<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 November 30, 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 January 12, 1998, 12,726,530 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
November 30, 1997 (Unaudited) and February 28, 1997 3
Condensed Consolidated Statements of Income for the
Nine Months and Three Months Ended November 30, 1997 and 1996
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended November 30, 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 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>
Nov. 30, 1997 Feb. 28, 1997
------------- -------------
(Unaudited) (Note)
ASSETS (in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 21,049 $ 18,117
Investments available-for-sale 2,545 7,904
Investments held-to-maturity 7,010 6,596
Receivables, less allowances 50,044 40,944
Inventories 26,487 25,622
Deferred income taxes 1,261 1,111
Other current assets 2,182 2,940
--------- ---------
Total Current Assets 110,578 103,234
Investments in unconsolidated affiliates 9,164 9,372
Property, plant and equipment 67,495 58,823
Less allowance for depreciation (28,337) (25,059)
--------- ---------
39,158 33,764
Patents at cost, less amortization 568 521
Other assets 3,816 4,374
--------- ---------
TOTAL ASSETS $ 163,284 $ 151,265
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 15,396 $ 12,541
Accrued expenses and other liabilities 8,854 8,394
Income taxes 7,754 5,621
Current portion of long-term debt 755 855
--------- ---------
Total Current Liabilities 32,759 27,411
Long-term debt, less current portion 2,601 3,152
Deferred income taxes 2,021 2,157
Minority interests 6,618 5,501
Stockholders' Equity:
Common stock, par value $1 per share - authorized
15,000,000 shares, issued 14,042,325 shares
including 1,296,220 shares at November 30, 1997 and
1,090,230 shares at February 28, 1997 held in treasury 14,042 9,362
Additional paid-in capital 9,884 9,527
Retained earnings 107,207 101,997
Unrealized holding gains on investments 348 321
Cost of common stock in treasury (16,965) (12,569)
Foreign currency translation adjustment 4,769 4,406
--------- ---------
Total Stockholders' Equity 119,285 113,044
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 163,284 $ 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
-3-
<PAGE> 4
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
statements (unaudited).
-4-
<PAGE> 5
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
November 30 November 30
----------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
(in thousands - except share data)
<S> <C> <C> <C> <C>
Net sales $ 183,289 $ 158,576 $ 62,155 $ 55,396
Interest income 915 1,049 278 305
Other income - net 1,073 2,672 162 1,291
----------- ----------- ----------- -----------
185,277 162,297 62,595 56,992
Costs and expenses:
Cost of sales 130,261 114,391 42,459 39,682
Selling, general and administrative 28,977 27,648 9,913 9,574
Research and development 2,809 2,767 967 960
Interest expense 418 326 133 81
Minority interests 1,398 1,120 494 492
----------- ----------- ----------- -----------
Total costs and expenses 163,863 146,252 53,966 50,789
----------- ----------- ----------- -----------
Income before income taxes 21,414 16,045 8,629 6,203
Income taxes 6,583 4,694 2,754 1,634
----------- ----------- ----------- -----------
NET INCOME $ 14,831 $ 11,351 $ 5,875 $ 4,569
=========== =========== =========== ===========
Weighted average number of shares of
common stock and common stock
equivalents outstanding 13,054,032 13,332,672 13,099,079 13,131,891
Net income per common share $ 1.14 $ .85 $ .45 $ .35
=========== =========== =========== ===========
</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)
<TABLE>
<CAPTION>
Nine Months Ended
November 30
-----------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 14,831 $ 11,351
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,920 3,259
Provision for bad debts 506 537
Equity in earnings of unconsolidated affiliates
net of dividends received (256) (304)
Deferred income taxes (311) (139)
Minority interests 1,398 1,120
Gain on sales of investments available-for-sale (62) (9)
Changes in operating assets and liabilities:
Receivables (9,024) (6,007)
Inventories (688) 363
Other current assets 765 (52)
Other receivables (319) (602)
Accounts payable 3,254 277
Accrued expenses and other liabilities 317 1,738
Income taxes payable 2,288 441
Other assets 119 193
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,738 12,166
INVESTING ACTIVITIES
Purchases of property, plant and equipment (net) (9,110) (7,318)
Proceeds from sales of investments available-for-sale 5,737 2,746
Purchases of investments available-for-sale (212) (7,282)
Purchases of investments held-to-maturity (10,298) (559)
Redemption of investments held-to-maturity 10,068 4,046
Purchase of minority interest (739)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,815) (9,106)
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
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<PAGE> 7
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended
November 30
-----------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
FINANCING ACTIVITIES
Dividends paid $ (4,942) $ (4,718)
Dividends paid to minority shareholders (304) (201)
Payments on debt obligations (652) (657)
Proceeds from exercise of stock options 496 252
Proceeds from loan 1,038
Purchases of treasury stock (4,812) (4,560)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (10,214) (8,846)
Effect of exchange rate changes on cash and
cash equivalents 223 (368)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,932 (6,154)
Cash and cash equivalents at beginning of the year 18,117 26,711
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF THE PERIOD $ 21,049 $ 20,557
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 449 $ 297
Income taxes 4,536 3,717
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
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<PAGE> 8
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 November 30, 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 November
30, 1997 are not necessarily indicative of the operating results for
the full year.
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1997
------------ ------------
<S> <C> <C>
Raw materials $15,018,000 $13,937,000
Finished goods 11,469,000 11,685,000
----------- -----------
$26,487,000 $25,622,000
=========== ===========
</TABLE>
Domestic gold and silver inventories as of November 30, 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 November 30, 1997 and February 28, 1997 would have been
$2,364,000 and $3,425,000 higher, respectively.
-8-
<PAGE> 9
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 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 nine months ended
November 30:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Dividends declared May May
Dividends paid June June
Dividends declared July July
Dividends paid August August
Dividends declared October October
Dividends paid November November
Dividends per common share:
Quarter ended May 31 $ 0.127 $ 0.12
Quarter ended August 31 $ 0.13 $ 0.12
Quarter ended November 30 $ 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
Quarter ended November 30 12,727,957 12,943,523
Amount of dividends:
Quarter ended May 31 $ 1,623,000 $ 1,589,000
Quarter ended August 31 1,664,000 1,576,000
Quarter ended November 30 1,655,000 1,553,000
----------- -----------
$ 4,942,000 $ 4,718,000
=========== ===========
</TABLE>
NOTE D - OTHER INCOME
Other income consists of the following:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
November 30 November 30
----------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Royalty and commission income $ 1,425 $ 1,447 $ 494 $ 573
Equity in earnings of
unconsolidated affiliates 727 778 274 484
Foreign currency (losses) gains (1,347) 119 (654) 148
Investment income and other 268 328 48 86
------- ------- ------- -------
$ 1,073 $ 2,672 $ 162 $ 1,291
======= ======= ======= =======
</TABLE>
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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
Nine months ended November 30, 1997 and November 30, 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 $17,723,000 or 22% to $99,575,000 in the November 1997
period, from $81,852,000 in the November 1996 period. Process sales increased
primarily in Asia and the United States. Precious metal content and other sales
totaled $83,714,000 in the November 1997 period, an increase of $6,990,000 or 9%
from $76,724,000 in the November 1996 period primarily due to increased precious
metal content sales volume in the United States. The average gold price per troy
ounce for the November 1997 and November 1996 periods were $331 and $387,
respectively.
Cost of sales increased $15,870,000 or 14% to $130,261,000 in the
November 1997 period, from $114,391,000 in the November 1996 period. The
increase was principally due to increased process sales, and precious metal
sales. The November 1997 period reflects increased gross profits of $8,843,000
or 20%. The Company's overall gross profit percentage was 28.9% and 27.9% for
the November 1997 and November 1996 periods, respectively. The increase is
principally due to the increase in process sales, which have a higher gross
margin, as a percentage of total sales.
Selling, general, and administrative expenses increased $1,329,000 or
5% in the November 1997 period. The increase occurred primarily in Asia due to
increased sales and technical service costs to support the Company's sales
growth, but as a percentage of net sales decreased due to economies of scale.
Interest income decreased from $1,049,000 in the November 1996 period
to $915,000 or 13% in the November 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 $1,599,000 in the November 1997 period, principally due to
$1,347,000 of foreign currency losses attributable to the decrease in value of
the Taiwan dollar and Singapore dollar against the U.S. dollar. The Company's
Hong Kong subsidiary supplies inventory billed in U.S. dollars to its Taiwan
Branch and Singapore subsidiary for resale to their customers in U.S. dollars
and local currencies. The aforementioned foreign currency loss represents
primarily the effect of the recent Asian currency devaluations on unpaid
balances due the Hong Kong subsidiary on these transactions. In addition, the
Company has recorded in the November 1997 period, in accordance with FASB No.
52, a cumulative translation adjustment directly to stockholders equity of
$714,000 related to its long-term assets held in Taiwan. The Company is
investigating strategies including intercompany debt reduction, local financing
and hedging programs to
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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)
mitigate the current and future impact of currency devaluations in the Asian
region. Based on prevailing foreign currency exchange rates, management
anticipates further currency losses related to these transactions in the
Company's fourth quarter.
The effective income tax rate increased in the November 1997 period to
31% from 29% in the November 1996 period, principally due to increased earnings
in the United States, which are taxed at higher rates.
Net income increased $3,480,000 or 31% in the November 1997 period,
primarily due to increased gross profits from increased process sales, partially
offset by increased selling, general, and administrative expenses, foreign
currency losses, decreased interest income, and the effect of higher effective
income tax rates.
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 November 1997 period decreased by $879,000 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 November 30, 1997, the Company had working capital of $77,819,000
and current assets of $110,578,000 including $30,604,000 in cash, cash
equivalents, and short term investments. In the November 1997 period, cash
provided from operations increased $4,572,000 to $16,738,000 from $12,166,000 in
the November 1996 period. However, during the November 1997 period, the Company
decreased its investment securities by $5,295,000. Cash provided from operations
and the proceeds from the sale of investment securities were used to finance
$9,110,000 of property, plant, and equipment purchases, to pay dividends of
$4,942,000, and to repurchase 272,000 shares of its stock at a cost of
$4,812,000. 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> 12
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarter ended November 30, 1997 and November 30, 1996
Net sales increased $6,759,000 or 12% from $55,396,000 in the November
1996 quarter to $62,155,000 in the November 1997 quarter. Process sales in the
November 1997 quarter totaled $35,946,000, an increase of 22% from $29,401,000
in the November 1996 quarter. Process sales increased primarily in Asia and the
United States. Precious metal content and other sales totaled $26,209,000 in the
November 1997 quarter, compared to $25,995,000 in the November 1996 quarter. The
average gold price per troy ounce for the November 1997 and 1996 quarters were
$318 and $381, respectively.
Cost of sales increased $2,777,000 principally due to increased process
sales. The Company's overall gross margin percentage increased from 28.4% in the
November 1996 quarter to 31.7% in the November 1997 quarter due to the increase
of process sales, which have a higher gross margin, as a percentage of sales.
Selling, general, and administrative expenses increased $339,000 or
approximately 4% in the November 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 $305,000 in the November 1996 quarter to
$278,000 in the November 1997 quarter because the company had less available
funds for investment.
Other income decreased $1,272,000 in the November 1997 quarter,
principally due to $654,000 of currency losses related to the decrease in value
of the Taiwan dollar and Singapore dollar against the U.S. dollar, as previously
mentioned in the nine month analysis.
The effective income tax rate increased from 26% in the November 1996
quarter to 32% in the November 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 $1,306,000 or 29% in the November 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> 13
FORM 10-Q
LeaRonal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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.
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 November 30, 1997.
-13-
<PAGE> 14
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: January 12, 1998
-14-
<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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 21049
<SECURITIES> 9555
<RECEIVABLES> 50044
<ALLOWANCES> 0
<INVENTORY> 26487
<CURRENT-ASSETS> 110578
<PP&E> 67495
<DEPRECIATION> 28337
<TOTAL-ASSETS> 163284
<CURRENT-LIABILITIES> 32759
<BONDS> 0
0
0
<COMMON> 14042
<OTHER-SE> 105243
<TOTAL-LIABILITY-AND-EQUITY> 163284
<SALES> 183289
<TOTAL-REVENUES> 185277
<CGS> 130261
<TOTAL-COSTS> 162047
<OTHER-EXPENSES> 1398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 418
<INCOME-PRETAX> 21414
<INCOME-TAX> 6583
<INCOME-CONTINUING> 14831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14831
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
