credit totaling $3,232,000.
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
Sales for the three and six months ended July 30, 1994 increased 7% and 2%,
respectively, as compared to the same periods of the prior year. When removing
the effect of the businesses sold or to be divested, sales from continuing
operations for the three and six months ended July 30, 1994 increased 12% and
9%, respectively, as compared to the same period of a year ago. The Company's
sales benefited from general improvement in a broad range of industrial
markets, including heavy duty truck, mobile equipment, industrial equipment,
electronics and medical. In addition, despite a continued weak European
economy, the Company's foreign group contributed to the increase in sales.
The gross profit percentages for the three and six months ended July 30, 1994
have improve from 27.7% to 30.1%, and 27.7% to 29.7%, respectively, as compared
to the same periods last year. Similarly, when removing the effect of the
businesses sold or identified for divestiture gross profit margins from
continuing operations increased from 29.0% to 30.8%, and from 28.9% to 30.2%
for the three and six months ended July 31, 1993 and July 30, 1994,
respectively. The improvements came from multiple areas, including process
improvements and scrap reductions which lead to reduced material costs.
Slightly lower labor costs, mainly due to process improvements, also
contributed to improved results from consolidated and continuing operations.
In general, the higher sales volume helped leverage down the fixed portion of
cost of sales.
Selling, general and administrative expenses increased $1.8 and $2.1 million,
respectively, for the three and six months ended July 30, 1994, as compared to
the same periods of the prior year. Approximately half of this increase is
identified as selling expense and is attributed to the Company's efforts to
improve its sales and marketing focus. The remainder of the increase is
attributed to a number of general and administrative expenses. The most
significant of these expenses included costs associated with the pursuit of
potential acquisitions, as well as travel expenses associated with current
reorganization efforts.
Interest expense for the three and six months ended July 30, 1994 decreased 30%
from the same periods of the prior year. Amounts owing under the Company's
bank credit facility decreased by approximately $9 million from July 31, 1993.
Pretax profits rose 43% for the six months ended July 30, 1994 as compared to
the same period last year. For the quarter, pretax profits increased from $2.7
million to $4.2 million or 59%. The significant improvement in profitability,
in spite of relatively modest revenue increases, is the result of substantial
reductions in cost of sales as a percentage of sales, and interest expense, as
noted above. Additionally, income before taxes also includes lower than
expected group medical insurance expense resulting from a continued 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
The following table presents the Company's results of continuing operations and
operations sold or to be divested during the second quarter of the current and
prior years:
Three months ended
- - --------------------------------------------------------------------------------------------------------
In thousands July 30, 1994 July 31, 1993
- - ---------------------------------------------------------------- ------------------------------------
Continuing Divestiture Continuing Divestiture
Operations Operation Total Operations Operations Total
------------------------------------ ------------------------------------
Sales $72,402 $ 2,725 $75,127 $64,844 $ 5,367 $70,211
Cost of sales 50,067 2,480 52,547 46,050 4,500 50,550
------- ------- ------- ------- ------- -------
Gross profit 22,335 245 22,580 18,794 867 19,661
Selling, general
and administrative
expenses 18,181 252 18,433 15,851 755 16,606
Other expense
(income), net (703) (6) (709) (608) 107 (501)
Interest expense
(income), net 623 (1) 622 887 5 892
------- ------- ------- ------- ------- -------
Income before income
taxes $ 4,234 $ - $ 4,234 $ 2,664 $ - $ 2,664
======= ======= ======= ======= ======= =======
Included in Other expense (income) net, is the elimination of $19,000 of
pretax loss for the three months ended July 30, 1994 and $107,000 of pretax
profit for the three months ended July 31, 1993 from the divested or to be
divested businesses.
The Company's effective tax rate for the three and six months ended July 30,
1994 was 37%, compared to 41% for the same periods 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.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended July 30, 1994, net cash flow provided by operations
was $5.2 million, a $2.7 million decrease from the same period of the prior
year. The decrease is due, in part, to the $2.7 million unfavorable change in
inventory levels, as well as $2.6 million of tax payments made in the first
quarter of the current year pursuant to a settlement of prior Internal Revenue
Service audits. This was partially offset by improved operating results and
favorable changes in other areas of the balance sheet.
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FURON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash flow provided by operations for the three months ended July 30, 1994
totaled $7.0 million, essentially identical to that of the same period of the
prior year.
A portion of the net cash flow provided by operations for the six months ended
July 30, 1994 was used to fund capital expenditures of $5.3 million, an
increase of 27% over the first six months of 1993. In addition, the Company
made principal payments on long-term debt of $3.0 million. At July 30, 1994
the Company's ratio of long-term debt to equity equaled .28:1, an improvement
from .33:1 at January 29, 1994.
At July 30, 1994, the Company's working capital was $52 million, an increase of
$5 million from the prior year. At July 30, 1994, the Company's ratio of
current assets to current liabilities was 2.1:1, an increase from 2:1 for the
same period ended in the prior year.
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, financing
from other sources or utilization of balance sheet cash and cash equivalents of
$16 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 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 operations.
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FURON COMPANY
PART II
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OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
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 7, 1994. The following matters were voted upon and
approved at the meeting:
Votes Cast
------------------------------------ Broker
Matter For Against Withheld Absentions Non-votes
------ --------- --------- -------- ---------- ---------
1. Election of Class III
Directors:
Terrence A. Noonan 8,071,546 - 46,988 - -
R. David Threshie 8,086,341 - 21,195 - -
Bruce E. Ranck 8,088,975 - 29,561 - -
2. Approval of Furon
Company Employees'
Stock Purchase Plan 7,124,019 888,676 - 105,841 -
3. Ratification of
appointment of
Ernst & Young LLP as
independent auditors
for fiscal year ending
January 28, 1995 7,669,132 430,217 - 19,187 -
ITEM 5. OTHER INFORMATION.
Not applicable.
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FURON COMPANY
PART II (CONTINUED)
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: Page Number
-----------
The exhibits listed in the accompanying index are
filed as part of this quarterly report.
Exhibit 3.2 Bylaw Amendment effective
June 7, 1994 16
Exhibit 10.1 1982 Stock Incentive Plan (As
amended and restated
March 22, 1994) 17
Exhibit 10.4A Amendment to SERP adopted
August 23, 1994 37
Exhibit 11 Statement re: Computation of Net
Income Per Share 38
Exhibit 27 Financial Data Schedule 39
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed for the three
months ended July 30, 1994.
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FURON COMPANY
PART II (CONTINUED)
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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
- - ------------------------------- --------------------------------
Monty A. Houdeshell Koichi Hosokawa
Vice President, Chief Financial Controller
Officer and Treasurer
Date: August 31, 1994
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