<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 1996 Commission file number 0-3183
LeaRonal, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-1717548
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
272 Buffalo Avenue, Freeport, New York 11520
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(Address of principal executive office) (Zip code)
(Registrant's telephone number, including area code) 516-868-8800
Securities registered pursuant to Section 12(b) of the Act.
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
- ------------------------------------ -----------------------------------------
<S> <C>
Common Stock, par value $1 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: Common Stock, $1 par value -- $227,309,000
(based on the last sale price thereof reported on the consolidated tape for May
8, 1996).
At May 8, 1996, 8,827,550 shares of the registrant's Common Stock, $1
par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on July 16, 1996 are incorporated by reference into Part
I and Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS
General
LeaRonal, Inc. was incorporated in 1953 under the laws of the State of
New York. The business of LeaRonal, Inc. and its subsidiaries (hereinafter "the
Company") consists of the development, production, sale and worldwide
distribution of specialty chemical additives and other products used by the
connector, printed circuit board, semiconductor, and industrial metal finishing
industries. In addition to its facilities in the United States, the Company has
subsidiaries located in England, Switzerland, Germany, France, Hong Kong,
Singapore, Taiwan, and South Korea, and 50% owned affiliates in Japan and Italy
to serve its worldwide customer base. The Company's specialty chemical additives
are proprietary and the majority of them are patented.
In the five fiscal years ended February 29, 1996, the Company's
precious metal electroplating processes accounted for approximately 60% of the
Company's net sales volume but less than 50% of the Company's income before
income taxes. The disproportionate contribution of the precious metal processes
to sales as compared to income is principally due to the high cost of the
precious metal content of such processes, which is included as a component of
sales, and is generally priced at the market price on the date of shipment.
Aside from its sales of precious metal electroplating processes, the
Company produces and markets in excess of 100 other electroplating processes and
chemical additives relating to the deposition of nickel, tin, copper, zinc, and
other metals. The users of the Company's nonprecious metal processes generally
provide their own metals. In addition, the Company has, over the years, expanded
its product line to include non-electroplating specialty chemicals used in the
fabrication of printed circuit boards and other electronic components.
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The following table sets forth, for the five fiscal years ended
February 29, 1996, the division of the Company's net sales as among its precious
metal processes, non-precious metal processes and other products, and the
precious metal content (primarily gold) of its electroplating processes:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(in Thousands)
<S> <C> <C> <C> <C> <C>
Precious Metal
Processes $ 19,465 $ 16,099 $ 14,892 $ 13,885 $ 12,712
Non-Precious Metal
Processes 80,562 62,380 55,243 55,555 48,037
-------- -------- -------- -------- --------
ALL PROCESSES 100,027 78,479 70,135 69,440 60,749
Precious Metal
Content 105,557 93,485 75,383 64,800 63,637
Other Products* 6,041 5,040 5,549 4,934 4,709
-------- -------- -------- -------- --------
NET SALES $211,625 $177,004 $151,067 $139,174 $129,095
======== ======== ======== ======== ========
</TABLE>
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* Primarily consists of sales of electroplating equipment, supplies and
other products.
In fiscal 1996, there were no sales to any one customer in excess of
10% of net sales. No single customer accounted for more than 3% of all process
sales in any of said years. The loss of any one customer would not have a
material adverse effect on the Company's business.
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Gold Electroplating Processes
Gold electroplating over base metals is used in order to inexpensively
achieve certain chemical and metallurgical properties of solid gold, such as
resistance to tarnish and corrosion, solderability, conductivity and heat
emissivity.
The majority of the Company's sales of gold electroplating processes
are made to the electronics industries; the balance is made to manufacturers of
decorative items like watches, spectacle frames, and jewelry. The Company has
developed a number of processes for gold electroplating, used in the production
of semiconductors, printed circuit boards and electrical contacts, all of which
are components of such end use items as: guidance systems, telecommunications
equipment, computers, consumer appliances, electrical equipment and electronic
games.
The Company's gold electroplating processes are distributed to several
hundred customers, which include many of the world's largest electronics and
electrical equipment manufacturers.
Most of the Company's gold electroplating processes have been patented
or have patents pending, and are sold under various trade names including
AUROGLO(R)*, AURONAL(R), AUROVEL, AUROGLEAM, AURODURE(R), ENDURAGLO(R), AUROJET,
AUROSPEED, AUROSPOT, AUROTAB, RONOVEL and DECRONAL.
Gold metal used in the production of chemical additives for the
Company's gold electroplating processes is purchased at unregulated market
prices which vary from day to day. During the past five fiscal years, the New
York market price of gold has fluctuated between approximately $300 and $500 an
ounce. On May 8, 1996, the New York market price for gold was $395.
The Company maintains an inventory of gold metal and, accordingly, may
achieve profits or suffer losses in the value of its inventory as a result of
market fluctuations. However, the Company does not hold gold for investment
purposes and believes that its practice of purchasing and pricing the gold metal
content of its gold electroplating processes on a current basis tends to
minimize such profits or losses over the long term. The price which the Company
charges its customers for the gold metal content of its gold electroplating
processes is generally the market price of gold on the date of shipment. The
Company does not believe that the fluctuations in the price of gold have had a
material adverse effect on its sales of gold electroplating processes; however,
there is no assurance that future fluctuations in the price of gold will not
have such effect on sales.
- -----------------------------
* (R) indicates the existence of a registered trademark.
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Other Precious Metal Processes
The Company offers a series of palladium, palladium-nickel, and silver
electroplating processes primarily for use in the electronics and decorative
industries. These systems, called PALLADURE, PALLAMET, and SILVERJET
respectively, provide, in certain instances, a suitable substitute for existing
plated finishes.
Non-Precious Metal Electroplating Processes
The Company's non-precious metal electroplating processes are
distributed to over 2,000 customers. In the fiscal year ended February 29, 1996,
no single customer or distributor accounted for more than 5% of the Company's
net sales of such processes.
The Company offers a number of patented acid copper electroplating
processes for plating printed circuit boards sold under the trade name COPPER
GLEAM. These processes offer significant technological advantages over previous
processes and have gained wide acceptance in the industry. Newer versions of
COPPER GLEAM have kept pace with increasing demands for the production of more
sophisticated printed circuit boards.
The Company is the exclusive U.S. and Canadian licensee for bright acid
zinc electroplating processes known as SLZ, SLZ PLUS, and MILLENIUM. The Company
also sells a line of alkaline zinc plating processes under the name ZINCAL. All
of these processes are cyanide-free and non-polluting.
The Company manufactures and markets a tin electroplating process known
as TINGLO CULMO. This process is used primarily in the electronic and electrical
equipment industries to deposit a bright tin finish on semiconductors,
integrated circuits, and printed circuit boards.
The Company sells a tin-lead electroplating bath called PLUTIN LA. This
system, which is primarily used to plate printed circuit boards, has many
advantages over the conventional tin- lead plating baths.
A complete line of patented tin and tin-lead alloy plating processes,
known as SOLDERON, has gained wide acceptance in electronics markets. These
processes eliminate the use of toxic and difficult to dispose of chemicals in
addition to providing technological advantages over all earlier chemistries. The
Company has a dominant position in the sales of these processes, which are being
expanded into additional markets worldwide.
RONSTAN TP represents the first new tin plating process introduced to
the steel industry in over forty years. This process allows for the continuous
coating of steel sheet with pure tin and offers both environmental and technical
advantages over prior technology.
SOLDERON PC has achieved a strong position as the tin-lead plating
process of choice in the printed circuit industry. This is due in large part to
the fact that the process eliminates the environmental problems associated with
earlier fluoborate type chemistry.
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SOLDERON SC and SOLDERON LG are used extensively for plating
semiconductor lead frames and capacitors respectively and SOLDERON MHS is the
industry leader for wire plating.
In contrast to the Company's gold, silver, and palladium electroplating
processes, where the precious metal is offered by the Company as a component of
the process, in most of the processes described above, the Company supplies only
the specialized chemical additives necessary for the process, and the user
supplies the metal and other chemicals. The raw materials required for these
processes are in adequate supply.
The Company continues to focus its efforts in the area of
environmentally benign and cost effective processes.
Other Products
The Company has a license agreement with Tokyo Ohka (TOK), a Japanese
company, which gives it the exclusive rights to manufacture and sell a complete
line of photoimageable solder masks, under the name of RONASCREEN OPSR and
RONACOAT OPSR. The market for these items in the printed circuit board industry
is large, although competitive. The Company believes its technology has
technical advantages over existing processes which could enhance the Company's
opportunities for significant market acceptance of its imaging products.
The Company also offers, under licensing agreements with TOK, dry film
photoresists for sale in Europe, Southeast Asia, and South America.
Research and Development
The Company's research and development program is particularly
important due to rapid technological changes and advances in the industries the
Company serves. For example, in order to keep pace with changing technology in
the electronics industries, the Company maintains an extensive worldwide
research program and pilot plating facilities to simulate production conditions.
Amounts expended on research and development during fiscal 1996, 1995, and 1994
were approximately $3,406,000, $2,815,000, and $2,504,000, respectively. It is
the Company's policy to write off all research and development expenditures in
the year in which incurred.
In addition to the corporate research facilities in Freeport, New York,
research is also conducted at other Company facilities in both Europe and the
Far East. Programs are coordinated among LeaRonal and its subsidiaries to
maximize efficiency.
Recent Developments
In order to increase market penetration with its RONACOAT Imaging
products, the Company has introduced a line of automated equipment for
electrostatic coating of these products. To date, six of these systems have been
sold and installed in the United States. In addition, the Company has
successfully introduced its RONASCREEN OPSR into competitive
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<PAGE> 7
electrostatic coating systems and in 1995 began offering products for other
application techniques such as curtain coating.
The Company is continuing its research in the area of direct
metallization of printed circuit boards. There is a significant market for this
technology to meet demands for environmentally acceptable processes. The Company
introduced CONDUCTRON, a complete system for direct metallization of plated
through holes which is being well received by the printed circuit board
industry. This technology overcomes many of the technical and environmental
problems encountered with conventional processes and can be applied in fully
automated equipment. Competitive processes have simultaneously been offered by a
number of other suppliers.
In addition, the Company continues to expand its line of specialty
items such as cleaners and film strippers which it offers to the printed circuit
industry.
Patents and Licenses
The Company maintains an active program of obtaining patents to protect
the results of its research and development program. While the majority of the
Company's processes are patented and it regards its patents as important to its
business, it does not believe that its sales are materially dependent upon any
particular patent or group of related patents. As of February 29, 1996, the
Company owned in excess of 100 patents, and had many domestic and foreign patent
applications pending. There is no assurance that United States or foreign patent
applications filed will result in patents. It is the Company's policy to
amortize the cost of patents over the life of the respective patents.
The Company is the licensee under several license agreements for the
use of certain patent rights of other corporations. These licenses relate to
certain aspects of the Company's zinc electroplating processes, strippers, and
imaging products. Some of these licenses are subject to the right of
cancellation prior to the expiration of the patents to which they relate, and
there is no assurance that such right will not be exercised prior thereto. The
Company believes that the cancellation of these licenses would not have a
materially adverse effect on the Company.
From time to time, the Company grants licenses to unconsolidated
affiliates and unrelated suppliers for the manufacture and sales of products for
which the Company receives royalties. Royalty income for fiscal 1996, 1995, and
1994 was approximately $2,004,000, $1,801,000, and $1,440,000, respectively.
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Domestic Distribution and Technical Services
The Company markets its processes and products directly and through
certain independent distributors located in various parts of the United States.
The Company's Sales and Technical Services departments work with these
distributors and directly with the Company's ultimate customers to satisfy
customers' requirements.
Sales made through distributors, the largest one of which accounted for
less than 10% of the Company's net sales during the fiscal year ended February
29, 1996, are in all cases subject to the customary distributors' discount. The
Company does not believe that there was any significant difference in
profitability between direct sales and those made through distributors.
Foreign Operations
The Company's specialty chemicals are also manufactured by its
subsidiaries. LeaRonal (UK) plc ("UK") located in Buxton, Derbyshire, England,
and LeaRonal AG ("AG") located in Lucerne, Switzerland, each have complete
laboratory and manufacturing facilities for the manufacture and sale of
substantially all of the Company's products and processes. Certain of the
Company's products are also manufactured at its other European and Asian
facilities.
UK markets the Company's processes throughout Great Britain and to many
countries on the European continent, through its affiliates and a limited number
of independent distributors. UK has been in operation for more than 30 years and
affords the Company a base of operations for Europe. During the Company's five
fiscal years ended February 29, 1996, UK accounted for the following percentages
of the Company's operating profit: 1996 - 21%; 1995 - 22%; 1994 -19%; 1993 -
24%; and 1992 - 25%. For a discussion of items impacting 1996 earnings, see
Management's Discussion and Analysis of Operations.
AG was formed in September 1971 to manufacture and market the Company's
products and processes in Switzerland, Austria, Germany and Southeast Asia. In
Germany, these products are sold by LeaRonal GmbH. In Southeast Asia, these
products are sold through LeaRonal (S.E. Asia) ("SEA"), as well as subsidiaries
in Taiwan, Korea, and Singapore. 82% of the outstanding stock of LeaRonal SEA is
owned by LeaRonal AG and the remaining approximately 18% is owned by its
employees. For the Company's five fiscal years ended February 29, 1996. LeaRonal
AG (including SEA) accounted for the following percentages of the Company's
operating profit: 1996 - 47%; 1995 - 44%; 1994 - 43%; 1993 - 40%; and 1992 -
35%. Approximately 93% of the outstanding stock of AG is owned by the Company,
the remaining 7% being owned by its employees.
In January 1995, LeaRonal Singapore and an office in Malaysia were
formed to better serve our customers in those countries.
In March 1974, LeaRonal France (formerly Ronal-Chimie S.A.) was formed
to market the Company's products and processes in France. In January 1987, the
Company relocated to a new facility offering improved manufacturing, sales,
service and administrative capabilities to its customer base. Approximately 85%
of the outstanding stock of LeaRonal France is owned
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<PAGE> 9
by the Company; the remaining 15% is owned by its employees.
In 1977, the Company acquired 30% of the outstanding stock of Surpro
B.V. (a Netherlands company) and 70% of Surpro GmbH (a German company which
changed its name to LeaRonal GmbH). These companies were formerly independent
distributors of the Company's products in the Dutch and German markets. In 1983,
the Company exchanged its 30% stock interest in Surpro B.V. for an additional
30% stock interest in LeaRonal GmbH, making the German company a wholly owned
subsidiary. In May, 1990, an expansion of the Company's manufacturing and
customer service laboratories was completed in Birkenfeld, Germany.
In June 1970, Japan Ronal, Inc. was formed by the Company and Japan
Meltex, a non-affiliated Japanese company, each of which owns 50% of the
outstanding stock, to manufacture and sell the Company's products. A new
research facility was completed and dedicated in June 1990, at Miyahara, Japan.
At the same time, the name of the Company was changed to LeaRonal Japan. Sales
of the Company's products continue to be carried out by Japan Meltex, with
technical support provided by LeaRonal Japan.
The Company and its subsidiaries are subject to the usual risks of
doing business abroad, including currency fluctuations, restrictions on the
transfer of funds, price controls and import and export restrictions.
Foreign and Domestic Operations and Export Sales
Information pertaining to foreign and domestic operations, export sales
and sales by geographic area is included in Note 6 of Notes to Consolidated
Financial Statements for the three fiscal years ended February 29, 1996 and is
incorporated herein by reference.
Employee Relations
The Company had approximately 650 employees worldwide as of February
29, 1996, of which over 100 are graduate engineers or holders of other technical
degrees. The Company has enjoyed excellent relations with its employees and has
never experienced a work stoppage.
The Company provides a number of employee benefits, including a 401(k)
savings plan, group life, long-term disability and comprehensive medical and
dental insurance.
Competition
The Company believes that it is one of the principal worldwide
suppliers (although not necessarily the largest) of specialty chemical additives
to the electronics and metal finishing industries.
The Company has a limited number of competitors. Its products, however,
are sold under highly competitive conditions, in which the Company competes with
certain corporations having substantially greater financial resources. The
markets in which the Company's products
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are sold experience rapid technological changes in which new products are
constantly being developed which may replace or reduce the demand for older
products. The Company's ability to compete successfully in the future depends
not only on its efficiency in production, marketing and sales, but also on its
skill in developing new products.
Backlog
The Company does not generally have a substantial backlog of customers'
orders because the Company's production is principally on a job order basis.
Certain of the Company's customers furnish purchase orders for future delivery;
however, the aggregate of such purchases is not significant.
Environmental Matters
The Company believes that its operations are substantially in
compliance with all applicable environmental regulations, and that no
significant adverse affect upon capital expenditures, earnings and competitive
positions will result from continued compliance therewith.
ITEM 2. PROPERTIES
The Company owns three buildings in Freeport, New York. The first is a
one-story building containing approximately 46,000 square feet of which 15,000
square feet are utilized for executive, administrative, and sales offices, and
the remaining 31,000 square feet are utilized for research laboratories,
warehousing, manufacturing, and customer services. The second building contains
laboratories, production, and warehouse facilities. The purchase of the land of
1.25 acres and building containing 40,000 square feet was financed with funds
provided through the Nassau County Industrial Development Agency and Chemical
Bank. The cost of this facility was approximately $2,600,000. In April 1995, the
Company purchased a 17,000 square foot building adjacent to its Freeport
facility for $980,000 and commenced a complete renovation of the offices,
research and development, and warehousing spaces. The Company previously leased
this building.
The Company leases a one-story building containing approximately 19,000
square feet in Addison, Illinois (a suburb of Chicago), for laboratory,
warehousing and related office purposes at an initial annual base rental of
$108,000, payable monthly, for a term expiring July 31, 1999.
The Company owns a one-story building purchased in fiscal 1986
containing approximately 34,000 square feet in Orange County, California, for
manufacturing, warehousing, and related office purposes. The cost of this
facility was approximately $1,250,000.
In November 1989, the Company entered into a lease for the rental of
19,000 square feet of manufacturing and office space in Orange, California, in
the vicinity of its main manufacturing facility. The lease is for seven years,
with optional renewals to extend the term to 15 years. The initial annual base
rental is $108,000, plus taxes and maintenance.
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Commencing November 1, 1993, the Company subleased the manufacturing and
warehouse portion of this building which previously housed the Company's dry
film photoresist operations. The sublease expires February 28, 1997, the date
the initial lease term expires.
LeaRonal UK owns a laboratory, manufacturing, and refining facility
totalling in excess of 40,000 square feet in Buxton, Derbyshire, England. During
fiscal 1995, LeaRonal UK purchased additional land near its Buxton site, and
during fiscal 1996, the Company constructed a new building to house its imaging
operations on this site.
LeaRonal AG owns a modern, 25,000 square foot multi-story facility in
Lucerne, Switzerland, which is used for production, laboratories, and
administration.
LeaRonal France owns a one story, 18,000 square foot building in Lyon,
constructed in 1986, which houses offices, customer service labs, production
facilities, and a warehouse.
LeaRonal GmbH, located in Birkenfeld, owns a multi-story, 14,000 square
foot facility which houses offices, customer service laboratories, a warehouse,
and a limited production area.
LeaRonal Taiwan has purchased approximately 21,000 sq. ft. of land on
which a new 15,000 sq. ft. facility will be constructed.
In September 1995, LeaRonal (S.E. Asia) purchased a new 50,000 sq. ft.
building in the Fanling section of Hong Kong. The cost of this building was
approximately $6,000,000. This building will be used as the center of the
Company's southeast Asian operations and will house laboratories, production
facilities, offices, and warehousing space. LeaRonal (S.E. Asia) intends to
occupy the facility by the summer of 1996.
During 1995, LeaRonal Singapore purchased a new one-story, 22,000 sq.
ft. building to support its expanding customer base in that country. The cost of
this building was approximately $1,125,000.
The Company's production facilities are in good condition and are
generally being utilized on a one-shift basis. The Company believes that its
present facilities should be adequate for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There is no material litigation pending or threatened against the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock, $1.00 par value, is listed on the New York
Stock Exchange and its symbol is LRI. The following table indicates the
quarterly high and low sale prices for LeaRonal Common Stock on the New York
Stock Exchange and cash dividends declared for the past two years:
<TABLE>
<CAPTION>
Year Ended
----------
February 29, 1996 February 28, 1995
----------------- -----------------
Sale Price Cash Sale Price Cash
Quarter ---------- Dividends ---------- Dividends
Ended High Low Declared High Low Declared
- ----- ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
May 31 20-3/8 17-3/4 15 1/2(cent) 15-3/4 14-5/8 14(cent)
Aug. 31 24-7/8 20 15 1/2(cent) 18-1/2 15 14(cent)
Nov. 30 28-7/8 21-3/4 15 1/2(cent) 19-5/8 17-3/8 14(cent)
Feb. 29 28-1/8 23 15 1/2(cent) 21-1/4 17-3/4 14(cent)
</TABLE>
Approximate number of record holders of Common Stock on May 8, 1996: 3,500.
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ITEM 6. SELECTED FINANCIAL DATA
LEARONAL, INC. AND SUBSIDIARIES
The following selected consolidated financial data for the five fiscal
years ended February 29, 1996 should be read in conjunction with the
Consolidated Financial Statements and the notes thereto appearing herein in Item
8:
(in thousands except share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 211,625 $ 177,004 $ 151,067 $ 139,174 $ 129,095
Income before
cumulative effect of
accounting change $ 15,595 $ 12,429 $ 10,337 $ 8,740 $ 7,892
Cumulative effect of
accounting change 181
---------- ---------- ---------- ---------- ----------
Net income $ 15,595 $ 12,429 $ 10,337 $ 8,921 $ 7,892
Earnings per share:
Income before
cumulative effect of
accounting change $ 1.74 $ 1.40 $ 1.18 $ 1.00 $ .90
Cumulative effect of
accounting change .02
---------- ---------- ---------- ---------- ----------
Net income
per share $ 1.74 $ 1.40 $ 1.18 $ 1.02 $ .90
Total assets $ 145,698 $ 122,682 $ 108,214 $ 101,000 $ 100,138
Working capital $ 77,116 $ 75,475 $ 66,374 $ 59,155 $ 57,600
Property, plant and
equipment - net $ 29,060 $ 17,782 $ 16,515 $ 17,155 $ 19,097
Long-term debt, less
current portion $ 3,066 $ 523 $ 734 $ 1,031 $ 1,362
Stockholders' equity $ 111,667 $ 101,789 $ 89,827 $ 81,747 $ 80,293
Cash dividends
per share $ .62 $ .56 $ .52 $ .50 $ .48
Average number of
common shares
and equivalents
outstanding 8,953,832 8,893,751 8,789,256 8,773,314 8,782,996
Return on average
Stockholders' equity 15% 13% 12% 11% 10%
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SALES
Fiscal 1996/Fiscal 1995
Net sales increased $34,621,000 or 20% to $211,625,000 in fiscal 1996.
Net sales consists of proprietary and patented specialty chemicals and imaging
chemicals, referred to as "process sales," the precious metal content of the
Company's electroplating processes, and sales of other products. Process sales
increased $21,547,000 or 27% to $100,027,000 in fiscal 1996. Process sales
increased 46% in Asia, 32% in Europe, and 11% in the United States. Precious
metal content sales totalled $105,557,000, an increase of $12,072,000 or 13%
from fiscal 1995. The increase was due to increased precious metal content sales
volume in the United States, partially offset by decreased sales volume of
low-margin third-party gold sales by the Company's UK subsidiary. Low-margin
third-party gold sales from the Company's UK subsidiary were $10,088,000,
$14,424,000, and $5,352,000 for fiscal 1996, 1995, and 1994, respectively. The
average gold price per troy ounce for the fiscal 1996 and fiscal 1995 periods
were $388 and $383, respectively.
The decline of the U.S. dollar against certain foreign currencies had
the impact of increasing the U.S. dollar reported sales amounts, resulting from
translating the subsidiaries' sales from their functional currency into U.S.
dollars. Process sales increased $2,504,000 and precious metal content and other
sales increased $3,025,000 due to the effect of currency rate changes on
translated amounts.
Fiscal 1995/Fiscal 1994
Net sales increased $25,937,000 or 17% in fiscal 1995. Precious metal
content sales increased $18,102,000 or 24% to $93,485,000 in fiscal 1995,
principally due to increased sales volume. The increase occurred principally in
the United Kingdom from increased sales volume of low-margin third-party gold
sales, and in the United States, due to overall sales volume increases.
Low-margin third-party gold sales from the Company's UK subsidiary were
$14,424,000 and $5,352,000 for fiscal 1995 and fiscal 1994, respectively. The
average gold price per troy ounce for the fiscal 1995 and fiscal 1994 periods
were $383 and $369, respectively. Process sales increased $8,344,000 or 12% to
$78,479,000 in fiscal 1995. Process sales increased 18% in Asia, 12% in the
United States, and 5% in Europe, despite the sale of the Company's dry film
slitting subsidiary as of December 1, 1993 to its unconsolidated Italian
affiliate. This subsidiary had $2,700,000 in process sales in fiscal 1994. The
fiscal 1994 period process sales included $2,900,000 in process sales related to
the change in the fiscal year end from December to February for LeaRonal (S.E.
Asia) and LeaRonal GmbH.
COST OF SALES/GROSS PROFIT
Fiscal 1996/Fiscal 1995
Cost of sales increased $20,725,000 or 16% in fiscal 1996. The increase
was due to increased process sales in all locations and increased precious metal
content sales from increased volume in the
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
United States. Gross profits in the fiscal 1996 period increased $13,896,000 or
31% to $58,753,000 from $44,857,000 in the fiscal 1995 period. The Company's
overall gross profit percentage increased principally due to the increase in
process sales, which have a higher gross margin, as a percentage of total sales.
Fiscal 1995/Fiscal 1994
Cost of sales increased $20,636,000 or 19% in fiscal 1995. The increase
was due principally to increased precious metal content sales from increased
sales volume in the United Kingdom and the United States. Gross profits
increased $5,301,000 or 13% in fiscal 1995. The Company's overall gross profit
percentage declined in fiscal 1995, principally due to the increase in precious
metal content sales as a percentage of total sales, offset by an increased gross
profit percentage on the Company's UK subsidiary's process sales, as low-margin
dry film sales were eliminated.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Fiscal 1996/Fiscal 1995
Selling, general, and administrative expenses increased $6,927,000 or
25% in fiscal 1996. Expenses increased principally in Europe and Asia due to
increased sales and technical service costs to support our expanded customer
base and market growth. During the fiscal 1996 period, the average exchange
rates used to translate expenses from the subsidiaries' functional currency into
U.S. dollars resulted in an increase of approximately $1,089,000 in reported
selling, general, and administrative expenses.
Fiscal 1995/Fiscal 1994
Selling, general, and administrative expenses increased $1,684,000 or
6% in fiscal 1995. The increase occurred principally in the United States as a
result of additional sales and technical service specialists needed to meet
customer requirements. Expenses increased to a lesser extent in Southeast Asia
from increased occupancy costs needed to support increased sales. The fiscal
1994 period included fourteen months of expenses for LeaRonal (S.E. Asia) and
LeaRonal GmbH, due to the change in fiscal year end from December to February.
OTHER INCOME
Fiscal 1996/Fiscal 1995
Other income includes royalty income, earnings of unconsolidated
affiliates, foreign currency gains and losses, and investment income. Other
income increased $501,000, as increased royalty income, investment income, and
other income were partially offset by decreased earnings of unconsolidated
affiliates.
- 15 -
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Fiscal 1995/Fiscal 1994
Other income increased $58,000 in fiscal 1995 as increased royalty
income and earnings of unconsolidated affiliates were mostly offset by losses on
sales of investments. The fiscal 1994 period included a $408,000 gain from the
sale of investment securities, while fiscal 1995 includes a $314,000 loss from
the sale of investment securities.
OPERATING PROFITS
Fiscal 1996/Fiscal 1995
Operating profits increased 43% from $17,085,000 in fiscal 1995 to
$24,393,000 in fiscal 1996. Operating profits increased due to increased sales,
gross profits, other income, and interest income, which were partially offset by
increased selling, general, and administrative expenses and increased research
and development expenses. Operating profits increased 59% in Europe, 16% in
Asia, and 24% in the United States.
Fiscal 1995/Fiscal 1994
Operating profits increased 24% in fiscal 1995 due to increased sales,
gross profits, and interest income which were partially offset by increased
selling, general, and administrative expenses. Operating profits increased
approximately 18% in the United States, 54% in Asia, and 21% in Europe.
INCOME TAXES
Fiscal 1996/Fiscal 1995
The effective income tax rate increased from 26% in fiscal 1995 to 34%
in fiscal 1996. In the fiscal 1995 period, the Company's Swiss subsidiary
reported lower effective income tax rates due to a change in Swiss tax law, the
benefit from which was fully realized during fiscal 1995. The effective tax rate
in fiscal 1995 would have been 34% without the effect of this Swiss tax law
change.
Fiscal 1995/Fiscal 1994
The effective income tax rate increased from 24% in fiscal 1994 to 26%
in fiscal 1995. During fiscal 1994, the Company's German subsidiary declared a
dividend of substantially all its retained earnings which resulted in a
reduction in German income taxes of $617,000. The German company declared a
dividend during fiscal 1995 which reduced income taxes approximately $130,000
and the Company plans to dividend its German subsidiary's income in future years
to obtain the benefit of the lower tax rate. The fiscal 1995 period includes
additional income taxes attributable to a change in U.S. tax law which makes
undistributed earnings of certain foreign subsidiaries subject to U.S. income
tax rates. Both fiscal 1995 and 1994 include a decrease in the effective rate
due to changes in Swiss tax laws.
- 16 -
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
NET INCOME
Fiscal 1996/Fiscal 1995
Net income increased $3,166,000 or 25% from $12,429,000 in fiscal 1995
to $15,595,000 in fiscal 1996, primarily due to increased gross profits from
increased sales, increased interest, and other income, partially offset by
increased selling, administrative, and general expenses, research and
development expenses, and higher effective income tax rates.
The results of operations continues to reflect the importance of the
Company's foreign subsidiaries and unconsolidated affiliates. (See Note 6 to the
Consolidated Financial Statements.) The effect of translating the foreign
operations financial statements from functional currencies into U.S. dollars
impacts the reported results of operations. Net income for the 1996 period
increased by $901,000 or 7% from the prior year period principally due to an
increase in the average exchange rates used to translate the European
subsidiaries' income statements from local currency into U.S. dollars.
Fiscal 1995/Fiscal 1994
Net income increased $2,092,000 or 20% in fiscal 1995, primarily due to
increased gross profits from increased sales and increased interest income
partially offset by increased selling, general, and administrative expenses and
higher effective income tax rates.
FINANCIAL CONDITION AND OTHER
At February 29, 1996, the Company had working capital of $77,116,000
and current assets of $101,304,000, including $37,825,000 in cash, cash
equivalents, and short-term investments. The Company's immediate capital
expansion requirements will be funded primarily by working capital and cash flow
from operations. The Company has sufficient lines of credit available with
banks, should any additional funds be required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this section is set forth at the end of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
- 17 -
<PAGE> 18
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Information concerning the directors and officers of the registrant is
contained in the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A no later than 120 days after
the close of the fiscal year ended February 29, 1996. Such information is
incorporated herein by reference.
ITEM 11. MANAGEMENT REMUNERATION
Information concerning management remuneration is contained in the
registrant's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A no later than 120 days after the close of
the fiscal year ended February 29, 1996. Such information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the security ownership of certain beneficial
owners and management is contained in the registrant's Proxy Statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A no
later than 120 days after the close of the fiscal year ended February 29, 1996.
Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
is contained in the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A no later than 120 days after
the close of the fiscal year ended February 29, 1996. Such information is
incorporated herein by reference.
- 18 -
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) and (2) Financial Statements and Schedules:
See accompanying index to financial statements and schedules
in Item 8.
(3) Exhibits:
Exhibits are listed on the Exhibit Index on page 22.
(b) Reports on Form 8-K:
Registrant did not file any reports on Form 8-K during the
last quarter of the period covered by this Report.
(c) Exhibits. See Item 14(a)(3).
(d) Financial Statement Schedules are submitted at the end of this Report.
- 19 -
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 8, 1996
LeaRonal, Inc.
By /s/ Donald Thomson
------------------
Donald Thomson
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Barnet D. Ostrow /s/ Fred I. Nobel
- ----------------------------------- ----------------------------------
Barnet D. Ostrow Fred I. Nobel
Chairman of the Board Vice Chairman of the Board
and Director and Director
May 8, 1996 May 8, 1996
/s/ Ronald F. Ostrow /s/ Richard Kessler
- ----------------------------------- ----------------------------------
Ronald F. Ostrow Richard Kessler
President, Chief Executive Officer Executive Vice President
and Director and Director
May 8, 1996 May 8, 1996
/s/ Arthur M. Winston /s/ Kenneth L. Stein
- ----------------------------------- ----------------------------------
Arthur M. Winston Kenneth L. Stein
Director Director
May 8, 1996 May 8, 1996
/s/ David Rosenthal
- -----------------------------------
David Rosenthal
Treasurer, Chief Financial Officer
and Chief Accounting Officer
May 8, 1996
- 20 -
<PAGE> 21
Annual Report On Form 10-K
Item 8, Item 14(a)(1) and (2) and (d)
Index To Financial Statements
and Financial Statement Schedule
Financial Statements
Financial Statement Schedule
Year ended February 29, 1996
LeaRonal, Inc. and Subsidiaries
Freeport, New York
<PAGE> 22
Form 10-K - Item 14(a)(1) and (2) and (d)
LeaRonal, Inc. and Subsidiaries
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of LeaRonal, Inc. and
Subsidiaries are included in Item 8:
<TABLE>
<S> <C>
Report of Independent Auditors.........................................................................F-2
Consolidated balance sheets - February 29, 1996 and February 28, 1995..................................F-3
Consolidated statements of income - Years ended February 29, 1996,
February 28, 1995 and February 28, 1994.............................................................F-5
Consolidated statements of stockholders' equity - Years ended February 29, 1996,
February 28, 1995 and February 28, 1994.............................................................F-6
Consolidated statements of cash flows - Years ended February 29, 1996,
February 28, 1995 and February 28, 1994.............................................................F-7
Notes to consolidated financial statements - February 29, 1996.........................................F-9
The following consolidated financial statement schedule of LeaRonal, Inc. and Subsidiaries is
included in Item 14(d):
Schedule II - Valuation and qualifying accounts.......................................................F-21
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE> 23
[ERNST & YOUNG LLP Letterhead]
Report of Independent Auditors
Stockholders and Board of Directors
LeaRonal, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of LeaRonal, Inc.
and Subsidiaries as of February 29, 1996 and February 28, 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended February 29, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
LeaRonal, Inc. and Subsidiaries at February 29, 1996 and February 28, 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended February 29, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 1995 the
Company adopted Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
ERNST & YOUNG LLP
Melville, New York
May 8, 1996
F-2
<PAGE> 24
LeaRonal, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
FEBRUARY 29 FEBRUARY 28
1996 1995
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,711,000 $ 14,761,000
Investments available-for-sale (Note 2) 9,450,000 11,010,000
Investments held-to-maturity (Note 2) 1,664,000 9,695,000
Receivables, less allowance for doubtful accounts of
$2,485,000 in 1996 and $1,673,000 in 1995 36,173,000 28,873,000
Inventories:
Finished products 10,569,000 8,109,000
Materials and supplies 13,724,000 13,483,000
---------------------------------
24,293,000 21,592,000
Deferred income taxes (Note 3) 845,000 847,000
Other current assets 2,168,000 2,816,000
---------------------------------
Total current assets 101,304,000 89,594,000
Investments in unconsolidated affiliates (Note 6) 10,801,000 11,565,000
Property, plant, and equipment, on the basis of cost:
Land and buildings (Note 4) 27,033,000 17,144,000
Machinery and equipment 21,824,000 18,225,000
Automotive and other 3,046,000 3,239,000
Allowance for depreciation and amortization (22,843,000) (20,826,000)
---------------------------------
29,060,000 17,782,000
Patents, at cost, less amortization 498,000 507,000
Other assets 4,035,000 3,234,000
---------------------------------
Total assets $145,698,000 $122,682,000
=================================
</TABLE>
F-3
<PAGE> 25
LeaRonal, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
FEBRUARY 29 FEBRUARY 28
1996 1995
---------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,485,000 $ 5,963,000
Payroll and related items 3,864,000 3,072,000
Accrued expenses and other liabilities 3,333,000 2,185,000
Income taxes 4,664,000 2,642,000
Current portion of long-term debt (Note 4) 842,000 257,000
---------------------------------
Total current liabilities 24,188,000 14,119,000
Long-term debt, less current portion (Note 4) 3,066,000 523,000
Deferred income taxes (Note 3) 1,719,000 1,814,000
Minority interests 5,058,000 4,437,000
Stockholders' equity (Note 5):
Common stock, par value $1 per share - authorized
15,000,000 shares, issued 9,361,550 shares
including 548,033 shares in 1996 and 558,874
shares in 1995 held in treasury 9,362,000 9,362,000
Additional paid-in capital 9,480,000 9,609,000
Retained earnings 91,804,000 81,675,000
Unrealized holding gains (losses) on investments
available-for-sale, net of tax (Note 2) 192,000 (229,000)
Cost of common stock in treasury (8,364,000) (8,402,000)
Equity adjustment from foreign currency
translation (Note 6) 9,193,000 9,774,000
---------------------------------
Total stockholders' equity 111,667,000 101,789,000
---------------------------------
Total liabilities and stockholders' equity $145,698,000 $122,682,000
=================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 26
LeaRonal, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 28
1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
Net sales $211,625,000 $177,004,000 $151,067,000
Interest income 1,888,000 1,585,000 1,345,000
Other income (Note 9) 3,260,000 2,759,000 2,701,000
------------------------------------------------------
216,773,000 181,348,000 155,113,000
Costs and expenses:
Cost of sales 152,872,000 132,147,000 111,511,000
Selling, general and administrative 35,107,000 28,180,000 26,496,000
Research and development 3,406,000 2,815,000 2,504,000
Minority interests 1,383,000 1,220,000 839,000
Interest 276,000 98,000 205,000
------------------------------------------------------
193,044,000 164,460,000 141,555,000
------------------------------------------------------
Income before income taxes 23,729,000 16,888,000 13,558,000
Income taxes (Note 3):
Federal 2,473,000 2,151,000 1,440,000
Foreign 5,406,000 1,976,000 2,086,000
State and local 424,000 282,000 276,000
Deferred (169,000) 50,000 (581,000)
------------------------------------------------------
8,134,000 4,459,000 3,221,000
------------------------------------------------------
Net income $ 15,595,000 $ 12,429,000 $ 10,337,000
======================================================
Net income per share $1.74 $1.40 $1.18
======================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 27
LeaRonal, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
PAR VALUE OF
ISSUED
TOTAL SHARES OF ADDITIONAL
STOCKHOLDERS' COMMON PAID-IN RETAINED
EQUITY STOCK CAPITAL EARNINGS
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at February 28, 1993 $ 81,747,000 $9,362,000 $9,695,000 $68,409,000
Net income for the year 10,337,000 10,337,000
Cost of 469 shares of common stock purchased for treasury (7,000)
Cash dividends declared - $.52 per share (4,571,000) (4,571,000)
Proceeds from issuance of 9,930 shares of common stock upon
exercise of stock options 93,000 (56,000)
Translation adjustment for the year 2,228,000
----------------------------------------------------------
Balance at February 28, 1994 89,827,000 9,362,000 9,639,000 74,175,000
Net income for the year 12,429,000 12,429,000
Cash dividends declared - $.56 per share (4,929,000) (4,929,000)
Proceeds from issuance of 6,310 shares of common stock upon
exercise of stock options 64,000 (30,000)
Unrealized holding losses on investments available-for-sale,
net of tax (229,000)
Translation adjustment for the year 4,627,000
----------------------------------------------------------
Balance at February 28, 1995 101,789,000 9,362,000 9,609,000 81,675,000
Net income for the year 15,595,000 15,595,000
Cost of 15,000 shares of common stock purchased for treasury (346,000)
Cash dividends declared - $.62 per share (5,466,000) (5,466,000)
Proceeds from issuance of 25,841 shares of common stock upon
exercise of stock options 255,000 (129,000)
Unrealized holding gains on investments available-for-sale,
net of tax 421,000
Translation adjustment for the year (581,000)
==========================================================
Balance at February 29, 1996 $ 111,667,000 $9,362,000 $9,480,000 $91,804,000
==========================================================
<CAPTION>
UNREALIZED
HOLDING GAINS EQUITY
(LOSSES) ON ADJUSTMENT
INVESTMENTS COST OF FROM
AVAILABLE-FOR- COMMON FOREIGN
SALE, STOCK CURRENCY
NET OF TAX IN TREASURY TRANSLATION
---------------------------------------
<S> <C> <C> <C>
Balance at February 28, 1993 $(8,638,000) $2,919,000
Net income for the year
Cost of 469 shares of common stock purchased for treasury (7,000)
Cash dividends declared - $.52 per share
Proceeds from issuance of 9,930 shares of common stock upon
exercise of stock options 149,000
Translation adjustment for the year 2,228,000
--------------------------------------
Balance at February 28, 1994 (8,496,000) 5,147,000
Net income for the year
Cash dividends declared - $.56 per share
Proceeds from issuance of 6,310 shares of common stock upon
exercise of stock options 94,000
Unrealized holding losses on investments available-for-sale,
net of tax $ (229,000)
Translation adjustment for the year 4,627,000
--------------------------------------
Balance at February 28, 1995 (229,000) (8,402,000) 9,774,000
Net income for the year
Cost of 15,000 shares of common stock purchased for treasury (346,000)
Cash dividends declared - $.62 per share
Proceeds from issuance of 25,841 shares of common stock upon
exercise of stock options 384,000
Unrealized holding gains on investments available-for-sale,
net of tax 421,000
Translation adjustment for the year (581,000)
======================================
Balance at February 29, 1996 $ 192,000 $(8,364,000) $9,193,000
======================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 28
LeaRonal, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 28
1996 1995 1994
-----------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $15,595,000 $12,429,000 $10,337,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,841,000 3,007,000 2,947,000
Provision for bad debts 973,000 417,000 652,000
Equity in earnings of unconsolidated affiliates net
of dividends received 167,000 (574,000) (379,000)
Deferred income taxes (169,000) 50,000 (581,000)
Minority interests 1,383,000 1,220,000 839,000
(Gain) loss on sales of investments
available-for-sale (54,000) 323,000 (407,000)
Changes in operating assets and liabilities:
Receivables (8,595,000) (3,030,000) (2,322,000)
Inventories (2,881,000) (468,000) (1,189,000)
Other current assets 663,000 (883,000) (528,000)
Other receivables 182,000 557,000 204,000
Accounts payable 5,665,000 982,000 (618,000)
Accrued expenses and other liabilities 1,935,000 455,000 77,000
Income taxes payable 1,960,000 (239,000) 43,000
Other assets (890,000) (1,120,000) (417,000)
-----------------------------------------------------------
Net cash provided by operating activities 19,775,000 13,126,000 8,658,000
INVESTING ACTIVITIES
Purchases of property, plant, and equipment and patents (15,366,000) (3,534,000) (3,193,000)
Proceeds from sales of property, plant and equipment 139,000 132,000 456,000
Purchases of investments available-for-sale (5,576,000) (2,422,000) (12,752,000)
Proceeds from sales of investments available-for-sale 7,807,000 3,009,000 11,621,000
Purchases of investments held-to-maturity (9,434,000) (15,606,000) (9,315,000)
Redemptions of investments held-to-maturity 18,010,000 11,104,000 8,567,000
Purchase of minority interest (552,000)
Other 151,000 (271,000)
-----------------------------------------------------------
Net cash used in investing activities $ (4,821,000) (7,588,000) (4,616,000)
</TABLE>
F-7
<PAGE> 29
LeaRonal, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 28
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Dividends paid (5,466,000) (6,071,000) (4,570,000)
Dividends paid to minority shareholders (468,000) (128,000) (121,000)
Purchases of treasury stock (346,000) (7,000)
Proceeds from debt 3,491,000 35,000
Payments on debt obligations (371,000) (239,000) (690,000)
Proceeds from exercise of stock options 255,000 64,000 93,000
--------------------------------------------------
Net cash used in financing activities (2,905,000) (6,374,000) (5,260,000)
Effect of exchange rate changes on cash and
cash equivalents (99,000) 981,000 242,000
--------------------------------------------------
Increase (decrease) in cash and cash equivalents 11,950,000 145,000 (976,000)
Cash and cash equivalents at beginning of year 14,761,000 14,616,000 15,592,000
--------------------------------------------------
Cash and cash equivalents at end of year $26,711,000 $14,761,000 $14,616,000
==================================================
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 277,000 $ 173,000 $ 135,000
==================================================
Income taxes $ 6,016,000 $ 5,095,000 $ 4,045,000
==================================================
</TABLE>
See accompanying notes.
F-8
<PAGE> 30
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
February 29, 1996
1. BUSINESS DESCRIPTION AND SUMMARY OF ACCOUNTING POLICIES
BUSINESS DESCRIPTION
The business of LeaRonal, Inc. and its consolidated subsidiaries consists of the
development, production, sale and worldwide distribution of specialty chemical
additives and other products used by the connector, printed circuit board,
semiconductor, and industrial metal finishing industries. Several of the
Company's specialty chemical products are used as components of a variety of
electroplating processes, which is the deposition of a metal in solution onto
another metal object with the use of an electric current. The Company's
specialty chemical additives are proprietary and the majority of them are
patented.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
wholly-owned domestic subsidiaries and its foreign subsidiaries, LeaRonal (UK)
plc. and subsidiaries (100%), LeaRonal AG (93%), LeaRonal France (85%), LeaRonal
GmbH (100%), LeaRonal (S.E. Asia), Ltd. (76%) and LeaRonal Korea (80%). The
financial statements of the Company's affiliates are included in the
consolidated financial statements from the time the Company acquires an interest
in excess of 50%. LeaRonal Korea is included on the basis of a fiscal year ended
December 31. During fiscal 1994, LeaRonal GmbH and LeaRonal S.E. Asia changed
their fiscal year-end from December to February. The net effect of this change
was to increase net sales by $3,422,000 and net income by $149,000 in the 1994
results of operations. All significant intercompany accounts and transactions
have been eliminated. Investments in the common stock of other affiliates (20%
to 50% owned) are accounted for by the equity method.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
PROPERTY, PLANT AND EQUIPMENT AND PATENTS
Depreciation is computed on the straight-line and declining balance methods at
rates calculated to amortize the cost of the depreciable assets over the related
estimated useful lives. Upon sale or retirement, the cost of the assets and
related allowances for
F-9
<PAGE> 31
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
depreciation are removed from the accounts and the resulting gains or losses are
included in operations. Patents are being amortized on the straight-line method
over their estimated useful lives.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted the provisions
of the new standard for investments held as of or acquired after March 1, 1994.
SFAS No. 115 requires the Company to evaluate its investment policies and
classify investments as either trading, available-for-sale or held-to-maturity.
The Company has evaluated its investment policies and determined that all of its
investment securities, except bank time deposits, are classified as
available-for-sale. Bank time deposits with maturities of more than three months
when purchased are classified as held-to-maturity. Management determines the
appropriate classification of securities at the time of purchase and reevaluates
such designation as of each balance sheet date. Held-to-maturity investments are
securities the Company has the positive intent and ability to hold to maturity.
Held-to-maturity investments are stated at cost. Available-for-sale investments
are carried at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. Realized gains and
losses, and losses in value judged to be other than temporary on
available-for-sale investments, are included in other income. The cost of
securities sold is based on the specific identification method.
In accordance with SFAS No. 115, prior period financial statements have not been
restated to reflect the change in accounting principle. The cumulative effect of
adopting SFAS No. 115 as of March 1, 1994 increased 1995 net income by $53,000
(net of $27,000 in deferred income taxes).
INVENTORIES
Domestic gold and silver inventories are carried at the lower of cost (last-in,
first-out ("LIFO") method) or market, which represent 26% and 28% of total
inventory at February 29, 1996 and February 28, 1995, respectively. All other
inventories are carried at the lower of cost (first-in, first-out ("FIFO")
method) or market. If the FIFO method of accounting had been used by the
Company, domestic gold and silver inventories at February 29, 1996 and February
28, 1995 would have been $4,712,000 and $4,058,000
F-10
<PAGE> 32
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
higher, respectively. The Company, from time to time, hedges a portion of its
domestic gold inventories by entering into forward commodity contracts. The
results of these gold hedging transactions are included in cost of sales. No
such contracts were outstanding at February 29, 1996 or February 28, 1995.
INCOME TAXES
In accordance with SFAS No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities using tax rates and laws that will be in effect when the
differences are expected to reverse.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company and its subsidiaries sell specialty chemical additives worldwide to
customers in the connector, printed circuit board, semiconductor and industrial
metal finishing industries. Some of the Company's electroplating process sales
include precious metal content. Receivables from precious metal customers
represent a significant percentage of the Company's outstanding receivables
balance at year end. The Company performs periodic credit evaluations of its
customers and generally does not require collateral. Receivables are generally
due within 30 days or less for precious metal sales and 60 days for other
products. In the past, credit losses have not been significant and management
believes credit policies are adequate.
The Company has a money market account totaling $6,500,000 managed by a major
U.S. brokerage company.
The Company and its UK subsidiary guarantee the indebtedness of one of its
unconsolidated affiliates. These guarantees totaled approximately $1,100,000 at
February 29, 1996.
REVENUE RECOGNITION
Sales and related costs of sales are included in income when goods are shipped
or services are rendered to the customer.
F-11
<PAGE> 33
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
PER SHARE DATA
Net income per share of common stock has been computed based on the weighted
average number of shares and common share equivalents outstanding during each
period as follows: 8,953,832 (1996); 8,893,751 (1995); and 8,789,256 (1994).
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than the fourth quarter of fiscal 1997. The new standard defines a fair value
method of accounting for the issuance of stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to SFAS No. 123,
companies are encouraged, but are not required, to adopt the fair value method
of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but
would be required to disclose proforma net income and per share amounts as if
the Company had applied the new method of accounting. SFAS No. 123 also requires
increased disclosures for stock-based compensation arrangements. The Company has
not yet determined if it will elect to change to the fair value method or
provide the necessary proforma information, nor has it determined the effect the
new standard will have on its operating and per share results should it elect to
make such change.
2. INVESTMENTS
The following is a summary of investments available-for-sale:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
FEBRUARY 29, 1996
U.S. Treasury Bonds $6,856 $ 77 $6,933
Mutual funds 912 61 973
Foreign bonds 974 53 1,027
Equity securities 452 65 517
=====================================================
$9,194 $256 $9,450
=====================================================
</TABLE>
F-12
<PAGE> 34
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
FEBRUARY 28, 1995
U.S. Treasury Bond Funds $ 5,770 $357 $ 5,413
Corporate Bond Funds 1,000 94 906
Mutual funds 1,021 $ 67 1,088
Foreign bonds 1,023 1 1,022
U.S. Treasury Note 2,139 30 2,169
Equity securities 407 5 412
-----------------------------------------------------
$11,360 $102 $452 $11,010
=====================================================
</TABLE>
Gross realized gains on sales of investments available-for-sale totaled $76,000,
$39,000 and $466,000, and gross realized losses totaled $22,000, $433,000, and
$0 for the years ended February 29, 1996, February 28, 1995 and 1994,
respectively.
The amortized cost and fair value of investments available-for-sale at February
29, 1996, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
ESTIMATED
FAIR
COST VALUE
-------------------------
(In thousands)
<S> <C> <C>
Due in one year or less $4,565 $4,626
Due after one year through three years 2,783 2,804
Due after three years 482 530
-----------------------
7,830 7,960
Equity securities, mutual funds, and bond funds 1,364 1,490
=======================
$9,194 $9,450
=======================
</TABLE>
Investments held-to-maturity at February 29, 1996 and February 28, 1995
consisted entirely of bank time deposits with maturities less than one year.
There were no realized or unrealized gains or losses on investments
held-to-maturity in fiscal 1996, 1995 and 1994.
F-13
<PAGE> 35
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
FEBRUARY 29 FEBRUARY 28
1996 1995
--------------------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $1,254 $1,359
Other - net 465 455
--------------------------
Total deferred tax liabilities 1,719 1,814
Deferred tax assets:
Bad debt allowance 252 127
Inventory 431 307
Capital loss carryforward 105 105
Other 162 413
--------------------------
Total deferred tax assets 950 952
Valuation allowance for deferred tax assets (105) (105)
--------------------------
Net deferred tax assets 845 847
==========================
Net deferred tax liabilities $ 874 $ 967
==========================
</TABLE>
At February 29, 1996, the Company's UK subsidiary has a capital loss
carryforward of approximately $300,000. For financial reporting purposes, a 100%
valuation allowance has been recognized to offset the deferred tax assets
related to the capital loss carryforward.
F-14
<PAGE> 36
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
The reconciliation of the difference between total income tax expense and the
amount computed by applying the statutory federal income tax rate to income
before income taxes is as follows for the three years ended February 29, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------
(In thousands)
<S> <C> <C> <C>
Computed tax expense $8,068 $5,742 $4,609
State and local taxes, net of federal tax benefit 279 186 182
Equity in earnings of unconsolidated affiliates (338) (381) (264)
Minority interest 471 415 285
Effect of lower foreign tax rates (241) (1,359) (1,105)
Reduction in German income taxes as a result of
dividend distribution (121) (163) (617)
Other 16 19 131
------------------------------------------
$8,134 $4,459 $3,221
==========================================
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
$43,101,000 at February 29, 1996, of which $38,916,000 are considered to be
permanently reinvested. No provision for U.S. federal and state income taxes has
been provided on the amount considered to be permanently reinvested. Should
those earnings be distributed, the Company might be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its calculation.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
FEBRUARY 29 FEBRUARY 28
1996 1995
-------------------------------
<S> <C> <C>
Term loan $3,281,000
I.D.A. loan 233,000 $367,000
Other 394,000 413,000
---------------------------
3,908,000 780,000
Less current portion 842,000 257,000
---------------------------
$3,066,000 $523,000
===========================
</TABLE>
F-15
<PAGE> 37
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
In September 1995, LeaRonal S.E. Asia entered into a term loan agreement with
the Bank of America (Asia) Ltd. for $3,491,000. The loan is payable in monthly
principal installments of $42,000 through August 2002, with a final payment of
$5,000 due September 2002. Interest is payable monthly at 2% above the Bank of
America (Asia) Ltd. one month HIBOR (7.09% at February 29, 1996) on the
outstanding loan balance. The loan is collateralized by a building, located in
Hong Kong, with a carrying value of $5,900,000 at February 29, 1996.
The I.D.A. loan was provided by the issuance of a $2,000,000 Industrial
Development Bond by the Nassau County Industrial Development Agency (I.D.A.).
The loan is payable in quarterly installments of $33,333 through October 1, 1997
with interest at 65% of the bank's prime rate. The Bond is guaranteed by the
Company and its domestic subsidiaries. The loan agreements require the Company
to maintain certain amounts of consolidated tangible net worth and consolidated
working capital and limit consolidated unsubordinated liabilities, as defined in
the agreements. In addition, the loan is collateralized by land and building
included in property, plant and equipment with a carrying value of $1,579,000 at
February 29, 1996.
The carrying amounts of the Company's outstanding indebtedness approximate their
fair market value at February 29, 1996.
Future annual maturities of all outstanding long-term debt amount to $842,000 -
1997; $663,000 - 1998; $549,000 - 1999; $545,000 - 2000; $550,000 - 2001 and
$759,000 thereafter.
5. STOCKHOLDERS' EQUITY
In July 1990, the Company adopted the 1990 Nonqualified Stock Option Plan for
key employees, officers and directors of the Company. Those persons who own 5%
or more of the Company's outstanding common stock are ineligible. Under this
Plan, the Company can grant options for the purchase of an aggregate of 400,000
shares of common stock of the Company at not less than fair market value at the
date of grant. No option may be granted after May 31, 2000. The options expire
ten years after the date of grant. Options are exercisable in their entirety or
in part from time to time provided that no more than 25% of the options granted
can be exercised in any twelve-month period. At February 29, 1996, there were
6,750 shares available for granting of future options.
F-16
<PAGE> 38
5. STOCKHOLDERS' EQUITY (CONTINUED)
Option activity under the Nonqualified Stock Option Plan during the three years
ended February 29, 1996 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
-------------------------------------------
<S> <C> <C>
Balance at February 28, 1993 300,350 $9.25 to $13.875
Exercised (9,930) $9.25 to $10.625
Cancelled (5,200) $9.25 to $10.625
--------------------
Balance at February 28, 1994 285,220 $9.25 to $13.875
Granted 90,650 $17.125
Exercised (6,310) $9.25 to $13.875
Cancelled (1,810) $9.25 to $13.875
--------------------
Balance at February 28, 1995 367,750
Exercised (25,841) $9.25 TO $17.125
Cancelled (6,190) $9.25 TO $17.125
--------------------
Balance at February 29, 1996 335,719 $9.25 TO $17.125
====================
</TABLE>
In January 1996, the Company adopted the LeaRonal, Inc. 1996 Long Term Incentive
Plan ( the "Plan") for key employees and officers of the Company. The Plan,
which is administered by a Committee consisting of outside Directors, is
authorized to grant stock options, stock appreciation rights, restricted stock
and/or long-term performance awards. The maximum number of shares of the
Company's common stock available for grant awards under the Plan is 800,000. On
April 11, 1996 the Committee approved the granting of nonqualified stock options
aggregating 475,000 shares to certain officers of the Company subject to
stockholder approval of the Plan. The option price is $24.50 per share, the fair
market value of the stock at the date of grant. The options may not be exercised
sooner than the fifth anniversary from the date of grant, or later than the
tenth anniversary from the date of grant. Common stock acquired pursuant to the
exercise of options must be held at least two years from the date of exercise.
The 1996 Long-Term Incentive Plan is subject to stockholder approval in July
1996.
Retained earnings at February 29, 1996 includes $50,551,000 related to the
undistributed earnings of foreign subsidiaries and affiliates, of which
$7,450,000 relates to unconsolidated affiliates.
F-17
<PAGE> 39
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
In October 1988, the Board of Directors of the Company authorized the purchase
of up to an aggregate of 937,500 shares of the Company's common stock. As of
February 29, 1996, the Company has purchased a total of 444,664 shares for
approximately $7,293,000.
6. DOMESTIC AND FOREIGN OPERATIONS
The Company and its consolidated subsidiaries are in the business of the
development, production, sale and distribution of a varied group of
electroplating processes and chemical additives to industrial users throughout
the United States (Domestic), Europe and Asia.
Information as to the Company's operations by geographic area for the three
years ended February 29, 1996 is summarized below:
<TABLE>
<CAPTION>
DOMESTIC EUROPE ASIA ELIMINATIONS COMBINED
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL 1996
Revenue $110,719,000 $94,806,000 $36,653,000 $(26,400,000) $215,778,000
Operating profit 6,096,000 14,809,000 3,967,000 (479,000) 24,393,000
Identifiable assets 57,386,000 60,209,000 27,992,000 (10,690,000) 134,897,000
Total liabilities 7,768,000 18,663,000 18,290,000 (10,690,000) 34,031,000
FISCAL 1995
Revenue $ 90,659,000 $81,473,000 $25,330,000 $(17,235,000) $180,227,000
Operating profit 4,906,000 9,313,000 3,426,000 (560,000) 17,085,000
Identifiable assets 49,261,000 52,178,000 14,339,000 (4,661,000) 111,117,000
Total liabilities 5,691,000 11,943,000 7,920,000 (4,661,000) 20,893,000
FISCAL 1994
Revenue $ 80,784,000 $65,416,000 $21,546,000 $(13,409,000) $154,337,000
Operating profit 4,172,000 7,724,000 2,230,000 (300,000) 13,826,000
Identifiable assets 49,154,000 42,406,000 10,637,000 (4,080,000) 98,117,000
Total liabilities 6,084,000 10,056,000 6,327,000 (4,080,000) 18,387,000
</TABLE>
Transfers between geographic areas are accounted for at prices comparable to
unaffiliated customer sales. Revenue is net sales, interest and other income
less equity in the earnings of unconsolidated affiliates. Operating profit is
revenue less operating expenses, excluding interest expense and minority
interest. Identifiable assets are total assets less investment in unconsolidated
affiliates.
F-18
<PAGE> 40
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. DOMESTIC AND FOREIGN OPERATIONS (CONTINUED)
Amounts due from unconsolidated affiliates, included in receivables, were
$1,044,000 at February 29, 1996 and $651,000 at February 28, 1995. Revenue
includes sales to unconsolidated affiliates totaling approximately $3,723,000,
$3,050,000 and $4,670,000 in fiscal 1996, 1995 and 1994, respectively. Domestic
revenue includes export sales to unaffiliated customers of $1,598,000,
$3,056,000 and $3,203,000 in fiscal 1996, 1995 and 1994, respectively. There
were no sales to any one customer in excess of 10% of net sales in fiscal 1996,
1995 and 1994.
Summarized financial information reflecting the total operations for the
Company's Italian and Japanese 50% owned unconsolidated affiliates (Elga Ronal
and LeaRonal Japan) accounted for by the equity method is as follows:
<TABLE>
<CAPTION>
FEBRUARY 29 FEBRUARY 28 FEBRUARY 28
1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C>
Current assets $28,558,000 $26,769,000 $22,412,000
Property, plant and equipment and other
assets 6,773,000 6,621,000 7,026,000
Current liabilities 14,452,000 10,684,000 8,899,000
Long-term debt 1,225,000 1,661,000 1,917,000
Net sales 34,002,000 27,966,000 23,018,000
Gross profit 14,898,000 12,717,000 10,875,000
Net income 2,086,000 1,839,000 1,419,000
</TABLE>
The Company has used from time to time forward foreign exchange contracts to
reduce the impact of currency fluctuations on its net investments in certain
foreign subsidiaries and affiliates. Gains or losses on these contracts are
included in the translation adjustment component of stockholders' equity. At
February 29, 1996, the Company did not have any such forward foreign exchange
contracts. In addition, LeaRonal AG enters into forward exchange contracts to
hedge a portion of its U.S. dollar denominated accounts receivable. Changes in
the value of these contracts due to currency movement offset the foreign
exchange gains and losses of the receivables they are hedging. At February 29,
1996, LeaRonal AG had open forward foreign exchange contracts totaling
$9,900,000.
F-19
<PAGE> 41
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LINES OF CREDIT
The Company has unsecured line of credit arrangements (reviewed annually) with
domestic banks under which it may borrow, at the option of the banks, up to
$15,000,000 at the banks' prime interest rates.
8. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NET INCOME
PER SHARE OF
NET COST OF NET COMMON
THREE MONTHS ENDED SALES SALES INCOME STOCK
- ------------------------------------------------------------------------------------------------------
(In thousands except per share figures)
FISCAL 1996
<S> <C> <C> <C> <C>
May 31 $ 51,682 $ 37,622 $ 3,702 $ .41
August 31 53,769 39,347 3,841 .43
November 30 54,951 39,886 4,126 .46
February 29 51,223 36,017 3,926 .44
------------------------------------------------------
$ 211,625 $152,872 $15,595 $ 1.74
======================================================
FISCAL 1995
May 31 $ 40,980 $ 30,838 $ 2,704 $ .31
August 31 43,430 32,720 3,042 .34
November 30 47,657 35,890 3,354 .38
February 28 44,937 32,699 3,329 .37
------------------------------------------------------
$ 177,004 $ 132,147 $ 12,429 $ 1.40
======================================================
</TABLE>
9. OTHER INCOME
Other income for the three years ended February 29, 1996 consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Royalty income $2,004,000 $1,801,000 $1,440,000
Dividend income 79,000 88,000 92,000
Realized gains (losses) on investment
transactions, net (including provision for losses
on investment in 1994)
54,000 (314,000) 408,000
Equity in earnings of unconsolidated affiliates 995,000 1,121,000 776,000
Foreign currency losses (31,000) (21,000) (220,000)
Other - net 159,000 84,000 205,000
-----------------------------------------
$3,260,000 $2,759,000 $2,701,000
=========================================
</TABLE>
Royalty income includes royalties from an unconsolidated affiliate of $1,576,000
(1996), $1,449,000 (1995) and $1,351,000 (1994).
F-20
<PAGE> 42
Schedule II - Valuation and Qualifying Accounts
LeaRonal, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------------
(2)
(1) Charged to
Balance at Additions charged other Other changes - Balance at
beginning to costs and accounts - deductions - end of
DESCRIPTION of period expenses describe describe period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Deducted from asset accounts:
Year ended February 29, 1996 $1,673,000 $973,000 $161,000 (a) $2,485,000
=====================================================================================
Year ended February 28, 1995 $1,666,000 $417,000 $410,000 (a) $1,673,000
=====================================================================================
Year ended February 28, 1994 $1,211,000 $652,000 $197,000 (a) $1,666,000
=====================================================================================
</TABLE>
(a) Write-off of uncollectible accounts.
F-21
<PAGE> 43
EXHIBIT INDEX
21 Subsidiaries
27 Financial Data Schedule
- 21 -
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the Company's subsidiaries:
<TABLE>
<CAPTION>
Percentage Jurisdiction of
Name Owned Incorporation
- ---- ---------- ---------------
<S> <C> <C>
LeaRonal (UK) plc 100% England
LeaRonal AG 93% Switzerland
LeaRonal GmbH 100% Germany
LeaRonal France 85% France
LeaRonal Korea, Inc. 80% South Korea
LeaRonal (S.E. Asia) Ltd. 76% Hong Kong
LeaRonal Singapore Pte, Ltd. 93% Singapore
LeaRonal Taiwan 76% Taiwan
LeaRonal Pacific Corp. 100% New York
Lea-Ronal Export Sales, Inc. 100% New York
Ronal Foreign Sales Corp. 100% U.S. Virgin Islands
</TABLE>
- 22 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) BALANCE
SHEET INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 26,711,000
<SECURITIES> 11,114,000
<RECEIVABLES> 38,658,000
<ALLOWANCES> 2,485,000
<INVENTORY> 24,293,000
<CURRENT-ASSETS> 101,304,000
<PP&E> 51,903,000
<DEPRECIATION> 22,843,000
<TOTAL-ASSETS> 145,698,000
<CURRENT-LIABILITIES> 24,188,000
<BONDS> 0
0
0
<COMMON> 9,362,000
<OTHER-SE> 102,305,000
<TOTAL-LIABILITY-AND-EQUITY> 145,698,000
<SALES> 211,625,000
<TOTAL-REVENUES> 216,773,000
<CGS> 152,872,000
<TOTAL-COSTS> 193,044,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 276,000
<INCOME-PRETAX> 23,729,000
<INCOME-TAX> 8,134,000
<INCOME-CONTINUING> 15,595,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,595,000
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.74
</TABLE>
