<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
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
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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 (I.R.S. Employer
jurisdiction
of incorporation or Identification No.)
organization)
</TABLE>
10 COLUMBUS BOULEVARD, HARTFORD, CONNECTICUT 06106
(Address of principal executive offices, including zip code)
(203) 520-5000
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of common stock outstanding as of June 30, 1995, was
35,369,675, $.01 par value.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[This page intentionally left blank.]
<PAGE> 3
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings and Retained Earnings for
the quarters ended June 30, 1995 and 1994, and the six-month
periods ended June 30, 1995 and 1994........................ 2
Consolidated Statement of Cash Flows for the six-month periods
ended June 30, 1995 and 1994................................ 3
Consolidated Balance Sheet at June 30, 1995 and December 31,
1994........................................................ 4-5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Changes in Financial Condition.......................... 7-11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........... 12
Item 6. Listing of Exhibits and Reports on Form 8-K................... 12
Signatures................................................................. 13
</TABLE>
1
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
(Unaudited)
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $201,161 $177,808 $397,958 $337,690
Cost of sales................................. 75,214 69,145 149,146 131,220
-------- -------- -------- --------
Gross margin.................................. 125,947 108,663 248,812 206,470
-------- -------- -------- --------
Research & development expense................ 7,540 6,892 14,723 13,451
Selling, general and administrative
expenses.................................... 86,321 72,566 167,795 136,603
-------- -------- -------- --------
93,861 79,458 182,518 150,054
-------- -------- -------- --------
Earnings from operations...................... 32,086 29,205 66,294 56,416
Investment income............................. 1,581 1,191 2,852 3,409
Interest expense.............................. (2,103) (1,473) (3,847) (2,880)
Other income (expense)........................ 171 (134) 345 (1,068)
Foreign exchange gain (loss).................. 410 (1,851) (202) (4,533)
-------- -------- -------- --------
Earnings before income taxes.................. 32,145 26,938 65,442 51,344
Provisions for income taxes................... 8,031 6,734 16,688 12,836
-------- -------- -------- --------
Net earnings.................................. $ 24,114 $ 20,204 48,754 38,508
======== ========
Retained earnings, beginning of period........ 389,514 342,441
Less:
Cash dividends declared (1995 -- $.46
and 1994 -- $.40)........................... 16,277 14,156
Stock repurchases............................. 4,164 4,351
-------- --------
Retained earnings, end of period.............. $417,827 $362,442
======== ========
Earnings per share............................ $ 0.68 $ 0.57 $ 1.38 $ 1.09
======== ======== ======== ========
Average number of shares outstanding.......... 35,370 35,378 35,370 35,376
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1995 1994
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings........................................................... $48,754 $38,508
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization....................................... 16,062 13,917
Deferred income taxes............................................... 245 429
(Gain) loss on sale of fixed assets................................. (297) 750
Provision for losses -- accounts receivable......................... 1,379 1,282
Undistributed earnings of affiliates................................ (82) (2)
Change in:
Trade and other receivables......................................... (22,327) (16,567)
Inventory........................................................... (10,796) 810
Prepaid and other current assets.................................... (5,188) 220
Accounts payable and accrued expenses............................... (13,693) (10,184)
Interest payable.................................................... 232 (355)
Taxes payable....................................................... (358) (6,463)
Other.................................................................. 371 4,403
------- -------
Cash provided by operating activities.................................... 14,302 26,748
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment............................. (14,867) (24,463)
Dispositions of property, plant and equipment.......................... 588 438
Goodwill & intangible portion of acquisitions.......................... (5,823) (14,943)
(Increase) decrease in short-term investments.......................... (9,707) 16,028
Decrease in long-term investments...................................... 537 221
------- -------
Cash used in investing activities........................................ (29,272) (22,719)
------- -------
Cash flows from financing activities:
Stock repurchases...................................................... (3,696) (4,289)
Issuances of common stock.............................................. 2,281 3,077
Dividends paid......................................................... (14,858) (14,156)
Increase (decrease) in short-term debt................................. 19,278 (7,345)
Decrease in long-term debt............................................. (221) (97)
Payments under capital lease obligations............................... (924) (353)
------- -------
Cash provided by (used in) financing activities.......................... 1,860 (23,163)
------- -------
Effect of exchange rate changes on cash.................................. 661 28
------- -------
Decrease in cash and cash equivalents.................................... (12,449) (19,106)
Cash and cash equivalents:
Beginning of period.................................................... 33,264 44,552
------- -------
End of period.......................................................... $20,815 $25,446
======= =======
Interest paid............................................................ $ 3,488 $ 3,741
Taxes paid (net of refunds).............................................. $18,855 $17,840
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
LOCTITE CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 20,815 $ 33,264
Time and certificates of deposit................................... 46,422 34,594
Marketable securities.............................................. 267 96
Accounts and notes receivable (less allowances of $6,767 and
$5,811)......................................................... 163,674 139,093
Other receivables.................................................. 19,813 14,577
Inventories:
Finished goods.................................................. 57,110 49,824
Work in process................................................. 25,550 22,463
Raw materials................................................... 25,781 22,585
-------- --------
108,441 94,872
Deferred income tax benefit........................................ 13,664 13,978
Prepaid expenses and other current assets.......................... 16,789 11,150
-------- --------
Total current assets................................................. 389,885 341,624
-------- --------
Investments:
Marketable securities and other long-term investments.............. 181 192
Venture capital investments........................................ 4,160 4,687
-------- --------
4,341 4,879
-------- --------
Property, plant and equipment:
Land and land improvements......................................... 23,768 22,378
Buildings.......................................................... 127,213 121,480
Machinery and equipment............................................ 210,792 197,194
Construction in progress........................................... 3,605 1,913
-------- --------
365,378 342,965
Less -- accumulated depreciation................................... 152,920 139,627
-------- --------
212,458 203,338
Deferred income tax benefit.......................................... 6,575 6,463
Goodwill (net of amortization of $19,463 and $17,761)................ 101,156 94,725
Other intangibles (net of amortization of $9,829 and $8,743)......... 14,622 14,232
Other assets......................................................... 4,331 3,815
-------- --------
Total assets......................................................... $733,368 $669,076
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................................... $113,888 $ 94,202
Long-term debt -- current maturities............................... 574 530
Accounts payable................................................... 36,068 35,719
Accrued salaries, wages and other compensation..................... 19,852 23,185
Accrued taxes, other than income taxes............................. 9,039 5,643
Accrued income taxes............................................... 15,951 18,956
Dividends payable.................................................. 8,847 7,428
Accrued pension and retirement benefits............................ 5,037 4,407
Accrued insurance.................................................. 7,241 6,595
Accrued liabilities -- other....................................... 21,939 21,070
-------- --------
Total current liabilities............................................ 238,436 217,735
-------- --------
Long-term liabilities:
Long-term debt..................................................... 2,717 2,694
Capital lease obligations.......................................... 2,290 2,189
Retirement and postretirement obligations.......................... 14,982 13,236
Other.............................................................. 9,833 9,862
-------- --------
29,822 27,981
-------- --------
Stockholders' equity:
Common stock, $.01 par value:...................................... 47,279 45,128
Authorized 300,000,000 shares; issued 35,369,675 shares at
June 30, 1995 and 35,369,678 shares at December 31, 1994
Retained earnings.................................................. 417,827 389,514
Foreign currency translation adjustment............................ 2,649 (8,552)
Investment valuation allowance..................................... (9) (215)
Adjustment for minimum pension liability........................... (2,636) (2,515)
-------- --------
Total stockholders' equity........................................... 465,110 423,360
-------- --------
Total liabilities and stockholders' equity........................... $733,368 $669,076
======== ========
</TABLE>
5
<PAGE> 8
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. All such adjustments are of a normal recurring
nature.
The notes to the consolidated financial statements contained in Loctite
Corporation's December 31, 1994 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 -- ACQUISITIONS
During the first quarter of 1995, the Company acquired certain assets from
its distributor in Sweden and merged this business with the Loctite Sweden AB
subsidiary. In April 1995, the Company acquired certain assets from its
distributor in Hong Kong and merged this business with the newly-created Loctite
Hong Kong Ltd. subsidiary. The cost of these acquisitions is not material to the
Company for purposes of pro forma presentation.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
CHANGES IN FINANCIAL CONDITION
OPERATING RESULTS
QUARTER ENDED JUNE 30, 1995 VERSUS QUARTER ENDED JUNE 30, 1994
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 June 30, 1995 and June 30, 1994 were
$201.2 million and $177.8 million, respectively. A summary (in millions) is as
follows:
<TABLE>
<CAPTION>
QUARTER QUARTER LOCAL
ENDED ENDED DOLLAR CURRENCY
6/30/95 6/30/94 % GROWTH % GROWTH
------- ------- --------- ---------
<S> <C> <C> <C> <C>
SALES:
North American Region........................... $ 74.6 $ 76.7 (3)% (2)%
European Region................................. 81.5 65.7 24 13
Asia/Pacific Region............................. 23.5 18.3 28 15
Latin American Region........................... 18.8 14.3 31 31
Luminescent Systems............................. 2.8 2.8 n/m n/m
------ ------ ----- -----
TOTAL SALES.................................. $ 201.2 $ 177.8 13% 9%
====== ====== ===== =====
Industrial Business:
North American Region........................... $ 41.3 $ 40.3 3% 4%
European Region................................. 44.4 33.7 32 19
Asia/Pacific Region............................. 21.3 16.1 32 17
Latin American Region........................... 6.5 4.7 37 37
Luminescent Systems............................. 2.8 2.8 n/m n/m
------ ------ ----- -----
Total Industrial Business Sales.............. $ 116.3 $ 97.6 19% 13%
====== ====== ===== =====
Automotive Aftermarket Business:
North American Region........................... $ 21.7 $ 23.2 (7)% (6)%
European Region................................. 12.3 11.3 9 (2)
Asia/Pacific Region............................. 1.8 1.8 n/m n/m
Latin American Region........................... 2.5 2.2 20 21
------ ------ ----- -----
Total Automotive Aftermarket Business
Sales...................................... $ 38.3 $ 38.5 (1)% (3)%
====== ====== ===== =====
Retail (Consumer) Business:
North American Region........................... $ 11.6 $ 13.2 (12)% (12)%
European Region................................. 24.8 20.7 20 12
Asia/Pacific Region............................. .4 .4 n/m n/m
Latin American Region........................... 9.8 7.4 30 31
------ ------ ----- -----
Total Retail (Consumer) Business Sales....... $ 46.6 $ 41.7 11% 8%
====== ====== ===== =====
</TABLE>
n/m = not meaningful.
Certain prior period amounts were reclassified between regions and businesses to
conform with the 1995 presentation.
- ---------------
Sales in the North American region decreased by 2% in local currencies and
3% in U.S. dollars, in comparison to the second quarter of 1994. In the
industrial business, slight volume increases in major product lines contributed
to the growth of 4% in local currencies and 3% in U.S. dollars which occurred in
a slower economic climate in comparison to the corresponding prior year quarter.
The sale of a small business, Loctite
7
<PAGE> 10
VSI, in 1994 had an effect on the quarterly comparison. The industrial business
growth excluding Loctite VSI results was 9% in local currencies and 7% in U.S.
dollars. This growth was offset by decreases in the automotive aftermarket and
retail (consumer) businesses. The sluggish economic climate in this region has
continued to affect these businesses.
In the European region, local currency sales growth of 13% was enhanced to
24% in U.S. dollars as the exchange rate comparison continued to be favorable.
The five major countries (France, Italy, U.K., Germany, and Spain) reported an
average local sales growth of 8%. The Swedish distributor acquired in 1995 and
the 1994 acquisitions of distributors in Denmark, Finland, and Turkey as
discussed in the 1994 Annual Report on Form 10-K have also contributed to the
sales growth in the second quarter of 1995. Sales in the industrial business in
the European region improved by 19% in local currencies and 32% in U.S. dollars
as the region continues to benefit from a new sales and marketing structure and
a re-emphasis on market focus. Sales in the retail (consumer) business grew by
12% in local currencies and 20% in U.S. dollars as a result of advertising and
sales efforts which included substantial advertising campaigns in France, Italy,
and Spain during the second quarter of 1995.
The Asia/Pacific region's local currency sales gains of 15% were increased
to 28% in U.S. dollars primarily due to the strength of the Japanese yen in
relation to the U.S. dollar. The major countries (Japan, Australia, Korea,
Malaysia, and Singapore) reported an average local sales growth of 9%.
Australian growth was minimal in comparison to the corresponding prior year
quarter due to a locally sluggish economy. The Hong Kong distributor acquired in
April of 1995 has also contributed to the sales growth in the second quarter of
1995. Sales in the industrial business improved by 17% in local currencies and
32% in U.S. dollars as management's redirection of sales efforts contributed to
volume increases in major industrial product lines.
Latin American sales increased 31% in U.S. dollars compared to the second
quarter of 1994. All major countries (Brazil, Venezuela, Colombia, Costa Rica,
and Chile) reported double digit percentage growth. In Brazil, sales increases
were experienced in all three businesses as buyers continued to react positively
to the new Brazilian economic plan implemented during the second quarter of
1994. Significant volume increases were seen in major product lines throughout
the industrial, automotive aftermarket and retail (consumer) businesses.
Luminescent Systems' sales were flat for the quarter compared to the second
quarter of 1994.
Gross margin improved from 61.1% of sales in the second quarter of 1994 to
62.6% in the second quarter of 1995. The mix in sales by business and geographic
region is a contributing factor to this improvement. The improved percentage
margins in the European region, Pacific region, Latin American region, and
Luminescent Systems were partially offset by the decrease in the North American
region.
Operating expenses as a percentage to sales were 47% in the second quarter
of 1995 compared to 45% in the second quarter of 1994. Of the total $14.4
million increase, marketing expenses increased by $13.3 million or 24% to
support the increased sales volume, advertising campaigns principally in the
U.S., France, Italy, Brazil, and Spain, and an 18% increase in the sales and
marketing headcount.
Interest expense increased by $0.6 million during the quarter ended June
30, 1995 compared to the respective prior year quarter due largely to the
capitalization of certain interest costs in 1994 relative to the construction of
the Rocky Hill, Connecticut and Solon, Ohio facilities and to higher average
interest rates on short-term borrowings in the U.S.
Foreign exchange gain(loss) improved by $2.3 million during the quarter
ended June 30, 1995 versus the comparable prior year quarter due primarily to
the economic plan introduced in Brazil during the second quarter of 1994. The
plan has had the effect of dramatically reducing rates of inflation and currency
devaluation to approximately 2% per month during the second quarter of 1995
compared to rates of inflation and currency devaluation of approximately 40% per
month during the second quarter of 1994.
Income taxes, as a percentage of earnings before taxes, were 25% for the
comparable three month periods ended June 30, 1995 and 1994.
8
<PAGE> 11
SIX MONTHS ENDED JUNE 30, 1995 VERSUS SIX MONTHS ENDED JUNE 30, 1994
Net sales for the six months ended June 30, 1995 and June 30, 1994 were
$398.0 million and $337.7 million, respectively. A summary (in millions) is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS LOCAL
ENDED ENDED DOLLAR CURRENCY
6/30/95 6/30/94 % GROWTH % GROWTH
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
SALES:
North American Region......................... $142.4 $141.0 1% 2%
European Region............................... 164.9 128.3 29 17
Asia/Pacific Region........................... 43.1 33.2 30 18
Latin American Region......................... 41.7 29.7 40 41
Luminescent Systems........................... 5.9 5.5 8 8
------ ------ --- ---
TOTAL SALES................................ $398.0 $337.7 18% 13%
====== ====== === ===
Industrial Business:
North American Region......................... $ 81.5 $ 77.9 5% 7%
European Region............................... 90.8 66.4 37 23
Asia/Pacific Region........................... 38.7 29.3 32 20
Latin American Region......................... 13.0 9.3 39 39
Luminescent Systems........................... 5.9 5.5 8 8
------ ------ --- ---
Total Industrial Business Sales............ $229.9 $188.4 22% 16%
====== ====== === ===
Automotive Aftermarket Business:
North American Region......................... $ 38.5 $ 40.0 (4)% (3)%
European Region............................... 24.0 22.0 9 (2)
Asia/Pacific Region........................... 3.6 3.1 16 11
Latin American Region......................... 5.5 4.4 27 28
------ ------ --- ---
Total Automotive Aftermarket Business
Sales.................................... $ 71.6 $ 69.5 3% -%
====== ====== === ===
Retail (Consumer) Business:
North American Region......................... $ 22.4 $ 23.1 (3)% (3)%
European Region............................... 50.1 39.9 26 17
Asia/Pacific Region........................... .8 .8 n/m n/m
Latin American Region......................... 23.2 16.0 45 46
------ ------ --- ---
Total Retail (Consumer) Business Sales..... $ 96.5 $ 79.8 21% 16%
====== ====== === ===
</TABLE>
n/m = not meaningful.
Certain prior period amounts were reclassified between regions and businesses to
conform with the 1995 presentation.
- ---------------
Sales in the North American region increased by 2% in local currencies and
1% in U.S. dollars for the first six months of 1995 compared to the first six
months of 1994. In the industrial business, volume increases in major product
lines contributed to the growth of 7% in local currencies and 5% in U.S.
dollars. The sale of a small business, Loctite VSI, in 1994 had an effect on the
six month period comparison. The industrial business growth excluding Loctite
VSI results was 13% in local currencies and 11% in U.S. dollars. This growth was
reduced by decreases in the automotive aftermarket and retail (consumer)
businesses of 4% and 3% (U.S. dollars), respectively. The sluggish economic
climate in this region has continued to affect these businesses.
In the European region, local currency sales growth of 17% was enhanced to
29% as the exchange rate comparison continued to be favorable. The five major
countries (France, Italy, U.K., Germany, and Spain)
9
<PAGE> 12
reported an average local sales growth of 12%. The Swedish distributor acquired
in 1995 and the 1994 acquisitions of distributors in Denmark, Finland, and
Turkey as discussed in the 1994 Annual Report on Form 10-K have also contributed
to the sales growth in the first six months of 1995. Sales in the industrial
business in the European region improved by 23% in local currencies and 37% in
U.S. dollars as the region continues to benefit from a new sales and marketing
structure and a re-emphasis on market focus. Additionally, sales in the retail
(consumer) business grew by 17% in local currencies and 26% in U.S. dollars as a
result of expanded advertising and sales efforts.
The Asia/Pacific region's local currency sales gains of 18% were increased
to 30% in U.S. dollars primarily due to the strength of the Japanese yen in
relation to the U.S. dollar. The major countries (Japan, Australia, Korea,
Malaysia, and Singapore) reported an average local sales growth of 14%. The
acquisition of a Hong Kong distributor in April 1995 also contributed to the
region's local currency sales growth. Management's redirection of sales efforts
contributed to volume increases in major product lines in the industrial
business.
Latin American sales increased 40% in U.S. dollars compared to the first
six months of 1994. All major countries (Brazil, Venezuela, Colombia, Costa
Rica, and Chile) reported double digit percentage growth. In Brazil, sales
increases were experienced in all three businesses as buyers continued to react
positively to the new Brazilian economic plan implemented during the second
quarter of 1994. Significant volume increases were seen in major product lines
throughout the industrial, automotive aftermarket and retail (consumer)
businesses.
Luminescent Systems' sales increased by 8% in U.S. dollars in comparison to
the first six months of 1994. This increase is the result of rising sales of
aviation lighting and electrical components for the automotive industry.
Gross margin increased from 61.1% of sales in the first six months of 1994
to 62.5% in the first six months of 1995. The mix in sales by business and
geographic region is a contributing factor to this improvement. The major
influence was an increase in the European region's margin, and to a lesser
degree increases in the Asia/Pacific and Latin American regions, caused by
improved mix in sales by business.
Operating expenses as a percentage to sales were 46% in the first six
months of 1995 and 44% in the first six months of 1994. Of the total $32.5
million increase, marketing expenses increased by $27.2 million or 27% to
support the increased sales volume, substantial advertising campaigns in the
U.S., U.K. France, Italy, Brazil, and Spain, and an 18% increase in the sales
and marketing headcount.
Interest expense increased by $1.0 million during the six month period
ended June 30, 1995 compared to the corresponding prior year period due
primarily to the capitalization of certain interest costs in 1994 relative to
the construction of the Rocky Hill, Connecticut and Solon, Ohio facilities.
Other income (expense) for the six months ended June 30, 1995 improved by
$1.4 million over the comparable prior year period due largely to the sale of a
small operation, Canton Biomedical Division of Loctite VSI, Inc., which resulted
in a $0.8 million loss recorded during the first quarter of 1994.
Foreign exchange loss improved by $4.3 million during the six month period
ended June 30, 1995 versus the comparable prior year period due primarily to the
economic plan introduced in Brazil during the second quarter of 1994. The plan
has had the effect of dramatically reducing rates of inflation and currency
devaluation to approximately 2% per month during the first six months of 1995
compared to rates of inflation and currency devaluation of approximately 40% per
month during the corresponding period of 1994.
Income taxes, as a percentage of earnings before taxes, were 25.5% for the
six month period ended June 30, 1995 and 25% for the comparable period ended
June 30, 1994.
FINANCIAL CONDITION
The decrease in cash and cash equivalents from $33.3 million at December
31, 1994 to $20.8 million at June 30, 1995 and the related increase in
short-term debt from $94.2 million at December 31, 1994 to $113.9 million at
June 30, 1995 was primarily due to cash outflow for additions to property, plant
and equipment,
10
<PAGE> 13
dividends paid, acquisitions of Swedish and Hong Kong distributors, and
installment payments on previous acquisitions, partially offset by cash provided
by operating activities. Additionally, $9.7 million in funds were invested by
the Company in time and certificates of deposit during the period. For complete
details of the change in cash and cash equivalents see the financial statement
titled "Consolidated Statement of Cash Flows."
Accounts and notes receivable increased by $24.6 million from December 31,
1994 to June 30, 1995. A portion of this increase is attributed to a $5.3
million foreign currency translation effect due to a comparatively weaker U.S.
dollar at June 30, 1995 versus December 31, 1994. The largest increases were
reported in Europe, resulting from increased sales activity.
Goodwill increased from $94.7 million at December 31, 1994 to $101.2
million at June 30, 1995 primarily due to the acquisition of a Swedish
distributor during the first quarter of 1995 and a Hong Kong distributor in the
second quarter of 1995.
The improvement in the foreign currency translation adjustment in
stockholders' equity from a $8.6 million negative position at December 31, 1994
to a $2.6 million positive position at June 30, 1995, was due to the effect of a
comparatively weaker U.S. dollar on the Company's net asset position at June 30
in its foreign subsidiaries.
ACQUISITIONS
During the first quarter of 1995 the Company acquired certain assets from
its distributor in Sweden and merged this business with its Loctite Sweden AB
subsidiary. In April 1995, the Company acquired certain assets from its
distributor in Hong Kong and merged this business with the newly-created Loctite
Hong Kong Ltd. subsidiary. The cost of these acquisitions 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 1994 Annual Report on Form 10-K, the
Company has been 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 Protection ("DEP") to identify the exact
source(s) of the contamination and its/their parameters. The Company spent
approximately $0.2 million in 1993 and approximately $0.5 million in 1994 in
continuing subsurface investigation and is nearing the completion of the
investigative phase of the work at this site. The Company expects to spend
approximately $0.9 million in 1995 to implement a site remediation plan
developed by the Company's environmental consultants and for additional
professional consulting services related thereto, including additional
investigative work, on-going operation and maintenance of equipment, and initial
monitoring costs.
The DEP, in consultation with the U.S. Environmental Protection Agency, has
recently determined that the remediation program is not subject to federal
jurisdiction as a hazardous waste storage facility under the Resource
Conservation and Recovery Act. Therefore, the remediation program will be
implemented with the oversight of the DEP. Given this program, the Company
believes that the aforementioned costs are reasonable and that after 1995
expenditures will be in the range of $0.1 million per year for an indefinite
period to operate and maintain site remediation equipment. The Company does not
presently anticipate any further expenditures in connection with site
remediation beyond those mentioned above.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On April 26, 1995, the Company held an Annual Meeting of Shareholders
(the "Annual Meeting") to elect eleven directors to hold office until the next
Annual Meeting and until their successors are elected and qualified; to consider
and act upon a proposal to increase the authorized number of shares of Common
Stock of Loctite Corporation from 100,000,000 shares to 300,000,000 shares; and
to confirm the appointment of the Company's independent accountants for the
current fiscal year.
(b) Set forth below is a description of each matter voted upon at the
Annual Meeting and the number of votes cast for, against or withheld, as well as
the number of abstentions and broker non-votes as to each such matter.
1. Eleven directors were elected to hold office until the next Annual
Meeting and until their successors are elected and qualified. A list of
such directors, including the votes for, withheld, abstentions, and broker
non-votes, is set forth below:
<TABLE>
<CAPTION>
VOTES BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Robert E. Ix 31,416,757 272,582 n/a n/a
Frederick B. Krieble 31,410,270 279,069
Kenneth W. Butterworth 31,414,292 275,047
Dr. Roman Dohr 31,403,388 285,951
Dr. Jurgen Manchot 31,413,663 275,676
Stephen J. Trachtenberg 31,413,854 275,485
Wallace Barnes 31,414,837 274,502
David Freeman 31,414,484 274,855
Peter C. Browning 31,387,057 302,282
Stephen F. Page 31,405,772 283,567
Christoph Henkel 31,410,703 278,636
</TABLE>
2. The proposal to amend Article Fourth of the Certificate of
Incorporation to increase the authorized number of shares of Common Stock
of Loctite Corporation from 100,000,000 shares to 300,000,000 shares was
approved. There were 27,366,110 votes cast for the proposal; 4,180,622
votes against the proposal; 77,696 abstentions; and 64,911 broker
non-votes.
3. The appointment of Price Waterhouse LLP as the Company's
independent accountants for the current fiscal year was confirmed. There
were 31,616,454 votes cast for the proposal; 39,398 votes against the
proposal; 33,487 abstentions; and no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter -- None
12
<PAGE> 15
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)
Date: August 11, 1995 By: /s/ DAVID FREEMAN
--------------------------------------
David Freeman
President and Chief Executive
Officer
Date: August 11, 1995 By: /s/ ROBERT L. ALLER
--------------------------------------
Robert L. Aller
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE> 16
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 20,815
<SECURITIES> 267
<RECEIVABLES> 170,441
<ALLOWANCES> 6,767
<INVENTORY> 108,441
<CURRENT-ASSETS> 389,885
<PP&E> 365,378
<DEPRECIATION> 152,920
<TOTAL-ASSETS> 733,368
<CURRENT-LIABILITIES> 238,436
<BONDS> 5,007
<COMMON> 47,279
0
0
<OTHER-SE> 417,831
<TOTAL-LIABILITY-AND-EQUITY> 733,368
<SALES> 397,958
<TOTAL-REVENUES> 397,958
<CGS> 149,146
<TOTAL-COSTS> 149,146
<OTHER-EXPENSES> 181,139
<LOSS-PROVISION> 1,379
<INTEREST-EXPENSE> 3,847
<INCOME-PRETAX> 65,442
<INCOME-TAX> 16,688
<INCOME-CONTINUING> 48,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,754
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
</TABLE>
