<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1994 COMMISSION FILE NUMBER 1-7608
LOCTITE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-0701067
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
10 COLUMBUS BOULEVARD, HARTFORD, CONNECTICUT 06106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 520-5000
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 / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
35,383,073 shares of common stock, $.01 par value, outstanding as of April
30, 1994.
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<PAGE> 2
LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
<S> <C> <C>
1994 1993
-----------------------------
Net sales....................................................... $159,882 $149,101
Cost of sales................................................... 62,075 58,116
---------- ----------
Gross margin.................................................... 97,807 90,985
---------- ----------
Research & development expense.................................. 6,559 6,474
Selling, general and administrative expenses.................... 64,037 58,223
---------- ----------
70,596 64,697
---------- ----------
Earnings from operations........................................ 27,211 26,288
Investment income............................................... 2,218 2,013
Interest expense................................................ (1,407) (498)
Other expense................................................... (934) (315)
Foreign exchange loss........................................... (2,682) (1,269)
---------- ----------
Earnings before income taxes.................................... 24,406 26,219
Provisions for income taxes..................................... 6,102 6,555
---------- ----------
Net earnings.................................................... 18,304 19,664
Retained earnings, beginning of period.......................... 342,441 348,938
Less:
Cash dividends declared (1994 -- $.20 and 1993 -- $.19)......... 7,078 6,894
Stock repurchases............................................... 3,239 42,606
---------- ----------
Retained earnings, end of period................................ $350,428 $319,102
---------- ----------
---------- ----------
Earnings per share.............................................. $ 0.52 $ 0.54
---------- ----------
---------- ----------
Average number of shares outstanding............................ 35,372,000 36,117,000
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
<S> <C> <C>
1994 1993
-----------------------
Cash flows from operating activities:
Net earnings.................................................... $18,304 $19,664
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization.............................. 6,892 6,791
Deferred income taxes...................................... 20 3,049
(Gain) loss on sale of fixed assets........................ 720 (41)
Provision for losses -- accounts receivable................ 555 313
Undistributed earnings of affiliates....................... (2) (41)
Change in:
Trade and other receivables................................ (8,459) (14,575)
Inventory.................................................. (3,558) (1,003)
Prepaid and other current assets........................... (1,704) (2,833)
Accounts payable and accrued expenses...................... (12,031) (3,807)
Interest payable........................................... (201) (331)
Taxes payable.............................................. 2,816 (2,831)
Other........................................................... 1,301 3,818
------- -------
Cash provided by operating activities................................ 4,653 8,173
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment...................... (13,379) (7,437)
Dispositions of property, plant and equipment................... 165 563
Goodwill & intangible portion of acquisitions................... (13,325) (3,348)
Change in short-term investments................................ 7,135 (4,826)
(Increase) decrease in long-term investments.................... 438 (212)
------- -------
Cash used in investing activities.................................... (18,966) (15,260)
------- -------
Cash flows from financing activities:
Stock repurchases............................................... (1,647) (44,923)
Issuances of common stock....................................... 1,720 1,035
Dividends paid.................................................. (7,079) (6,928)
Increase (decrease) in short-term debt.......................... (435) 49,735
Increase (decrease) in long-term debt........................... 14 (28)
------- -------
Cash used in financing activities.................................... (7,427) (1,109)
------- -------
Effect of exchange rate changes on cash.............................. 550 (7)
------- -------
Decrease in cash and cash equivalents................................ (21,190) (8,203)
Cash and cash equivalents:
January 1....................................................... 44,552 29,889
------- -------
March 31........................................................ $23,362 $21,686
------- -------
------- -------
Interest paid........................................................ $ 1,906 $ 1,626
Taxes paid (net of refunds).......................................... $ 2,702 $ 6,526
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
LOCTITE CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 23,362 $ 44,552
Time and certificates of deposit................................. 45,356 51,499
Marketable securities (approximates market)...................... 82 79
Accounts and notes receivable (less allowances of $5,093 and
$4,659)......................................................... 130,757 119,316
Other receivables................................................ 13,604 12,874
Inventories:
Finished goods.............................................. 44,488 43,248
Work in progress............................................ 21,047 18,413
Raw materials............................................... 22,599 22,020
-------- ------------
88,134 83,681
Deferred income tax benefit...................................... 5,079 5,473
Prepaid expenses and other current assets........................ 13,248 11,406
-------- ------------
Total current assets.................................................. 319,622 328,880
-------- ------------
Investments:
Marketable securities (approximates market)...................... 5 126
Venture capital investments...................................... 4,664 4,978
-------- ------------
4,669 5,104
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Property, plant and equipment:
Land and land improvements....................................... 13,206 12,674
Buildings........................................................ 88,131 84,096
Machinery and equipment.......................................... 163,504 157,593
Construction in progress......................................... 30,986 26,227
-------- ------------
295,827 280,590
Less -- accumulated depreciation................................. 120,808 116,077
-------- ------------
175,019 164,513
Deferred income tax benefit........................................... 7,754 7,429
Other assets.......................................................... 20,442 17,205
Excess of purchase price over fair value of net assets of acquired
companies (net of amortization of $15,461 and $14,638).............. 90,676 80,096
-------- ------------
Total assets.......................................................... $618,182 $603,227
-------- ------------
-------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
-------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................................. $102,921 $103,047
Long-term debt -- current maturities............................. 11,373 11,732
Accounts payable................................................. 28,303 32,776
Accrued salaries, wages and other compensation................... 12,943 16,309
Accrued taxes, other than income taxes........................... 6,212 5,886
Accrued income taxes............................................. 16,538 13,798
Dividends payable................................................ 7,078 7,079
Accrued pension and retirement benefits.......................... 3,353 6,620
Accrued insurance................................................ 6,302 5,936
Accrued liabilities -- other..................................... 18,776 12,917
-------- ------------
Total current liabilities............................................. 213,799 216,100
-------- ------------
Long-term liabilities:
Long-term debt................................................... 3,143 3,028
Retirement and postretirement obligations........................ 11,317 6,222
Other............................................................ 17,063 19,396
-------- ------------
31,523 28,646
-------- ------------
Stockholders' equity:
Common Stock, $.01 par value:.................................... 41,542 39,922
Authorized 100,000,000 shares; issued 35,368,265
shares -- March 31, 1994 and 35,369,657 shares -- December
31, 1993
Retained earnings................................................ 350,428 342,441
Foreign currency translation adjustment.......................... (16,895) (21,892)
Investment valuation allowance................................... (915) (660)
Adjustment for minimum pension liability......................... (1,300) (1,330)
-------- ------------
Total stockholders' equity............................................ 372,860 358,481
-------- ------------
Total liabilities and stockholders' equity............................ $618,182 $603,227
-------- ------------
-------- ------------
</TABLE>
5
<PAGE> 6
LOCTITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included in the accompanying
unaudited financial statements.
The notes to the consolidated financial statements contained in Loctite
Corporation's December 31, 1993 Annual Report on Form 10-K should be read in
conjunction with the consolidated financial statements and notes to consolidated
financial statements contained herein.
NOTE 2 -- POSTEMPLOYMENT BENEFITS
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS No. 112). The statement requires the recognition
of the cost of postemployment benefits (after employment but before retirement)
on an accrual basis. In prior years, the Company expensed the cost of such
benefits when paid. The effect of adoption in 1994 for postemployment benefits
under SFAS No. 112 is not material to the Company.
NOTE 3 -- ACQUISITIONS
During the first quarter of 1994, the Company completed the acquisition of
100% of the capital stock of Plastic Padding Holdings Limited, a producer of
automotive aftermarket chemical products with distribution networks in the U.K.,
Ireland, and Scandinavia. The acquisition was accounted for as a purchase with
the results of Plastic Padding included from the effective date of the
acquisition. In April 1994 the Company also completed the purchase of the
remaining 49% interest in its subsidiary in Thailand, bringing the Company's
total ownership to 100%.
The cost of these acquisitions is not material to the Company for purposes
of pro forma presentation.
6
<PAGE> 7
LOCTITE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND CHANGES IN FINANCIAL CONDITION
OPERATING RESULTS
QUARTER ENDED MARCH 31, 1994 VERSUS QUARTER ENDED MARCH 31, 1993
Loctite management primarily measures the results of the Company based on
businesses and regions. Trade sales between regions are reflected as sales of
the region servicing the customer.
Net sales for the quarters ended March 31, 1994 and March 31, 1993 were
$159.9 million and $149.1 million, respectively. A summary (in millions) is as
follows:
<TABLE>
<CAPTION>
QUARTER QUARTER LOCAL
ENDED ENDED DOLLAR CURRENCY
3/31/94 3/31/93 % GROWTH % GROWTH
------- ------- -------- --------
<S> <C> <C> <C> <C>
SALES:
North American Region............................... $ 64.3 $ 62.3 3 4
European Region..................................... 63.2 58.2 9 15
Asia/Pacific Region................................. 14.9 12.3 21 15
Latin American Region............................... 14.8 13.1 13 15
Luminescent Systems................................. 2.7 3.2 (15) (14)
------- ------- --- ---
TOTAL SALES.................................... $159.9 $149.1 7% 9%
------- ------- --- ---
------- ------- --- ---
Industrial Business:
North American Region............................... $ 37.6 $ 34.2 10 11
European Region..................................... 33.1 31.3 6 11
Asia/Pacific Region................................. 13.1 10.8 21 14
Latin American Region............................... 4.3 3.9 9 11
Luminescent Systems................................. 2.7 3.2 (15) (14)
------- ------- --- ---
Total Industrial Business Sales................ $ 90.8 $ 83.4 9% 10%
------- ------- --- ---
------- ------- --- ---
Automotive Aftermarket Business:
North American Region............................... $ 11.7 $ 12.8 (9) (8)
European Region (excluding Plastic Padding
Holdings)......................................... 7.3 7.3 1 6
Plastic Padding Holdings............................ 3.6 -- -- --
Asia/Pacific Region................................. 1.3 1.1 24 22
Latin American Region............................... 2.0 2.1 (5) (2)
------- ------- --- ---
Total Automotive Aftermarket Business Sales.... $ 25.9 $ 23.3 11% 14%
------- ------- --- ---
------- ------- --- ---
Retail (Consumer) Business:
North American Region............................... $ 15.0 $ 15.3 (2) (2)
European Region..................................... 19.3 19.6 (2) 6
Asia/Pacific Region................................. .4 .4 14 14
Latin American Region............................... 8.5 7.1 21 22
------- ------- --- ---
Total Retail (Consumer) Business Sales......... $ 43.2 $ 42.4 2% 6%
------- ------- --- ---
------- ------- --- ---
</TABLE>
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Plastic Padding Holdings Limited was acquired in the first quarter of 1994.
7
<PAGE> 8
Sales in the North American region increased by 3% in U.S. dollars and 4%
in local currency, compared to the first quarter of 1993. In the industrial
business, volume increases in major product lines contributed to the strong
growth of 10% in U.S. dollars and 11% in local currency. However, this growth
was partially offset by decreases in sales in the automotive aftermarket and
retail (consumer) businesses.
Sales in the European region continued to be negatively affected by the
strength of the U.S. dollar, resulting in a local currency sales growth of 15%
being reduced to a U.S. dollar growth of 9%. The acquisition of Plastic Padding
during the first quarter of 1994 had a positive impact of two percentage points
on the Company's overall sales growth and amounted to six percentage points of
the European sales growth. Sales in the industrial market in the European region
improved by 11% in local currencies and 6% in U.S. dollars as the Company
concentrated its efforts on less recessed and underpenetrated markets. Volume
increases in anaerobics and cyanoacrylates were major contributors to industrial
sales growth. There was broad strength across Europe compared to last year's
weak performance.
The Asia/Pacific region's local currency sales gains of 15% were increased
to 21% in U.S. dollars primarily due to the strength of the Japanese yen in
relation to the U.S. dollar. Volume increases in most products were the
predominant factor in this region's sales growth. All countries but heavily
recessed Japan exhibited positive local currency sales growth.
Latin American sales increased 13% in U.S. dollars compared to the first
quarter of 1993. Sales increases in the industrial and retail (consumer) markets
were partially offset by the sales decline in the automotive aftermarket
business. All countries showed sales growth with the exception of Venezuela.
Brazil's sales were up by 11%; however, excluding the effects of inflation,
Brazil's sales grew by 2%. A new financial package has been introduced by the
government of that country which attempts to stabilize the exchange rate and
curb inflation, but it has at least temporarily increased the uncertainty of the
economic outlook for Brazil.
Luminescent Systems' sales decreased by 15% in U.S. dollars, primarily due
to the fact that sales in the first quarter of 1993 included sales for the
English Channel Tunnel project. Excluding this project, sales in the first
quarter of 1994 were flat with the prior year. The airline and defense
industries are major customers of this business. Sales in the airline industry
improved as compared to the prior year, while sales in the defense industry were
flat.
Gross margin remained basically unchanged at 61% of sales in the comparable
quarters of 1994 and 1993, although there was some change in geographic mix.
Operating expenses as a percentage to sales were 44% in the first quarter
of 1994 and 43% in the first quarter of 1993. Of the total $5.9 million
increase, marketing expenses increased by $4.9 million or 11% to support sales
growth. Administrative expenses increased $0.9 million or 6%, and research and
development expenses were flat. Plastic Padding and the new subsidiaries
operating in India, China, and Norway accounted for $2.0 million of the increase
in operating expenses.
Interest expense for the quarter ended March 31, 1994 was $0.9 million
higher than the respective prior year quarter due primarily to higher average
short term borrowing levels in the United States.
Net foreign exchange losses in the first quarter of 1994 increased by $1.4
million versus the corresponding prior year quarter due to the translation
effects of significantly higher rates of Brazilian inflation and currency
devaluation on the Company's operations in that location, and to less favorable
transaction related exchange results arising from the Company's Irish
manufacturing operations.
Other expense for the quarter ended March 31, 1994 increased by $0.6
million over the quarter ended March 31, 1993, due primarily to a loss of $0.8
million associated with the disposition of a small operation, Canton Biomedical
Division of Loctite VSI, Inc.
Income taxes, as a percentage of earnings before taxes, were 25% for the
comparable three month periods in 1994 and 1993.
8
<PAGE> 9
FINANCIAL CONDITION
At March 31, 1994, cash and cash equivalents were $23.4 million versus
$44.6 at December 31, 1993. The decrease was primarily due to cash outflow for
the acquisition of Plastic Padding Holdings, additions to property, plant and
equipment, a decrease in accounts payable and accrued expenses, dividends paid,
and increased trade receivables, partially offset by cash provided by operating
activities and a reduction in short-term investments.
Accounts and notes receivable increased by $11.4 million from December 31,
1993 to March 31, 1994. The largest increases were reported in Europe, resulting
from increased sales activity in the first quarter of 1994 compared to the
fourth quarter of 1993 and the acquisition of Plastic Padding.
The increase of $10.5 million in net property, plant and equipment from
December 31, 1993 to March 31, 1994 was primarily due to the construction of the
Company's new facility in Rocky Hill, Connecticut, and assets acquired in
conjunction with the new acquisition. Currency also had an effect on the total
U.S. dollar change.
Goodwill increased from $80.1 million at December 31, 1993 to $90.7 million
at March 31, primarily due to the acquisition of Plastic Padding Holdings during
the first quarter of 1994.
The reduction in the negative foreign currency translation adjustment in
stockholders' equity from $21.9 million at December 31, 1993 to $16.9 million at
March 31, 1994, was due primarily to the effect of a comparatively weaker U.S.
dollar on the Company's net asset position at March 31 in its foreign
subsidiaries.
ACQUISITIONS
During the first quarter of 1994, the Company acquired Plastic Padding
Holdings Limited, a market leader in automotive aftermarket chemical products
with strong brand presence and established distribution networks in the U.K.,
Ireland, and Scandinavia.
In April 1994, the Company purchased the remaining 49% interest in its
subsidiary in Thailand, bringing the Company's percent of voting stock owned to
100%.
The cost of these acquisitions was not material to the Company.
SALE OF DIVISION
The Company sold a small operation, Canton Biomedical Division of Loctite
VSI, Inc., to Chemfab Corporation and recorded a loss of $0.8 million.
ADOPTION OF ACCOUNTING PRONOUNCEMENT
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS No. 112). The statement requires the recognition
of the cost of postemployment benefits (after employment but before retirement)
on an accrual basis. In prior years, the Company expensed the cost of such
benefits when paid. The effect of adoption in 1994 for postemployment benefits
under SFAS No. 112 is not material to the Company.
ENVIRONMENTAL MATTERS
Continuing compliance with existing federal, state and local provisions
dealing with protection of the environment is not expected to have a material
effect upon the Company's capital expenditures, earnings, and competitive
position. As previously reported in its 1992 and 1993 Annual Reports on Form
10-K, the Company is presently investigating a soil and groundwater
contamination problem at its Newington, Connecticut, facility which has probably
resulted from the failure of an underground storage tank and/or prior waste
handling practices by Company personnel, or by other prior or concurrent users
of the site, and/or adjacent sites. The tank, which formerly held chlorinated
solvents, has been removed. Consultants hired by the Company have been working
closely with officials of the Connecticut Department of Environmental
9
<PAGE> 10
Protection ("DEP") to identify the exact source of the contamination and its
parameters. The Company spent approximately $170,000 in fiscal 1993 in
continuing evaluation and initial remediation efforts. Approximately $200,000 is
expected to be spent in 1994.
In the future it is possible that the Company may become subject to a
corrective action order under the Resource Conservation and Recovery Act
("RCRA") by the United States Environmental Protection Agency ("EPA"), which
would involve an EPA supervised remediation program. However, the Company is
currently discussing with the EPA whether EPA has jurisdiction over the
Newington site, since it is the Company's belief that it has never operated as a
treatment, storage or disposal facility for hazardous wastes, but only as a
generator of such wastes. If EPA agrees with the Company's position, then
remediation of the Newington site would be overseen only by the DEP. Due to the
potential differences in remediation approaches which could emerge between the
EPA and DEP, the Company does not intend to begin a remediation program until
the question of jurisdiction has been resolved. Consequently, it is not possible
at this time to predict accurately total remediation expense.
10
<PAGE> 11
PART II -- OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits -- none
(b) Reports on Form 8-K filed during the quarter:
April 15, 1994 -- the following events were reported:
Item 5 (a) On April 14, 1994, the Board of Directors of Loctite
Corporation (the "Company") adopted a shareholder rights plan
and declared a dividend distribution of one right (a "Right")
for each outstanding share of Common Stock, $.01 par value per
share (the "Common Shares"), of the Company. The dividend was
payable to stockholders of record on April 25, 1994. The
description and terms of the Rights are set forth in the Rights
Agreement (the "Rights Agreement"), dated as of April 14, 1994,
between the Company and The First National Bank of Boston, as
Rights Agent, which is attached as Exhibit 1 to the Form 8-K of
the Company, dated April 15, 1994.
(b) On April 14, 1994, the Company entered into an agreement
(the "Henkel Agreement"), dated as of April 14, 1994, with
Henkel Corporation, Henkel KGaA and HC Investments, Inc.
(collectively, "Henkel") that provided for, among other things,
the termination of the agreement, dated May 23, 1985, between
the Company and Henkel Corporation (as successor to Henkel of
America, Inc.), the enlargement of the size of the Board of
Directors of the Company from 10 to 12 members (with Henkel
being entitled to recommend up to a total of three Board
nominees, depending on the number of Common Shares beneficially
owned by Henkel), and various mechanisms to ensure that the
arrangement between the Company and Henkel set forth in the
Henkel Agreement and the Rights Agreement will remain in place
for 10 years. The Henkel Agreement is attached as Exhibit 2 to
the Form 8-K of the Company, dated April 15, 1994.
11
<PAGE> 12
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.
LOCTITE CORPORATION
(Registrant)
<TABLE>
<S> <C>
Date: May 12, 1994 By: /s/ DAVID FREEMAN
---------------------------------------------------
David Freeman
President and Chief Executive Officer
Date: May 12, 1994 By: /s/ ROBERT L. ALLER
---------------------------------------------------
Robert L. Aller, Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
</TABLE>
12
