<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 SEPTEMBER 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 Identification No.)
of incorporation or
organization)
</TABLE>
10 COLUMBUS BOULEVARD, HARTFORD, CONNECTICUT 06106
(Address of principal executive offices, including zip code)
(860) 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 September 30, 1995,
was 34,838,799, $.01 par value.
- --------------------------------------------------------------------------------
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<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 September 30, 1995 and 1994, and the
nine-month periods ended September 30, 1995 and 1994......... 2
Consolidated Statement of Cash Flows for the nine-month periods
ended September 30, 1995 and 1994............................ 3
Consolidated Balance Sheet at September 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........................... 7-12
PART II.
OTHER INFORMATION
Item 6. Listing of Exhibits and Reports on Form 8-K.................... 13
Signatures.................................................................
14
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales....................................... $195,751 $183,344 $593,709 $521,034
Cost of sales................................... 76,939 71,370 226,085 202,590
-------- -------- -------- --------
Gross margin.................................... 118,812 111,974 367,624 318,444
-------- -------- -------- --------
Research & development expense.................. 7,604 6,971 22,327 20,422
Selling, general and administrative expenses.... 86,282 74,212 254,077 210,815
-------- -------- -------- --------
93,886 81,183 276,404 231,237
-------- -------- -------- --------
Earnings from operations........................ 24,926 30,791 91,220 87,207
Investment income............................... 1,488 1,172 4,340 4,581
Interest expense................................ (2,011) (1,505) (5,858) (4,385)
Other income (expense).......................... (198) (641) 147 (1,709)
Foreign exchange gain (loss).................... -- 356 (202) (4,177)
-------- -------- -------- --------
Earnings before income taxes.................... 24,205 30,173 89,647 81,517
Provisions for income taxes..................... 4,827 7,543 21,515 20,379
-------- -------- -------- --------
Net earnings.................................... $ 19,378 $ 22,630 68,132 61,138
======== ========
Retained earnings, beginning of period.......... 389,514 342,441
Less:
Cash dividends declared (1995 -- $.71 and
1994 -- $.61)................................. 25,120 21,586
Stock repurchases............................... 30,729 6,172
-------- --------
Retained earnings, end of period................ $401,797 $375,821
======== ========
Earnings per share.............................. $ 0.55 $ 0.64 $ 1.93 $ 1.73
======== ======== ======== ========
Average number of shares outstanding............ 35,237 35,368 35,317 35,375
======== ======== ======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
<S> <C> <C>
---------------------
Cash flows from operating activities:
Net earnings......................................................... $ 68,132 $ 61,138
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization..................................... 23,318 20,921
Deferred income taxes............................................. 101 (1,499)
(Gain) loss on sale of fixed assets............................... (245) 1,019
Provision for losses -- accounts receivable....................... 1,489 1,835
Undistributed (earnings) losses of affiliates..................... (93) 11
Change in:
Trade and other receivables....................................... (19,140) (21,446)
Inventory......................................................... (6,192) (4,900)
Prepaid and other current assets.................................. (3,575) 1,164
Accounts payable and accrued expenses............................. (8,476) 1,067
Interest payable.................................................. 410 (680)
Taxes payable..................................................... (2,940) (463)
Other................................................................ 5,816 3,967
------- -------
Cash provided by operating activities.................................. 58,605 62,134
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment........................... (23,625) (38,935)
Dispositions of property, plant and equipment........................ 685 230
Goodwill & intangible portion of acquisitions........................ (7,473) (16,471)
Decrease in short-term investments................................... 4,278 12,641
Decrease (increase) in long-term investments......................... 572 (74)
------- -------
Cash used in investing activities...................................... (25,563) (42,609)
------- -------
Cash flows from financing activities:
Stock repurchases.................................................... (18,185) (7,104)
Issuances of common stock............................................ 3,407 3,986
Dividends paid....................................................... (23,706) (21,235)
Increase (decrease) in short-term debt............................... 11,163 (10,535)
Decrease in long-term debt........................................... (328) (179)
Payments under capital lease obligations............................. (1,143) (572)
------- -------
Cash used in financing activities...................................... (28,792) (35,639)
------- -------
Effect of exchange rate changes on cash................................ 10 (213)
------- -------
Increase (decrease) in cash and cash equivalents....................... 4,260 (16,327)
Cash and cash equivalents:
Beginning of period.................................................. 33,264 44,552
------- -------
End of period........................................................ $ 37,524 $ 28,225
======= =======
Interest paid.......................................................... $ 5,242 $ 7,047
Taxes paid (net of refunds)............................................ $ 25,949 $ 22,268
</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>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 37,524 $ 33,264
Time and certificates of deposit................................. 31,789 34,594
Marketable securities............................................ 115 96
Accounts and notes receivable (less allowances of $6,868 and
$5,811)....................................................... 157,693 139,093
Other receivables................................................ 19,048 14,577
Inventories:
Finished goods................................................ 55,307 49,824
Work in process............................................... 23,267 22,463
Raw materials................................................. 24,103 22,585
------- -------
102,677 94,872
Deferred income tax benefit...................................... 12,534 13,978
Prepaid expenses and other current assets........................ 14,932 11,150
------- -------
Total current assets............................................... 376,312 341,624
------- -------
Investments:
Marketable securities and other long-term investments............ 179 192
Venture capital investments...................................... 4,129 4,687
------- -------
4,308 4,879
------- -------
Property, plant and equipment:
Land and land improvements....................................... 22,732 22,378
Buildings........................................................ 125,795 121,480
Machinery and equipment.......................................... 214,833 197,194
Construction in progress......................................... 3,830 1,913
------- -------
367,190 342,965
Less -- accumulated depreciation................................. 157,011 139,627
------- -------
210,179 203,338
Deferred income tax benefit........................................ 7,805 6,463
Goodwill (net of amortization of $20,331 and $17,761).............. 101,076 94,725
Other intangibles (net of amortization of $10,895 and $8,743)...... 14,104 14,232
Other assets....................................................... 4,497 3,815
------- -------
Total assets....................................................... $718,281 $669,076
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................................. $105,690 $ 94,202
Long-term debt -- current maturities............................. 534 530
Accounts payable................................................. 34,126 35,719
Accrued salaries, wages and other compensation................... 24,694 23,185
Accrued taxes, other than income taxes........................... 8,358 5,643
Accrued income taxes............................................. 13,827 18,956
Dividends payable................................................ 8,842 7,428
Accrued pension and retirement benefits.......................... 5,062 4,407
Accrued insurance................................................ 7,030 6,595
Accrued liabilities -- other..................................... 31,636 21,070
------- -------
Total current liabilities.......................................... 239,799 217,735
------- -------
Long-term liabilities:
Long-term debt................................................... 2,395 2,694
Capital lease obligations........................................ 2,046 2,189
Retirement and postretirement obligations........................ 15,414 13,236
Other............................................................ 12,419 9,862
------- -------
32,274 27,981
------- -------
Stockholders' equity:
Common stock, $.01 par value:.................................... 47,567 45,128
Authorized 300,000,000 shares; issued 34,838,799 shares at
September 30, 1995 and 35,369,678 shares at December 31, 1994
Retained earnings................................................ 401,797 389,514
Foreign currency translation adjustment.......................... (510) (8,552)
Investment valuation allowance................................... (10) (215)
Adjustment for minimum pension liability......................... (2,636) (2,515)
------- -------
Total stockholders' equity......................................... 446,208 423,360
------- -------
Total liabilities and stockholders' equity......................... $718,281 $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 except for the $5.5 million realignment charge recorded in the third
quarter of 1995.
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. In July 1995, the Company acquired distribution
rights from its Philippines distributor and began operations in the
newly-created Loctite Philippines Corporation 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 SEPTEMBER 30, 1995 VERSUS QUARTER ENDED SEPTEMBER 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 September 30, 1995 and September 30, 1994
were $195.8 million and $183.3 million, respectively. A summary (in millions) is
as follows:
<TABLE>
<CAPTION>
QUARTER QUARTER LOCAL
ENDED ENDED DOLLAR CURRENCY
9/30/95 9/30/94 % GROWTH % GROWTH
------- ------- -------- --------
<S> <C> <C> <C> <C>
SALES:
North American Region.............................. $ 71.3 $ 76.4 (7)% (5)%
European Region.................................... 77.8 66.0 18 13
Asia/Pacific Region................................ 23.5 19.7 19 15
Latin American Region.............................. 20.4 18.4 11 11
Luminescent Systems................................ 2.8 2.8 -- --
------ ------ --- ---
TOTAL SALES..................................... $ 195.8 $ 183.3 7% 5%
====== ====== === ===
Industrial Business:
North American Region.............................. $ 36.3 $ 40.2 (10)% (8)%
European Region.................................... 41.1 33.0 24 18
Asia/Pacific Region................................ 20.7 17.2 20 16
Latin American Region.............................. 5.9 5.5 9 9
Luminescent Systems................................ 2.8 2.8 -- --
------ ------ --- ---
Total Industrial Business Sales................. $ 106.8 $ 98.7 8% 7%
====== ====== === ===
Automotive Aftermarket Business:
North American Region.............................. $ 22.2 $ 23.8 (7)% (6)%
European Region.................................... 11.4 10.9 4 (1)
Asia/Pacific Region................................ 2.3 2.2 4 2
Latin American Region.............................. 2.9 2.5 12 13
------ ------ --- ---
Total Automotive Aftermarket Business Sales..... $ 38.8 $ 39.4 (2)% (3)%
====== ====== === ===
Retail (Consumer) Business:
North American Region.............................. $ 12.8 $ 12.4 3% 3%
European Region.................................... 25.3 22.1 15 11
Asia/Pacific Region................................ 0.5 0.3 n/m n/m
Latin American Region.............................. 11.6 10.4 11 12
------ ------ --- ---
Total Retail (Consumer) Business Sales.......... $ 50.2 $ 45.2 11% 9%
====== ====== === ===
</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 5% in local currencies and
7% in U.S. dollars, in comparison to the third quarter of 1994. The industrial
business declined by 8% in local currencies and 10% in U.S. dollars. The sale of
a small business, Loctite VSI, in 1994 had an effect on these quarterly
comparisons.
7
<PAGE> 10
The region's decline excluding 1994 Loctite VSI sales was 3% in local currencies
and 4% in U.S. dollars and the industrial business decline was 2% in local
currencies and 5% in U.S. dollars. The automotive aftermarket business decreased
by 6% in local currencies and 7% in U.S. dollars, in comparison to the third
quarter of 1994. The sluggish economic climate in the U.S. has continued to
affect these businesses. Specifically, the Company has detected a temporary
slowdown in these businesses as customers have reduced their level of purchasing
activity in response to the economic environment. These sales declines were
partially offset by a modest increase in the retail (consumer) business.
In the European region, local currency sales growth of 13% was enhanced to
18% 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%. Also, the Nordic countries of this region have
contributed four percentage points to the European region's local currency sales
growth. The Swedish distribution business acquired in 1995 and the 1994
acquisitions of distribution businesses in Denmark and Finland, as discussed in
the 1994 Annual Report on Form 10-K, have contributed significantly to these
countries' sales growth in the third quarter of 1995. Sales in the industrial
business in the European region improved by 18% in local currencies and 24% in
U.S. dollars as the region continues to benefit from a new sales and marketing
structure, a re-emphasis on market focus, and the above mentioned acquisitions.
Sales in the retail (consumer) business grew by 11% in local currencies and 15%
in U.S. dollars as a result of sales efforts and market focus which were
supported by substantial advertising campaigns in the U.K. and Italy during the
third quarter of 1995.
The Asia/Pacific region's local currency sales gains of 15% were increased
to 19% in U.S. dollars as the exchange rate comparison continued to be
favorable. The major countries (Japan, Australia, Korea, Malaysia, and
Singapore) reported an average local sales growth of 7%. The local currency
sales growth of Japan and Australia were 4% and 3%, respectively, in comparison
to the corresponding prior year quarter due to less prosperous economies. Hong
Kong and China have contributed five and two percentage points, respectively, to
the Asia/Pacific region's local currency sales growth. The distribution business
acquired in April of 1995 has contributed significantly to Hong Kong's sales
growth in the third quarter of 1995. Sales in the industrial business improved
by 16% in local currencies and 20% in U.S. dollars as management's sales efforts
contributed to volume increases in major industrial product lines.
Latin American sales increased 11% in U.S. dollars compared to the third
quarter of 1994. The major countries (Brazil, Venezuela, Colombia, Costa Rica,
and Chile) reported an average local sales growth of 10%. In Brazil, sales
increases were experienced in automotive aftermarket and retail (consumer)
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 automotive aftermarket and
retail (consumer) businesses.
Gross margin declined from 61.1% of sales in the third quarter of 1994 to
60.7% in the third quarter of 1995. This decline is attributed to an increase in
unfavorable cost of sales variances in the North American region. These
unfavorable cost of sales variances are the result of temporarily reduced
manufacturing activity in the North American region to bring inventory levels in
line with present customer demand, which has declined due to a sluggish U.S.
economic climate. Partially offsetting this decline were improved percentage
margins in the European region which were the result of an improved mix in sales
by business.
Operating expenses as a percentage to sales were 48% in the third quarter
of 1995 compared to 44% in the third quarter of 1994. This increase is due to
expanded marketing expenses and a $5.5 million realignment charge recorded in
the third quarter of 1995. The increase in marketing expenses is supporting the
growing sales volume, advertising campaigns principally in the U.S., U.K.,
Italy, and Brazil and an increase in the sales and marketing headcount. The $5.5
million realignment charge related primarily to separation costs connected with
the elimination of 125 jobs in the Company's North American Manufacturing,
Logistics, Administrative and Marketing Departments.
Income taxes, as a percentage of earnings before taxes, were 20% for the
three month period ended September 30, 1995 and 25% for the comparable period
ended September 30, 1994. This decrease was due to a reduction in the income
taxes, as a percentage of earnings before taxes, to 24% for the nine month
period
8
<PAGE> 11
ended September 30, 1995. This reduction was the result of lower earnings in the
United States, as the U.S. effective tax rate is substantially higher than the
Company's overall effective tax rate.
NINE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1994
Net sales for the nine months ended September 30, 1995 and September 30,
1994 were $593.7 million and $521.0 million, respectively. A summary (in
millions) is as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS LOCAL
ENDED ENDED DOLLAR CURRENCY
9/30/95 9/30/94 % GROWTH % GROWTH
----------- ----------- -------- --------
<S> <C> <C> <C> <C>
SALES:
North American Region............................. $ 213.7 $ 217.5 (2)% --
European Region................................... 242.7 194.3 25 15%
Asia/Pacific Region............................... 66.5 52.8 26 17
Latin American Region............................. 62.1 48.1 29 30
Luminescent Systems............................... 8.7 8.3 5 5
-- --
------ ------
TOTAL SALES.................................... $ 593.7 $ 521.0 14% 10%
====== ====== == ==
Industrial Business:
North American Region............................. $ 117.8 $ 118.2 (1)% 2%
European Region................................... 131.9 99.3 33 21
Asia/Pacific Region............................... 59.4 46.5 28 18
Latin American Region............................. 18.9 14.8 28 28
Luminescent Systems............................... 8.7 8.3 5 5
-- --
------ ------
Total Industrial Business Sales................ $ 336.7 $ 287.1 17% 13%
====== ====== == ==
Automotive Aftermarket Business:
North American Region............................. $ 60.7 $ 63.8 (5)% (4)%
European Region................................... 35.4 33.0 8 (2)
Asia/Pacific Region............................... 5.9 5.2 11 7
Latin American Region............................. 8.4 6.9 21 23
-- --
------ ------
Total Automotive Aftermarket Business Sales.... $ 110.4 $ 108.9 1% (1)%
====== ====== == ==
Retail (Consumer) Business:
North American Region............................. $ 35.2 $ 35.5 (1)% (1)%
European Region................................... 75.4 62.0 22 15
Asia/Pacific Region............................... 1.2 1.1 n/m n/m
Latin American Region............................. 34.8 26.4 32 32
-- --
------ ------
Total Retail (Consumer) Business Sales......... $ 146.6 $ 125.0 17% 14%
====== ====== == ==
</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 were relatively flat in local currencies
and decreased by 2% in U.S. dollars for the first nine months of 1995 compared
to the first nine months of 1994. The industrial business increased by 2% in
local currencies and declined by 1% in U.S. dollars in comparison to the prior
year nine month period. The sale of a small business, Loctite VSI, in 1994 had
an effect on these nine month period comparisons. The region's growth excluding
1994 Loctite VSI sales was 3% in local currencies and 1% in U.S. dollars and the
industrial business growth was 8% in local currencies and 5% in U.S. dollars.
This growth was
9
<PAGE> 12
reduced by decreases in the automotive aftermarket and retail (consumer)
businesses of 5% and 1% (U.S. dollars), respectively. The sluggish economic
climate in the U.S. has continued to affect these businesses.
In the European region, local currency sales growth of 15% was enhanced to
25% 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 11%. Also, the Nordic countries of this region have contributed
four percentage points to the European region's local currency sales growth. The
Swedish distribution business acquired in 1995 and the 1994 acquisitions of
distribution businesses in Denmark and Finland, as discussed in the 1994 Annual
Report on Form 10-K, have enhanced these countries' local currency sales growth
in the first nine months of 1995. Sales in the industrial business in the
European region improved by 21% in local currencies and 33% in U.S. dollars as
the region continues to benefit from a new sales and marketing structure, a
re-emphasis on market focus, and the above-mentioned acquisitions. Additionally,
sales in the retail (consumer) business grew by 15% in local currencies and 22%
in U.S. dollars as a result of expanded advertising and sales efforts.
The Asia/Pacific region's local currency sales gains of 17% were increased
to 26% 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 11%. Hong
Kong and China have contributed three and two percentage points, respectively,
to the Asia/Pacific region's local currency sales growth. The acquisition of a
distribution business in April 1995 has enhanced Hong Kong's local currency
sales growth. Management's sales efforts contributed to volume increases in
major product lines in the industrial business which encountered local currency
sales growth of 18%.
Latin American sales increased 29% in U.S. dollars compared to the first
nine 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 5% in U.S. dollars in comparison to
the first nine 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 nine months of 1994
to 61.9 % in the first nine months of 1995. The improved percentage margins in
the European, Pacific, and Latin American regions were partially offset by a
decrease in the North American region. The increased percentage margins were the
result of an improved mix in sales by business. The North American region has
been affected by decreased production activity resulting from a slowing U.S.
economic climate.
Operating expenses as a percentage to sales were 47% in the first nine
months of 1995 and 44% in the first nine months of 1994. The increase is
primarily due to expanded marketing expenses and the $5.5 million realignment
charge recorded in the third quarter of 1995. Of the total $45.2 million
increase, marketing expenses increased by $35.1 million or 22% to support the
increased sales volume, substantial advertising campaigns in the U.S., U.K.
France, Italy, Brazil, and Spain, and an increase in the sales and marketing
headcount.
Interest expense increased by $1.5 million during the nine month period
ended September 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 nine months ended September 30, 1995
improved by $1.9 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,
and to reduced losses in 1995 relative to the disposition of fixed assets.
10
<PAGE> 13
Foreign exchange gain (loss) improved by $4.0 million during the nine month
period ended September 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 six month period of 1994.
Income taxes, as a percentage of earnings before taxes, were 24% for the
nine month period ended September 30, 1995 and 25% for the comparable period
ended September 30, 1994.
FINANCIAL CONDITION
The increase in cash and cash equivalents and short-term debt from $33.3
million and $94.2 million, respectively, at December 31, 1994 to $37.5 million
and $105.7 million, respectively, at September 30, 1995 and the related decrease
in time and certificates of deposit from $34.6 million at December 31, 1994 to
$31.8 million at September 30, 1995 was primarily due to cash outflow for
additions to property, plant and equipment, dividends paid, stock repurchases,
acquisitions of Swedish and Hong Kong distributors, and installment payments on
previous acquisitions, partially offset by cash provided by operating
activities. 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 $18.6 million from December 31,
1994 to September 30, 1995. A portion of this increase is attributed to a $2.8
million foreign currency translation effect due to a comparatively weaker U.S.
dollar at September 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 $101.1
million at September 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 reduction in the negative foreign currency translation adjustment in
stockholders' equity from a $8.6 million at December 31, 1994 to $0.5 million at
September 30, 1995, was due to the effect of a comparatively weaker U.S. dollar
on the Company's net asset position at September 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. In July 1995, the Company acquired distribution
rights from its Philippines distributor and began operations in the
newly-created Loctite Philippines Corporation 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. 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
11
<PAGE> 14
monitoring costs. The site remediation plan is currently under review by the
Connecticut Department of Environmental Protection (DEP).
The DEP, in consultation with the U.S. Environmental Protection Agency, has
determined that the Newington facility 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. The Company believes that remediation costs after 1995 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 significant expenditures in connection with site remediation.
12
<PAGE> 15
PART II. OTHER INFORMATION
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
13
<PAGE> 16
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: November 13, 1995 By: /s/ DAVID FREEMAN
--------------------------------------
David Freeman
President and Chief Executive
Officer
Date: November 13, 1995 By: /s/ ROBERT L. ALLER
--------------------------------------
Robert L. Aller
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
14
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