<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended May 31, 1998
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
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 July 13, 1998, 12,621,635 shares of the registrant's Common Stock, $1 par
value, were outstanding.
<PAGE> 2
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at May 31, 1998
(Unaudited) and February 28, 1998 3
Condensed Consolidated Statements of Income for the Three
Months Ended May 31, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended May 31, 1998 and 1997 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
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<PAGE> 3
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, 1998 Feb. 28, 1998
--------- ---------
(Unaudited) (Note)
<S> <C> <C>
ASSETS (in thousands)
Current Assets:
Cash and cash equivalents $ 20,267 $ 19,653
Investments available-for-sale 2,788 2,734
Investments held-to-maturity 9,443 8,871
Receivables, less allowances 49,771 52,228
Inventories 26,973 28,406
Deferred tax assets 1,466 1,468
Other current assets 3,098 2,233
--------- ---------
TOTAL CURRENT ASSETS 113,806 115,593
Investments in unconsolidated affiliates 8,804 9,207
Property, plant and equipment 71,782 69,749
Less accumulated depreciation (30,763) (29,257)
--------- ---------
41,019 40,492
Patents at cost, less amortization 591 585
Other assets 4,991 5,163
--------- ---------
TOTAL ASSETS $ 169,211 $ 171,040
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Dividend payable $ 1,766 $ --
Accounts payable 14,179 16,538
Accrued expenses and other liabilities 11,605 11,738
Income taxes 8,394 8,221
Current portion of long-term debt 733 741
--------- ---------
TOTAL CURRENT LIABILITIES 36,677 37,238
Long-term debt, less current portion 2,233 2,422
Deferred tax liabilities 2,449 2,464
Minority interests 7,425 6,984
Stockholders' Equity:
Common stock, par value $1 per share - authorized
15,000,000 shares, issued 14,042,201 shares
including 1,429,536 shares at May 31, 1998 and
1,318,151 shares at February 28, 1998 held in treasury 14,042 14,042
Additional paid-in capital 5,381 5,230
Retained earnings 119,312 116,420
Unrealized holding gains on investments 529 548
Cost of common stock in treasury (21,146) (17,581)
Cumulative translation adjustment 2,309 3,273
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 120,427 121,932
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 169,211 $ 171,040
========= =========
</TABLE>
Note: The balance sheet at February 28, 1998 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>
Three Months Ended
May 31
---------------------
1998 1997
------- -------
(in thousands - except share data)
<S> <C> <C>
Net sales $58,956 $59,741
Interest income 333 347
Other income - net 755 723
------- -------
60,044 60,811
Costs and expenses:
Cost of sales 41,377 42,870
Selling, general and administrative 10,620 9,534
Research and development 1,105 936
Interest 104 136
Minority interests 434 519
------- -------
Total costs and expenses 53,640 53,995
Income before income taxes 6,404 6,816
Income taxes 1,746 2,037
------- -------
NET INCOME $ 4,658 $ 4,779
======= =======
Net income per common share $ .37 $ .37
======= =======
Net income per common share - assuming dilution $ .36 $ .37
======= =======
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
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<PAGE> 5
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
May 31
----------------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,658 $ 4,779
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,433 1,289
Provision for bad debts 82 160
Equity in earnings of unconsolidated affiliates (277) (255)
Deferred income taxes (5) (218)
Minority interests 434 519
Gain on sale of investments available-for-sale (106) (36)
Changes in operating assets and liabilities:
Receivables 3,292 (4,904)
Inventories 1,516 (1,063)
Other current assets (806) (621)
Other receivables (51) (249)
Accounts payable (2,825) 4,510
Accrued expenses and other liabilities 151 (638)
Income taxes payable (167) 1,587
Other (276) 292
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,053 5,152
INVESTING ACTIVITIES
Purchases of property, plant and equipment (net) (2,041) (2,715)
Proceeds from sales of investments available-for-sale 238 4,653
Purchases of investments available-for-sale (233) (74)
Purchases of investments held-to-maturity (5,366) (4,000)
Redemption of investments held-to-maturity 4,696 4,000
------- -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (2,706) 1,864
</TABLE>
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<PAGE> 6
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
May 31
-------- --------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
FINANCING ACTIVITIES
Purchases of treasury stock $ (3,666) $ (2,279)
Payments on debt obligations (202) (230)
Proceeds from exercise of stock options 157 62
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (3,711) (2,447)
Effect of exchange rate changes on cash and
cash equivalents (22) 242
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 614 4,811
Cash and cash equivalents at beginning of the year 19,653 18,117
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 20,267 $ 22,928
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 99 $ 115
Income taxes 1,426 654
</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 May 31, 1998 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, 1998 annual report to
shareholders. The results of operations for the period ended May 31,
1998 are not necessarily indicative of the operating results for the
full year.
NOTE B - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share. The May 1997 period has been restated for the 3 for
2 stock split effective August 19, 1997. Earnings per share for the
three months ended May 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Numerator for basic and
diluted earnings per share - net income $ 4,658,000 $ 4,779,000
----------- -----------
Denominator:
Denominator for basic earnings per share -
weighted average shares 12,649,255 12,879,579
Effect of dilutive securities:
Employee stock options 375,457 129,978
----------- -----------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions 13,024,712 13,009,557
=========== ===========
Net income per share $ .37 $ .37
=========== ===========
Net income per share - assuming dilution $ .36 $ .37
=========== ===========
</TABLE>
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<PAGE> 8
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
May 31, 1998 Feb. 28, 1998
----------- -----------
<S> <C> <C>
Raw materials $13,315,000 $12,772,000
Finished goods 13,658,000 15,634,000
----------- -----------
$26,973,000 $28,406,000
=========== ===========
</TABLE>
Domestic gold and silver inventories as of May 31, 1998 and 1997 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 May 31, 1998 and February 28, 1998 would have been
$2,231,000 and $2,042,000 higher, respectively.
NOTE D - STOCKHOLDERS' EQUITY
The following information pertains to cash dividends for the three months ended
May 31. (The May 1997 period has been restated for the 3 for 2 stock split
effective August 19, 1997):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Dividends declared May May
Dividends paid June June
Dividends per common share $ 0.14 $ 0.13
Number of outstanding shares
on which dividend was declared 12,613,557 12,812,357
Amount of dividends $ 1,765,898 $ 1,622,898
</TABLE>
NOTE E - OTHER INCOME
Other income consists of the following for the three months ended May 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Royalty and commission income $ 486,000 $ 488,000
Equity in earnings of
unconsolidated affiliates 277,000 255,000
Foreign currency losses (188,000) (124,000)
Investment income and other 180,000 104,000
--------- ---------
$ 755,000 $ 723,000
========= =========
</TABLE>
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<PAGE> 9
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE F - COMPREHENSIVE INCOME
As of March 1, 1998, the Company adopted Financial Accounting Standard Board
("FASB") Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
SFAS No. 130 had no impact on the company's net income or stockholders' equity.
SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in stockholders' equity to be
included in other comprehensive income.
The components of comprehensive income, net of related tax, for the three months
ended May 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net income as reported $ 4,658,000 $ 4,779,000
Unrealized (losses) gains on securities (19,000) 18,000
Foreign currency translation adjustment (964,000) 1,198,000
----------- -----------
Comprehensive income $ 3,675,000 $ 5,995,000
=========== ===========
</TABLE>
NOTE G - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments Of An Enterprise And Related Information," which is
effective for years beginning after December 15, 1997. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Because SFAS No.
131 is not required to be applied to interim financial statements in the initial
year of adoption, the Company is not required to disclose segment information in
accordance with SFAS No. 131 until its 1999 annual report, at which time it will
restate prior years' segment disclosures to conform to SFAS No. 131. In the
Company's first quarter of fiscal 2000 report, and in subsequent quarters, it
will present the interim disclosures required by SFAS No. 131 for both fiscal
2000 and 1999.
The Company is currently evaluating what operating segments of its business
trigger the disclosure requirements under SFAS No. 131 and believes the required
disclosure will be made at the end of fiscal 1999.
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<PAGE> 10
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended May 31, 1998 and May 31, 1997
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 $1,615,000 or 5% to $33,638,000 in the May 1998 quarter,
from $32,023,000 in the May 1997 quarter. Process sales increased 7% in Asia and
approximately 4% in the United States and Europe in the May 1998 quarter. In the
May 1997 quarter, process sales increased 23% from the May 1996 quarter,
primarily from a 40% increase in process sales in Asia and a 25% increase in
process sales in the United States. The lower sales growth in Asia in the May
1998 quarter is due to a downturn in certain Asian economies related to the
devaluation of foreign currencies during the second half of 1997. Additionally,
during the quarter ended May 1998 and continuing through June 1998, there has
been a reduction in demand for electronic components on a worldwide basis. This
environment is expected to continue for the next several quarters. Precious
metal content and other sales totaled $25,318,000 in the May 1998 quarter, a
decrease of $2,400,000 or 9% from $27,718,000 in the May 1997 quarter primarily
due to decreased precious metal content sales volume in the United States and
lower gold metal prices. The average gold price per troy ounce for the May 1998
and May 1997 quarters were $301 and $347, respectively.
Cost of sales decreased $1,493,000 in the May 1998 quarter. The
decrease was principally due to decreased precious metal sales. The May 1998
quarter reflects increased gross profits of $708,000 or 4%, as well as an
increase in the Company's overall gross profit percentage from 28.2% to 29.8%,
principally due to the increase in process sales, which have a higher gross
margin, as a percentage of total sales. Unit margins for certain processes for
the printed circuit industry continued to erode in the 1998 quarter due to the
competitive environment and pressures asserted by end use customers.
Selling, general, and administrative expenses increased $1,086,000 or
11% in the May 1998 quarter. The increases occurred principally in the United
States and Asia as the Company has added sales and technical personnel to
support new products and the increased demand from customers for technical
services.
Research and development expenses increased $169,000 or 18% to
$1,105,000 in the May, 1998 quarter from $936,000 in the May 1997 quarter. The
increase is primarily due to increased personnel costs and is expected to be at
these levels for the remainder of the fiscal year.
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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
(Continued)
The effective income tax rate decreased in the May 1998 quarter to 27%
from 30% in the May 1997 quarter. This is principally due to an increase in
earnings at the Company's foreign subsidiaries which are taxed at lower rates
than the Company's domestic operations.
Net income decreased $121,000 or 3% in the May 1998 quarter, primarily
due to increased selling, general and administrative expenses, principally
offset by increased gross profits from increased process sales and lower
effective income tax rates.
At May 31, 1998, the Company had working capital of $77,129,000 and
current assets of $113,806,000 including $32,498,000 in cash, cash equivalents,
and short term investments. During the May 1998 quarter, the Company purchased
128,300 shares of its stock at a cost of $3,666,000. 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
1999.
This report and other Company reports identify many factors affecting
our future business prospects including: economic conditions, currency exchange
rates, inflation, competition, new product introductions, pricing, future market
demand and customer requirements. Changes in any of these factors could have a
significant impact on future results of the Company.
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<PAGE> 12
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
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 May 31, 1998.
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: July 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<EXCHANGE-RATE> 1
<CASH> 20,267
<SECURITIES> 12,231
<RECEIVABLES> 52,275
<ALLOWANCES> 3,665
<INVENTORY> 26,973
<CURRENT-ASSETS> 113,806
<PP&E> 71,782
<DEPRECIATION> (30,763)
<TOTAL-ASSETS> 169,211
<CURRENT-LIABILITIES> 36,677
<BONDS> 0
0
0
<COMMON> 14,042
<OTHER-SE> 106,385
<TOTAL-LIABILITY-AND-EQUITY> 169,211
<SALES> 58,956
<TOTAL-REVENUES> 60,044
<CGS> 41,377
<TOTAL-COSTS> 53,102
<OTHER-EXPENSES> 434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 6,404
<INCOME-TAX> 1,746
<INCOME-CONTINUING> 4,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,658
<EPS-PRIMARY> .37<F1>
<EPS-DILUTED> .36
<FN>
<F1>THE AMOUNT IS REPORTED AS EPS BASIC AND NOT FOR EPS
PRIMARY.
</FN>
</TABLE>
