<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 31, 1997
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 (IRS Employer
Incorporation or organization) Identification No.)
272 Buffalo Avenue, Freeport, New York 11520
(Address of principal executive offices)
(516) 868-8800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report).
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
As of October 6, 1997, 12,747,858 shares of the registrant's Common Stock, $1
par value, were outstanding.
<PAGE> 2
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
August 31, 1997 (Unaudited) and February 28, 1997 3
Condensed Consolidated Statements of Income for the
Three Months and Six Months Ended August 31, 1997 and 1996
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended August 31, 1997 and 1996 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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<PAGE> 3
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Aug. 31, 1997 Feb. 28, 1997
(Unaudited) (Note)
ASSETS (in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 19,287 $ 18,117
Investments available-for-sale 2,439 7,904
Investments held-to-maturity 7,928 6,596
Receivables, less allowances 46,990 40,944
Inventories 26,933 25,622
Deferred income taxes 1,256 1,111
Other current assets 2,927 2,940
--------- ---------
TOTAL CURRENT ASSETS 107,760 103,234
Investments in unconsolidated affiliates 9,307 9,372
Property, plant and equipment 63,027 58,823
Less allowance for depreciation (26,670) (25,059)
--------- ---------
36,357 33,764
Patents at cost, less amortization 544 521
Other assets 3,960 4,374
--------- ---------
TOTAL ASSETS $ 157,928 $ 151,265
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 15,844 $ 12,541
Accrued expenses and other liabilities 9,153 8,394
Income taxes 6,656 5,621
Current portion of long-term debt 785 855
--------- ---------
TOTAL CURRENT LIABILITIES 32,438 27,411
Long-term debt, less current portion 2,798 3,152
Deferred income taxes 2,029 2,157
Minority interests 6,288 5,501
Stockholders' Equity:
Common stock, par value $1 per share - authorized
15,000,000 shares, issued 14,042,325 shares
including 1,274,588 shares at August 31, 1997 and
1,090,230 shares at February 28, 1997 held in treasury 14,042 9,362
Additional paid-in capital 9,571 9,527
Retained earnings 102,986 101,997
Unrealized holding gains on investments 335 321
Cost of common stock in treasury (16,128) (12,569)
Foreign currency translation adjustment 3,569 4,406
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 114,375 113,044
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 157,928 $ 151,265
========= =========
</TABLE>
- --------------------------------------------------------------------------------
Note: The balance sheet at February 28, 1997 has been taken from the audited
financial statements at that date, and condensed.
See notes to condensed consolidated financial statements (unaudited).
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<PAGE> 4
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
August 31 August 31
------------------------------ ------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(in thousands - except share data)
<S> <C> <C> <C> <C>
Net sales $ 121,134 $ 103,180 $ 61,393 $ 51,397
Interest income 637 744 290 384
Other income - net 911 1,381 188 713
----------- ----------- ----------- -----------
122,682 105,305 61,871 52,494
Costs and expenses:
Cost of sales 87,802 74,709 44,932 37,310
Selling, general and administrative 19,064 18,074 9,530 8,870
Research and development 1,842 1,807 906 859
Interest expense 285 245 149 148
Minority interests 904 628 385 352
----------- ----------- ----------- -----------
Total costs and expenses 109,897 95,463 55,902 47,539
----------- ----------- ----------- -----------
Income before income taxes 12,785 9,842 5,969 4,955
Income taxes 3,829 3,060 1,792 1,454
----------- ----------- ----------- -----------
NET INCOME $ 8,956 $ 6,782 $ 4,177 $ 3,501
=========== =========== =========== ===========
Weighted average number of shares of
common stock and common stock
equivalents outstanding 13,029,420 13,421,585 13,041,847 13,335,957
Net income per common share $ .69 $ .51 $ .32 $ .26
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
-4-
<PAGE> 5
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
August 31
-----------------------------
1997 1996
-------- -------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,956 $ 6,782
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,650 2,102
Provision for bad debts 418 441
Dividends received in excess of equity in
earnings of unconsolidated affiliates 16 176
Deferred income taxes (276) (36)
Minority interests 904 628
(Gain) loss on sales of investments
available-for-sale (61) 4
Changes in operating assets and liabilities:
Receivables (6,961) (2,418)
Inventories (1,538) (120)
Other current assets (12) (166)
Other receivables (501) (237)
Accounts payable 3,787 (1,229)
Accrued expenses and other liabilities 919 349
Income taxes payable 1,132 257
Other assets 678 (278)
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,111 6,255
INVESTING ACTIVITIES
Purchases of property, plant and equipment (net)
and patents (5,401) (5,138)
Proceeds from sales of investments available-for-sale 5,735 1,492
Purchases of investments available-for-sale (209) (194)
Purchases of investments held-to-maturity (7,511) (4,892)
Redemption's of investments held-to-maturity 6,036 1,631
Purchase of minority interest (739)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,350) (7,840)
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
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<PAGE> 6
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Six Months Ended
August 31
--------------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
FINANCING ACTIVITIES
Dividends paid $ (3,287) $ (3,165)
Dividends paid to minority shareholders (46) (59)
Payments on debt obligations (412) (486)
Proceeds from exercise of stock options 339 220
Purchases of treasury stock (3,854) (4,560)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (7,260) (8,050)
Effect of exchange rate changes on cash and
cash equivalents (331) 14
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,170 (9,621)
Cash and cash equivalents at beginning of the year 18,117 26,711
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF THE PERIOD $ 19,287 $ 17,090
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 275 $ 252
Income taxes 2,998 2,150
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
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<PAGE> 7
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles for interim financial information and with the
instructions of Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results
of operations and cash flows at August 31, 1997 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's February 28, 1997 annual report to shareholders. The results
of operations for the period ended August 31, 1997 are not necessarily
indicative of the operating results for the full year.
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
August 31, February 28,
1997 1997
---------- ------------
<S> <C> <C>
Raw materials $15,915,000 $13,937,000
Finished goods 11,018,000 11,685,000
---------- ------------
$26,933,000 $25,622,000
=========== ===========
</TABLE>
Domestic gold and silver inventories as of August 31, 1997 and 1996 are
carried at the lower of cost (last-in, first out [LIFO] method) or market.
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 August
31, 1997 and February 28, 1997 would have been $2,590,000 and $3,425,000
higher, respectively.
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<PAGE> 8
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE C - STOCKHOLDERS' EQUITY
On July 15, 1997, the Board of Directors declared a three-for-two (50%) stock
split effective in the form of a stock dividend distributed on August 19, 1997
to shareholders of record on July 29, 1997. The weighted average number of
shares outstanding during each period and the number of outstanding shares on
which dividends were declared have been adjusted to give retroactive effect to
the July 1997 split.
The following information pertains to cash dividends for the six months ended
August 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Dividends declared May May
Dividends paid June June
Dividends declared July July
Dividends paid August August
Dividends per common share:
Quarter ended May 31 $ 0.127 $ 0.12
Quarter ended August 31 $ 0.13 $ 0.12
Number of outstanding shares
on which dividend was declared:
Quarter ended May 31 12,812,357 13,242,128
Quarter ended August 31 12,798,602 13,134,567
Amount of dividends:
Quarter ended May 31 $ 1,623,000 $ 1,589,000
Quarter ended August 31 1,664,000 1,576,000
----------- -----------
$ 3,287,000 $ 3,165,000
=========== ===========
</TABLE>
NOTE D - OTHER INCOME
Other income consists of the following:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
August 31 August 31
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Royalty and commission income $ 931,000 $ 875,000 $ 443,000 $ 458,000
Equity in earnings of
unconsolidated affiliates 453,000 295,000 198,000 238,000
Foreign currency losses (693,000) (28,000) (569,000) (29,000)
Investment income and other 220,000 239,000 116,000 46,000
----------- ----------- ----------- -----------
$ 911,000 $ 1,381,000 $ 188,000 $ 713,000
=========== =========== =========== ===========
</TABLE>
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<PAGE> 9
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six months ended August 31, 1997 and August 31, 1996
Net sales consists of sales of proprietary and patented specialty electronic
and imaging chemicals, referred to as "process sales," the precious metal
content of its electroplating processes, and sales of other products. Process
sales increased $11,178,000 or 21% to $63,629,000 in the August 1997 period,
from $52,451,000 in the August 1996 period. Process sales increased primarily in
Asia and the United States. Precious metal content and other sales totaled
$57,505,000 in the August 1997 period, an increase of $6,776,000 or 13% from
$50,729,000 in the August 1996 period primarily due to increased precious metal
content sales volume in the United States. The average gold price per troy ounce
for the August 1997 and August 1996 periods were $338 and $390, respectively.
Cost of sales increased $13,093,000 or 18% to $87,802,000 in the August 1997
period, from $74,709,000 in the August 1996 period. The increase was principally
due to increased process sales, and precious metal sales. The August 1997 period
reflects increased gross profits of $4,861,000 or 17%. The Company's overall
gross profit percentage was approximately the same in both periods.
Selling, general, and administrative expenses increased $990,000 or 5% in the
August 1997 period. The increase occurred primarily in Asia due to increased
sales and technical service costs to support the Company's sales growth.
Interest income decreased from $744,000 in the August 1996 period to $637,000
or 4% in the August 1997 period because the Company had less available funds for
investment.
Other income includes royalty and commission income, earnings of
unconsolidated affiliates, foreign currency losses, and investment income. Other
income decreased $470,000 in the August 1997 period, due to foreign currency
losses attributable to the decrease in value of the Taiwan dollar and Singapore
dollar against the U.S. dollar.
The effective income tax rate decreased in the August 1997 period to 30% from
31% in the August 1996 period, which is consistent with the effective tax rate
for the year ended February 28, 1997.
Net income increased $2,174,000 or 32% in the August 1997 period, primarily
due to increased gross profits from increased process sales and lower effective
income tax rates, partially offset by increased selling, general, and
administrative expenses, foreign currency losses and decreased interest income.
-9-
<PAGE> 10
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The results of operations continues to reflect the importance of the
Company's foreign subsidiaries and unconsolidated affiliates. The effect of
translating the financial statements of the Company's foreign operations from
functional currencies into U.S. dollars impacts the reported results of
operations. Net income for the August 1997 period decreased by $587,000 or 9%
from the prior year primarily due to the decrease in the average exchange rates
to translate the European subsidiaries' income statements from their functional
currencies into U.S. dollars.
At August 31, 1997, the Company had working capital of $75,322,000 and
current assets of $107,760,000 including $29,654,000 in cash, cash equivalents,
and short term investments. In the August 1997 period, cash provided from
operations increased $3,856,000 to $10,111,000 from $6,255,000 in the August
1996 period. During the August 1997 period, the Company decreased its investment
securities $4,051,000. Cash provided from operations and the proceeds from the
sale of investment securities were used to finance $5,401,000 of property,
plant, and equipment purchases, to pay dividends of $3,286,000, and to
repurchase 231,000 shares of its stock at a cost of $3,854,000. The Company
believes its existing working capital and borrowing capacity, coupled with the
funds generated from operations will be sufficient to fund its anticipated
capital expenditures, stock buyback program and cash dividend requirements in
fiscal 1998.
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<PAGE> 11
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarter ended August 31, 1997 and August 31, 1996
Net sales increased $9,996,000 or 19% from $51,397,000 in the August 1996
quarter to $61,393,000 in the August 1997 quarter. Process sales in the August
1997 quarter totaled $31,606,000, an increase of $5,105,000 or 19% from
$26,501,000 in the August 1996 quarter. Process sales increased primarily in
Asia and the United States. Precious metal content and other sales totaled
$29,787,000 in the August 1997 quarter, an increase of $4,891,000 or 20% from
$24,896,000 in the August 1996 quarter due to increased volume of precious metal
content sales in the United States. The average gold price per troy ounce for
the August 1997 and 1996 quarters were $330 and $386, respectively.
Cost of sales increased $7,622,000 due to increased process sales and
precious metal content sales. The Company's overall gross margin percentage
decreased from 27.4% in the August 1996 quarter to 26.8% in the August 1997
quarter.
Selling, general, and administrative expenses increased $660,000 or
approximately 7% in the August 1997 quarter. Fifty percent of this increase was
in Asia; the balance was incurred equally in the United States and Europe. The
increase relates to additional sales and technical service personnel to support
the increased process sales.
Interest income decreased from $384,000 in the August 1996 quarter to
$290,000 in the August 1997 quarter because the company had less available funds
for investment.
Other income decreased $525,000 in the August 1997 quarter, principally
due to $569,000 of currency losses related to the decrease in value of the
Taiwan dollar and Singapore dollar against the U.S. dollar.
The effective income tax rate increased from 29% in the August 1996
quarter to 30% in the August 1997 quarter. The increase is principally due to an
increase in U.S. earnings as a percentage of worldwide earnings which are taxed
at higher rates.
Net income increased $676,000 or 19% in the August 1997 quarter, primarily
due to increased gross margins, partially offset by increased selling, general,
and administrative expenses, decreased interest income, foreign currency losses,
and the effect of higher effective income tax rates.
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<PAGE> 12
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of Stockholders of the Registrant was held on
July 15, 1997.
b) Nine (9) directors, constituting the entire Board of Directors, were
elected for a term of one year, and until the election and
qualification of their successors. The following nominees were
elected by the Stockholders.
<TABLE>
<CAPTION>
Name First became a Director
---- -----------------------
<S> <C>
Barnet D. Ostrow (Chairman) 1953
Fred I. Nobel 1953
Sol Berg 1972
Ronald F. Ostrow 1975
Irwin Lieber 1980
Arthur M. Winston 1980
Kenneth L. Stein 1987
Richard Kessler 1987
Carl N. Graf 1992
</TABLE>
c) The Stockholders approved the employment of Ernst & Young as
auditors of the Corporation for the current fiscal year by a vote of
7,493,006 in favor, 8,223 against, and 7,574 withheld.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
The independent auditors are not examining this Form 10-Q prior to
submission by the Registrant.
b) There were no reports on Form 8-K filed for the three months ended
August 31, 1997.
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<PAGE> 13
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LeaRonal, Inc.
----------------------------------------
(Registrant)
/s/ Ronald Ostrow
----------------------------------------
Ronald Ostrow
President and
Chief Executive Officer
/s/ David Rosenthal
----------------------------------------
David Rosenthal
Vice President - Finance
and Treasurer
Dated: October 8, 1997
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-01-1997
<EXCHANGE-RATE> 1
<CASH> 19,287
<SECURITIES> 10,367
<RECEIVABLES> 46,990
<ALLOWANCES> 0
<INVENTORY> 26,933
<CURRENT-ASSETS> 107,760
<PP&E> 63,027
<DEPRECIATION> 26,670
<TOTAL-ASSETS> 157,928
<CURRENT-LIABILITIES> 32,438
<BONDS> 0
0
0
<COMMON> 14,042
<OTHER-SE> 100,333
<TOTAL-LIABILITY-AND-EQUITY> 157,928
<SALES> 121,134
<TOTAL-REVENUES> 122,682
<CGS> 87,802
<TOTAL-COSTS> 108,708
<OTHER-EXPENSES> 904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 285
<INCOME-PRETAX> 12,785
<INCOME-TAX> 3,829
<INCOME-CONTINUING> 8,956
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,956
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
