1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________ FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) January 31, 1995 ---------------- FURON COMPANY ---------------------------------------------------------------------------- (Exact name of Registrant as Specified in its Charter) California 0-8088 95-1947155 ---------------------------------------------------------------------------- (State or other (Commission (IRS Employer Jurisdiction of File Number) Identification Incorporation) Number) 29982 Ivy Glenn Drive, Laguna Niguel, California 92677 ---------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (714) 831-5350 -------------- Not applicable - ---------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS Page Number ------ (a) Financial statements of business acquired ----------------------------------------- Custom Coating & Laminating Corporation: Report of Independent Accountants 3 Balance Sheet, January 31, 1995 4 Statement of Income and Retained 5 Earnings for the twelve month period ended January 31, 1995 Statement of Cash Flows for the 6 twelve month period ended January 31, 1995 Notes to Financial Statements 7 (b) Pro forma financial information ------------------------------- Pro Forma Balance Sheet as of January 28, 1995 12 Notes to Pro Forma Balance Sheet as of January 28, 1995 14 Pro Forma Statement of Income for the year ended January 28, 1995 15 Notes to Pro Forma Statement of Income for the year ended January 28, 1995 16 (c) Exhibits -------- Index to Exhibits 18 23. Consent of Independent Accountants 19 2 3 REPORT OF INDEPENDENT ACCOUNTANTS March 31, 1995 To the Board of Directors and Stockholders of Custom Coating and Laminating Corporation In our opinion, the accompanying balance sheet and the related statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of Custom Coating and Laminating Corporation at January 31, 1995, and the results of its operations and its cash flows for the twelve month period then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP 3 4 CUSTOM COATING AND LAMINATING CORPORATION BALANCE SHEET - ----------------------------------------------------------------------------- January 31, 1995 Assets Current assets: Cash and cash equivalents $ 237,000 Accounts receivable, net of allowance for doubtful accounts of $110,000 2,050,000 Inventories 2,980,000 Prepaid expenses 52,000 Deferred income taxes 27,000 ---------- Total current assets 5,346,000 Property, plant and equipment, net 2,392,000 ---------- $7,738,000 ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $1,889,000 Accrued payroll and employee benefits 385,000 Current portion of long-term debt 87,000 Income taxes payable 167,000 ---------- Total current liabilities 2,528,000 ---------- Long-term debt 369,000 ---------- Deferred income taxes 22,000 ---------- Commitments and contingencies (Notes 9 and 10) Stockholders' equity: Class A Common Stock, voting, no par value; 3,750 shares authorized; 1,200 shares issued and outstanding 15,000 Class B Common Stock, non-voting, no par value; 3,750 shares authorized; 1,200 shares issued and outstanding 15,000 Retained earnings 4,789,000 ---------- Total stockholders' equity 4,819,000 ---------- $7,738,000 ========== The accompanying notes are an integral part of these financial statements. 4 5 CUSTOM COATING AND LAMINATING CORPORATION STATEMENT OF INCOME AND RETAINED EARNINGS - ----------------------------------------------------------------------------- For the twelve month period ended January 31, 1995 Net sales $24,017,000 Cost of goods sold 17,629,000 ----------- Gross profit 6,388,000 Sales and marketing expenses 1,280,000 General and administrative expenses 1,551,000 Research and development expenses 275,000 ----------- Income from operations 3,282,000 Interest income 87,000 Interest and other expenses (128,000) ----------- Income before provision for state income taxes 3,241,000 Provision for state income taxes 182,000 ----------- Net income 3,059,000 Retained earnings, January 31, 1994 5,471,000 Distributions to stockholders (3,741,000) ----------- Retained earnings, January 31, 1995 $ 4,789,000 =========== The accompanying notes are an integral part of these financial statements. 5 6 CUSTOM COATING AND LAMINATING CORPORATION STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - ----------------------------------------------------------------------------- For the twelve month period ended January 31, 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,059,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment 305,000 Writedown of net book value of property, plant and equipment 15,000 Changes in operating assets and liabilities: Decrease in accounts receivable 163,000 Increase in inventories (423,000) Decrease in prepaid expenses and other assets 29,000 Decrease in refundable income taxes 42,000 Increase in income taxes payable 167,000 Increase in deferred income taxes (5,000) Increase in accounts payable and accrued expenses 370,000 Increase in accrued payroll and employee benefits 91,000 ---------- Net cash provided by operating activities 3,813,000 ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (412,000) ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of revolving line of credit (1,000,000) Principal payments on long-term debt (87,000) Distributions to stockholders (3,741,000) ---------- Net cash used for financing activities (4,828,000) ---------- Decrease in cash and cash equivalents (1,427,000) Cash and cash equivalents at January 31, 1994 1,664,000 ---------- Cash and cash equivalents at January 31, 1995 $ 237,000 ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 92,000 Cash refunds received for income taxes $ 22,000 The accompanying notes are an integral part of these financial statements. 6 7 CUSTOM COATING AND LAMINATING CORPORATION NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Custom Coating and Laminating Corporation (the "Company") was organized under the laws of the Commonwealth of Massachusetts and is engaged in the coating, laminating and conversion of plastics and other products. REVENUE RECOGNITION Revenue is recognized when goods are shipped. RESEARCH AND DEVELOPMENT Research, engineering and product development costs are expensed as incurred. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out ("FIFO") basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives. INCOME TAXES For income tax purposes, the Company reports income and expenses on the accrual method of accounting. Since the Company is an S Corporation, the stockholders are required to report their respective shares of the Company's taxable income or loss in their individual federal income tax returns and are personally liable for any related taxes thereon. Accordingly, no provision for federal income taxes is made in the financial statements of the Company. The Company accounts for Massachusetts state income taxes in accordance with Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes". The asset and liability approach of FAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under FAS 109, the benefit associated with future deductible temporary differences and operating loss or credit carryforwards is recognized if it is more likely than not that a benefit will be realized. Deferred tax expense (benefit) represents the change in the net deferred tax asset or liability balance. 7 8 CUSTOM COATING AND LAMINATING CORPORATION NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- CONCENTRATION OF CREDIT RISK One individual customer accounted for greater than 10% of sales during the twelve month period ended January 31, 1995. Net trade receivables due from this customer amounted to $111,000 at January 31, 1995. Management believes its credit policies are prudent and reflect normal industry terms and business risks, and that the Company is not subject to any unusual risks other than the normal credit risk attendant to operating its business. The Company's net trade receivables are considered to be recorded at fair market value at January 31, 1995, as are its trade accounts payable and accrued expenses. 2. INVENTORIES Inventories are summarized as follows: January 31, 1995 Raw materials $1,174,000 Work-in-process 494,000 Finished goods 1,312,000 ---------- $2,980,000 ========== 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized as follows: USEFUL LIFE JANUARY 31, IN YEARS 1995 Land --- $ 140,000 Building and improvements 25-40 1,450,000 Leasehold improvements 25-40 140,000 Manufacturing equipment 5-15 2,289,000 Computer equipment 3-5 219,000 Office equipment 5-10 408,000 ---------- 4,646,000 Less - accumulated depreciation 2,254,000 ---------- $2,392,000 ========== 8 9 CUSTOM COATING AND LAMINATING CORPORATION NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- 4. REVOLVING LINE OF CREDIT The Company has an unsecured revolving line of credit agreement with a bank, expiring during May 1995, under which it can borrow up to $1,500,000, including letters of credit. Borrowings bear interest at the bank's prime rate (8.5% at January 31, 1995) with interest payable monthly. An additional annual loan fee of 1.25% is charged on letters of credit. Under the terms of the line of credit agreement, the Company is required to comply with certain covenant requirements and to maintain certain financial ratios, including maintaining a tangible net worth of $5,250,000. The Company is in violation of this tangible net worth covenant at January 31, 1995. However, there are no amounts outstanding under this agreement at January 31, 1995. 5. LONG-TERM DEBT Long-term debt consists of the following: January 31, 1995 Mortgage note payable $456,000 Less - current portion 87,000 -------- $369,000 ======== The mortgage note is payable to a bank at 0.5% below the bank's Corporate Base Rate (effective rate of 8% at January 31, 1995). The principal is payable in monthly installments of $7,222, plus interest, through February 1996, at which time the remaining principal plus accrued interest is payable in one final installment. The note is collateralized by a mortgage on real estate and other assets of the Company and is subject to a cross guarantee agreement with an affiliate (Note 9). Under the terms of the note agreement, the Company is required to comply with certain covenants and to maintain a net worth of $2,000,000. The note agreement also requires that the Company maintains a demand deposit account with the bank equivalent to 5% of the principal balance outstanding. In the event that the Company fails to maintain the demand deposit account, the interest rate on the note will revert to the bank's Corporate Base Rate. This mortgage note was repaid in conjunction with the acquisition of the Company by Furon Company (see Note 11). 9 10 CUSTOM COATING AND LAMINATING CORPORATION NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- 6. COMMON STOCK The Company and its stockholders are parties to a stock purchase agreement which is effective upon death or disability of a stockholder. The terms of the agreement require the Company to buy from the stockholder or the stockholder's estate, all of the shares owned by the stockholder at that time. The purchase price per share is the greater of the net book value per share, as defined in the agreement, or five times the average net income per share for the five fiscal years preceding the purchase. 7. INCOME TAXES The provision (benefit) for state income taxes is summarized as follows: FOR THE TWELVE MONTH PERIOD ENDED JANUARY 31, 1995 Current $187,000 Deferred (5,000) -------- $182,000 ======== The Company has gross deferred tax assets and liabilities of $27,000 and $22,000, respectively, at January 31, 1995. The principal components of the deferred tax balances are temporary differences resulting from certain transactions recognized in different periods for financial reporting and tax purposes. These temporary differences relate primarily to depreciation, inventory valuation and reserves. The Company's effective tax rate differs from the statutory tax rate for an S Corporation in Massachusetts primarily due to excise taxes on tangible property. 8. INCENTIVE COMPENSATION PLAN AND PROFIT SHARING PLAN The Company had an Incentive Compensation Plan, based on the Company's results, and a Profit Sharing Plan, both of which were discretionary. Accrued liabilities of $90,000 under the Profit Sharing Plan were recorded in the balance sheet at January 31, 1995. No further contributions accrued to these plans subsequent to December 31, 1994. During the twelve month period ended January 31, 1995, the Company also paid special bonuses totaling approximately $551,000 to certain management personnel. 10 11 CUSTOM COATING AND LAMINATING CORPORATION NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- 9. RELATED PARTIES The Company leases certain office and production facilities from an affiliate. During the twelve month period ended January 31, 1995, the Company paid the affiliate $293,000 for rental of these facilities. The affiliate financed the purchase of these facilities through a mortgage with a bank. Under the terms of a cross guarantee agreement with the affiliate, the Company was jointly and severally liable with the affiliate for the repayment of amounts due to the bank. This mortgage was repaid in full during the twelve month period ended January 31, 1995. This lease agreement was terminated in conjunction with the acquisition of the Company by Furon Company (see Note 11). Certain Company-owned property is located, free of charge, on land owned by the affiliate. 10. COMMITMENTS AND CONTINGENCIES LITIGATION The Company has been named as a participant in the clean-up of a solvent recovery and disposal site designated as a "Superfund" location by the Environmental Protection Agency. The Company was a relatively small contributor to this site, and the clean-up also involves 255 other entities. The clean-up process is anticipated to occur over several years. As such, the Company's exposure to loss cannot be reasonably determined at January 31, 1995. The Company is also a defendant in various other legal actions in the normal course of business. In the opinion of the Company's management (based in part on the advice of outside counsel), the resolution of these actions will not have a material adverse effect on the Company's financial position or results of operations and cash flows. 11. SUBSEQUENT EVENT Effective on the close of business on January 31, 1995, all of the assets and liabilities of the Company, together with those of the affiliate (see Note 9), were acquired by Furon Company. In conjunction with this acquisition, the Company's mortgage note (see Note 6) was repaid and the lease with the affiliate was terminated. 11 12 FURON COMPANY AND CUSTOM COATING & LAMINATING CORPORATION PRO FORMA BALANCE SHEET AS OF JANUARY 28, 1995 (IN THOUSANDS) The following unaudited pro forma balance sheet reflects the purchase of certain assets of Custom Coating & Laminating Corporation ("CC&L") effective January 31, 1995 by Furon Company. The statement combines the audited consolidated balance sheet of Furon Company at January 28, 1995, and the audited balance sheet of CC&L at January 31, 1995 as if the business combination, which was accounted for as a purchase, was completed as of January 28, 1995. Furon Company CC&L January 28, January 31, Adjustments 1995 1995 Debit (Credit) Pro forma ------------ ----------- -------------- --------- ASSETS Current assets: Cash $ 6,475 $ 237 $(6,000) B $ 712 Accounts receivable 48,955 2,050 51,005 Inventories 31,197 2,980 34,177 (142) C Other current assets 15,058 79 (27) A 14,968 -------- ------ -------- -------- Total current assets 101,685 5,346 (6,169) 100,862 Property, plant and equipment: Land 456 140 400 B 996 Buildings and leasehold improvements 13,868 1,590 3,000 B 18,458 Machinery and equipment 99,718 2,916 102,634 -------- ------ ------- -------- 114,042 4,646 3,400 122,088 Less: accumulated depreciation (61,981) (2,254) 2,254 B (61,981) -------- ------ ------- -------- Net property, plant and equipment 52,061 2,392 5,654 60,107 142 C Intangible assets 17,953 - 12,909 B 31,004 Other assets 8,174 - 8,174 -------- ------ ------- -------- Total assets $179,873 $7,738 $12,536 $200,147 ======== ====== ======= ======== See accompanying notes to pro forma balance sheet. 12 13 FURON COMPANY AND CUSTOM COATING & LAMINATING CORPORATION PRO FORMA BALANCE SHEET (CONTINUED) AS OF JANUARY 28, 1995 (IN THOUSANDS) Furon Company CC&L January 28, January 31, Adjustments 1995 1995 Debit (Credit) Pro forma ------------- ----------- -------------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 19,093 $1,889 $ $ 20,982 Salaries, wages and benefits payable 10,508 385 10,893 Current portion of long-term debt 8,004 87 87 A 8,004 Other current liabilities 9,355 167 167 A 9,355 -------- ------ -------- -------- Total current liabilities 46,960 2,528 254 49,234 369 A Long-term debt 12,752 369 (18,000) B 30,752 Other noncurrent liabilities 28,562 22 22 A 28,562 Stockholders' equity: Common stock 36,280 30 30 B 36,280 Foreign currency translation 419 - 419 Unearned ESOP shares (3,112) - (3,112) Unearned compensation (885) - (885) Additional pension liability (379) - (379) (618) A Retained earnings 59,276 4,789 5,407 B 59,276 -------- ------ -------- -------- Total stockholders' equity 91,599 4,819 4,819 91,599 -------- ------ -------- -------- Total liabilities and stockholders' equity $179,873 $7,738 $(12,536) $200,147 ======== ====== ======== ======== See accompanying notes to pro forma balance sheet. 13 14 FURON COMPANY AND CUSTOM COATING & LAMINATING CORPORATION NOTES TO PRO FORMA BALANCE SHEET AS OF JANUARY 28, 1995 The pro forma balance sheet adjustments assume that the $24 million purchase price was paid with $18 million of proceeds financed from long-term bank borrowings and $6 million of available cash on hand. The purchase price includes $1.4 million held in escrow to satisfy any claims for indemnification as defined in the Asset Purchase Agreement. Contingent earn-out payments aggregating up to $4 million which may be made to CC&L over the next three fiscal years have not been reflected in the pro forma balance sheet. A. Elimination of assets not purchased and liabilities not assumed by Furon Company including a mortgage note payable, deferred income tax assets, deferred income tax liabilities, and income taxes payable. B. Allocation of the purchase price based upon management's best estimate of the fair market value of tangible and intangible assets. Adjustments (in thousands) ----------------------------- Debit Credit --------- ---------- Cash $ $ 6,000 Long-term debt 18,000 Land 400 Buildings and leasehold improvements 3,000 Accumulated depreciation 2,254 Intangible assets 12,909 Common stock 30 Retained earnings 5,407 C. Reclassification of acquisition costs incurred by Furon. 14 15 FURON COMPANY AND CUSTOM COATING & LAMINATING CORPORATION PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED JANUARY 28, 1995 (IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS) The following unaudited pro forma statement of income reflects the purchase of certain assets of Custom Coating & Laminating Corporation ("CC&L") as if the purchase were consummated on January 29, 1994. This statement combines the audited consolidated statement of income of Furon Company for the year ended January 28, 1995 and the audited statement of income of CC&L for the twelve month period ended January 31, 1995. Pro forma information is provided for comparative purposes, is not necessarily an indication of actual results that would have been achieved had the purchase been consummated at January 29, 1994, and may not be indicative of future results. Furon Company CC&L year ended year ended January 28, January 31, Adjustments 1995 1995 Debit (Credit) Pro forma ------------- ----------- -------------- ---------- Net sales $ 312,060 $24,017 $ $ 336,077 (568) B Cost of sales 217,827 17,629 100 A 234,988 ---------- ------- ------ ---------- Gross profit 94,233 6,388 (468) 101,089 Selling, general and administrative 522 A expenses 77,368 3,106 (551) C 80,445 Other (income), net (3,126) (51) 267 E (2,910) Interest expense 2,394 92 844 D 3,330 ---------- ------- ------ ---------- Income before taxes 17,597 3,241 614 20,224 (182) F Provision for income taxes 6,159 182 919 F 7,078 ---------- ------- ------ ---------- Net income $ 11,438 $ 3,059 $1,351 $ 13,146 ========== ======= ====== ========== Earnings per share: Primary $ 1.27 $ 1.46 ========== ========== Fully diluted $ 1.27 $ 1.46 ========== ========== Weighted average number of shares outstanding: Primary 8,992,926 8,992,926 Fully diluted 8,992,926 8,992,926 See accompanying notes to pro forma statement of income. 15 16 FURON COMPANY AND CUSTOM COATING & LAMINATING CORPORATION NOTES TO PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED JANUARY 28, 1995 The pro forma statement of income for the year ended January 28, 1995 gives effect to the following adjustments: A. Net increased depreciation and amortization expenses resulting from the step-up of tangible and intangible assets to fair market value. Based on management's best estimate, the estimated useful lives of these assets are as follows: Years of Life ------------- Buildings 30 Machinery and equipment 3-12 Intangible assets 25 B. Elimination of $293,000 rental expense for land and buildings previously owned by a related party of CC&L which were purchased by Furon, and elimination of $275,000 of special bonuses paid to stockholders of CC&L. C. Elimination of special bonuses paid by CC&L to key managers. D. $936,000 additional interest expense based on $18 million of additional borrowing under Furon's revolving credit facility (based on 3 month LIBOR rates ranging from 4.05% to 6.35% during the period), net of $92,000 mortgage interest incurred by CC&L (mortgage not assumed by Furon). E. Reduction in interest income on short-term investments based on $6 million of cash used in the acquisition at 4.45%. F. Elimination of state income taxes payable by CC&L (an S Corporation), and provision of income taxes payable by Furon on the pro forma adjusted income before taxes of CC&L (at Furon's effective tax rate.) In January 1995, two major customers discontinued purchasing certain products from CC&L. Total sales to these customers, when combined, accounted for $11 million in sales (and $3.8 million gross profit), the majority of which related to the discontinued products, in the twelve month period ended January 28, 1995. Since these events are unrelated to the acquisition of CC&L by Furon, no adjustment has been made to the accompanying pro forma income statement. 16 17 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 hereunto duly authorized. FURON COMPANY, a California corporation Date: April 12, 1995 By: /S/ MONTY A. HOUDESHELL ------------------------ Name: Monty A. Houdeshell Title: Vice President, Chief Financial Officer and Treasurer 17 18 INDEX TO EXHIBITS Page Number ------ 23 Consent of Independent Accountants 19 18