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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-7608
LOCTITE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 06-0701067
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
10 COLUMBUS BOULEVARD, HARTFORD, CT 06106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 520-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
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Common Stock, $.01 Par Value New York Stock Exchange
Pacific Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of voting stock held by non-affiliates of the
registrant at February 29, 1996 was $1,704,732,916. On that date, there were
32,164,772 outstanding shares of the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Report.
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LOCTITE CORPORATION
------------------------
INDEX TO ANNUAL REPORT
ON FORM 10-K
YEAR ENDED DECEMBER 31, 1995
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PAGE
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PART I
Item 1. Business................................................................... 1
Item 2. Properties................................................................. 4
Item 3. Legal Proceedings.......................................................... 4
Item 4. Submission of Matters to a Vote of Security Holders........................ 4
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.................................................................. 5
Item 6. Selected Financial Data.................................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 8
Item 8. Financial Statements and Supplementary Data................................ 15
Item 9. Disagreements on Accounting and Financial Disclosure....................... 37
PART III
Item 10. Directors and Executive Officers of Registrant............................. 38
Item 11. Executive Compensation..................................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 38
Item 13. Certain Relationships and Related Transactions............................. 38
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K............ 39
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PART I
ITEM 1. BUSINESS
General Development of Business
Loctite Corporation (the "Company") was organized as a Connecticut
corporation in 1953 to manufacture and sell industrial adhesives and sealants.
The Company reincorporated in Delaware in 1988. Its current line of such
industrial products is sold in essentially all industrialized countries, in most
cases through wholly owned subsidiaries.
The Company expanded its activities to encompass the manufacture and sale
of adhesives, sealants, and related products through automotive aftermarket and
retail channels, primarily by the acquisition of Permatex Company, Inc. in 1972
and Woodhill Chemical Company in 1974. The domestic businesses of these two
companies were consolidated in 1976 and, in 1980, were merged into a single
division to conduct business as Loctite Corporation, Automotive and Consumer
Group.
During 1992, the Company consolidated the industrial and automotive
aftermarket and retail groups into the North American Region. In the fourth
quarter of 1995, the Company sold the assets of Loctite Luminescent Systems,
Inc. and ceased to be involved in the electroluminescent lamp business. All of
the Company's remaining operations are managed by its three other primary
worldwide marketing regions.
Financial Information About Industry Segments
Loctite operates in one dominant segment: "adhesives, sealants, and related
products". Applicable segment information is contained in Note 2 of the Notes to
Consolidated Financial Statements.
Description of Business
The majority of the Company's adhesives, sealants, and related products are
manufactured from raw materials at the Company's plants. Selected other products
are purchased in bulk form and packaged for resale. A limited number of products
are purchased in final packaged form. The principal materials and supplies used
by the Company in the manufacture and packaging of products are generally
commercially available from several sources in both the United States and
Western Europe. While certain raw materials used by the Company, principally of
petrochemical origin, have from time to time in the past been subject to supply
shortages and price increases, the Company anticipates that adequate supplies of
such raw materials will be available over the next several years.
The basic monomer resins used in the compounding of the Company's adhesives
and sealants are manufactured in Sabana Grande, Puerto Rico; Dublin, Ireland;
and Greater Sao Paulo, Brazil. The compounding of these products and the
manufacturing of the Company's consumer and automotive aftermarket adhesives and
sealants are done at Sabana Grande, Puerto Rico; Dublin, Ireland; Kansas City,
Kansas; Warrensville Heights, Ohio; and at smaller facilities in several other
countries.
The Company manufactures and sells a broad range of chemical adhesives and
sealants having different chemical properties designed to suit a wide variety of
applications. Special and standard equipment for the application of adhesives
and sealants is also marketed by the Company, along with a variety of specialty
chemical items which complement the adhesives and sealants line. The principal
products are anaerobic adhesives and sealants and cyanoacrylate adhesives.
Anaerobics. Anaerobic adhesives and sealants remain liquid in the presence
of air but cure in the absence of air. These liquids are used to replace or
augment mechanical means for locking, sealing, retaining and structurally
bonding machine elements, providing extra strength and reliability to these
assemblies, and increasing resistance to loosening or damage caused by shock or
vibration. Anaerobic adhesives and sealants can be used without solvent removal
processes, and, in many cases, permit the relaxation of machining tolerances.
The net result is less complexity in manufacture and assembly operations for the
user, frequently providing substantial overall cost savings.
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Anaerobic adhesives and sealants have an indefinite shelf life and are
produced with a wide variety of chemical and physical properties to meet the
demands of their numerous industrial applications. They are used primarily on
metal surfaces in equipment such as vehicles, household appliances, electronic
equipment, and numerous other mechanical subassemblies.
Cyanoacrylates. Cyanoacrylate adhesives cure upon exposure to moisture,
which is present in trace amounts on the surfaces to be bonded. They cure in
times ranging from a few seconds to several minutes to form thin, transparent
bonds. Because of the speed and strength of cyanoacrylate bonds, these materials
require care in handling and use.
In general, cyanoacrylates have a shelf life in excess of one year and do
not require extensive surface preparation prior to use. Cyanoacrylate adhesives
may be used to bond metal, plastics, rubber, glass, ceramic, or wood, either
together or in combination. Typical uses include the assembly of certain rubber
and vinyl products, auto accessories, electronic components, and office
equipment, especially where speed of cure is an important consideration.
Other Adhesives, Sealants, and Related Products. The Company manufactures
and sells other engineering products, principally silicone sealants, as well as
epoxies and modified acrylic adhesives; ultraviolet light and primer cured
sealants and coatings used in a wide variety of industrial applications; a line
of home and auto-care products for consumer use, including high viscosity,
noncuring sealants which are used principally to coat conventional gaskets and
rust converters; and other related specialty chemicals, principally lubricating,
and cleaning compounds.
Other Products. The Company manufactures and sells various amounts of
other products including metal-care products and cleaners for tile, porcelain,
wood, metal, and fiberglass surfaces, and hand cleaners.
Marketing
The Company sells its products in essentially all industrialized countries
of the world. Sales in Europe and in North America (excluding Luminescent
Systems) for the year ended December 31, 1995 accounted for 40% and 37%,
respectively, of consolidated net sales. Sales in the balance of the world
accounted for approximately 23% of consolidated net sales.
The Company has three principal user markets for its products: the
industrial market, the automotive aftermarket, and the retail market. The
Company reaches user markets through its four regional marketing organizations:
North American, which includes the Company's operations in the United States,
Puerto Rico, Canada, Mexico, and the Caribbean; European, which includes the
Company's operations in Western, Central, and Eastern Europe, the Commonwealth
of Independent States, the Middle East, and Northern and Central Africa; Latin
American, which includes the Company's operations in South and Central America
and Southern Africa; and Asian/Pacific, which includes the Company's operations
in Asia and the Pacific Rim. Each marketing organization has the responsibility
for developing marketing strategies and techniques for its area of operation
within the framework of overall corporate marketing plans.
Throughout the world, sales are made primarily through subsidiaries, most
of which are wholly owned by the Company. Sales are made by these subsidiaries
under the housemarks Loctite, Duro, and Permatex through a network of
nonexclusive distributors, jobbers, and sales agents, some of which also sell
adhesives and sealants made by others. In addition, sales are made through a
direct sales force maintained by the Company. The Company provides close and
continuing contact with its major end users, distributors, and sales agents to
provide optimum technical assistance and support for the use of its products.
The Company's retail products are marketed primarily through the hardware,
automotive, food, and building supply channels.
The Company's business, on a consolidated basis, has not been subject to
significant seasonal trends. However, individual market channels do show some
degree of seasonality, particularly with the increasing trend toward the
practice of summer plant shutdowns.
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The backlog of firm orders as of December 31, 1995 was $16.4 million versus
$22.4 million as of December 31, 1994. The current backlog is expected to be
substantially filled within the current year.
Government contracts and purchases do not contribute materially to the
Company's consolidated net sales and net earnings.
No single customer of the Company accounted for 5% or more of consolidated
net sales.
Research and Development
Research and development expenditures were $29.9 million for the year ended
December 31, 1995, $28.0 million for the year ended December 31, 1994, and $26.7
million for the year ended December 31, 1993.
Competition
Competitive products, including anaerobic adhesives and sealants and
cyanoacrylate adhesives, are being marketed in countries where the Company
conducts business. The Company has patent protection on various aspects of its
adhesives and sealants in the United States and, to a lesser extent, in a number
of foreign countries. Nearly all competitive anaerobic adhesives and sealants
are sold at lower prices than the Company's products and, in some instances, at
substantially lower prices. Although the Company has selectively reduced prices
to meet competition from time to time, attention to a superior quality of
product, technical service and customer needs has generally enabled it to
maintain its market position without significant price reductions.
Other liquid adhesives and sealants are available, many of which are
produced by companies which are larger and have substantially greater financial
resources than the Company. Alternatives to liquid adhesives and sealants, such
as gaskets, lock washers, and self-locking nuts, are also available and compete
with the Company's products.
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, competitive position,
or liquidity. For further discussion on environmental matters, see Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Employees
At December 31, 1995, the Company had approximately 4,300 employees. The
Company has had no significant strikes or work stoppages and considers employee
relations to be satisfactory. Approximately 6% of the Company's employees are
covered by collective bargaining agreements, specifically at the Company's
plants in Kansas City, Kansas and Dublin, Ireland. There are no significant
seasonal fluctuations in employment.
Patents
The Company owns a number of unexpired United States patents relating to
anaerobic adhesives and sealants and certain other adhesives and sealants,
including cyanoacrylate adhesives, or on related products, uses, or
manufacturing processes. These patents expire on various dates from 1996 to
2013. The Company also owns a substantial number of pending patent applications.
The Company also has obtained patents, and regularly files new patent
applications, in foreign countries, particularly the industrialized countries of
Western Europe, Australia, Canada, South Korea, and Japan. Because all
applications have not been filed in all foreign countries and because of the
varying degrees of protection afforded by foreign patent laws, the Company has
somewhat less patent protection abroad than in the United States.
The Company has obtained protection for major trademarks in essentially all
countries where the trademarks are of commercial importance and regularly files
new trademark applications on a worldwide basis.
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FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The information required is contained in Note 2 of the Notes to
Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company owns and leases properties located around the world. These
properties are deemed adequate to meet the needs of the Company at present
levels. The Company's properties are in good condition, well maintained, and
modernized as required. Substantially all of the properties are in regular use
with the exception of the Company's former North American Region Headquarters in
Newington, Connecticut (141,000 square feet) and a former manufacturing and
warehouse facility in Buffalo, New York (63,000 square feet). Listed below are
the approximate square footage numbers by region.
-- The North American properties total 1,044,000 square feet, of which
111,000 square feet are leased. Major locations include the Company's
North American Region Headquarters in Rocky Hill, Connecticut (200,000
square feet) which includes sales, marketing, and administrative
functions, as well as research, development, and engineering functions;
a warehouse in Solon, Ohio (180,000 square feet) for distribution of
North American products; the Company's former Automotive and Consumer
Group Headquarters in Warrensville Heights, Ohio (166,000 square feet),
which includes manufacturing and administrative activities; and a
manufacturing, warehousing, and administrative facility in Sabana
Grande, Puerto Rico (113,000 square feet).
-- The European properties total 630,000 square feet, of which 309,000
square feet are leased. The largest facility is in Dublin, Ireland
(167,000 square feet) where manufacturing, warehousing, research,
development, and engineering, and administrative activities take place.
Other major facilities are in France (103,000 square feet), Italy
(81,000 square feet), Germany (73,000 square feet), Sweden (61,000
square feet), and the U.K. (41,000 square feet), which include
warehousing, marketing, and administrative functions.
-- The Latin American properties total 282,000 square feet, of which 28,000
square feet are leased. The largest facilities are in Brazil (126,000
square feet), which is used for manufacturing, marketing, warehousing,
and administrative functions; and a new manufacturing facility in
Guatire, Venezuela (81,000 square feet).
-- The Asian/Pacific properties total 294,000 square feet, of which 117,000
square feet are leased. Major facilities are in Japan (77,000 square
feet) and Australia (76,000 square feet) where manufacturing, marketing,
warehousing, and administrative activities take place.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not a party to any pending legal
proceedings in which an adverse decision, in the opinion of the Company, would
have a material adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1995.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York and Pacific Stock
Exchanges. The number of stockholders of record of the Company's Common Stock as
of the close of business on February 29, 1996 was 3,869. Information regarding
quarterly market prices and dividends declared for the Company's Common Stock is
shown below. Market prices are closing prices quoted on the New York Stock
Exchange, the principal exchange market for the Company's Common Stock. The
Company currently expects that comparable dividends will continue to be paid in
the future.
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YEAR ENDED DECEMBER 31, 1995
-------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
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Market price of Loctite stock
--High............................................... $ 48 7/8 $ 50 7/8 $ 49 1/4 $ 49 3/4
--Low................................................ $ 44 3/8 $ 45 1/2 $ 43 3/8 $ 45 1/8
Dividends per share.................................... $ .21 $ .25 $ .25 $ .25
</TABLE>
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YEAR ENDED DECEMBER 31, 1994
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1ST QTR 2ND QTR 3RD QTR 4TH QTR
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Market price of Loctite stock
--High............................................... $ 44 $ 45 1/2 $ 45 7/8 $ 46 3/4
--Low................................................ $ 35 $ 39 1/4 $ 41 1/4 $ 41 7/8
Dividends per share.................................... $ .20 $ .20 $ .21 $ .21
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations
of the Company.
TEN-YEAR FINANCIAL REVIEW
(dollars in millions, except per share amounts)
SELECTED FINANCIAL DATA
RESTATED TO A CALENDAR YEAR BASIS
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<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993 1992
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OPERATING RESULTS
Net sales.................................... $785.1 $703.6 $612.6 $608.0
Percentage increase..................... 12% 15% 1% 8%
Sales by region:
North America........................... 37% 42% 44% 42%
Europe.................................. 40% 37% 35% 40%
Latin America........................... 11% 9% 9% 8%
Asia/Pacific............................ 11% 10% 10% 8%
Luminescent Systems and Other........... 1% 2% 2% 2%
Gross margin as a percentage of sales........ 62% 61% 61% 62%
Pretax earnings as a percentage of sales..... 14% 16% 15% 16%
Effective tax rate........................... 24% 25% 25% 24%
Net earnings................................. $ 83.9 $ 82.4 $ 68.3 $ 72.1
Percentage increase (decrease).......... 2% 21% (5%) 4%
Net earnings as a percentage of sales........ 11% 12% 11% 12%
Return on average stockholders' equity....... 19% 21% 19% 19%
Net earnings per share....................... $ 2.40 $ 2.33 $ 1.92 $ 1.98
Dividends per share.......................... $ .96 $ .82 $ .79 $ .74
Dividends declared as a percentage of
earnings................................... 40% 35% 41% 37%
FINANCIAL POSITION
Current ratio................................ 1.8 1.6 1.5 2.2
Working capital.............................. $166.2 $123.9 $116.4 $167.2
Net property, plant and equipment............ $209.1 $203.3 $166.2 $140.4
Capital expenditures......................... $ 32.7 $ 57.3 $ 44.5 $ 40.2
Depreciation................................. $ 27.2 $ 23.8 $ 18.1 $ 17.4
Total assets................................. $715.6 $669.1 $603.2 $553.5
Long-term liabilities........................ $107.1 $ 28.0 $ 32.2 $ 36.4
Debt as a percentage of debt plus equity..... 30% 19% 25% 12%
Stockholders' equity......................... $396.8 $423.4 $358.5 $379.7
OTHER DATA
Number of employees at year end.............. 4,339 4,242 3,953 3,689
Average shares outstanding (in thousands).... 35,004 35,373 35,606 36,375
</TABLE>
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<TABLE>
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DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1990 1989 1988 1987 1986
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OPERATING RESULTS
Net sales................................. $561.2 $555.2 $473.9 $438.9 $383.4 $292.4
Percentage increase.................. 1% 17% 8% 14% 31% 22%
Sales by region:
North America........................ 42% 40% 41% 41% 41% 47%
Europe............................... 39% 40% 39% 41% 40% 36%
Latin America........................ 8% 9% 8% 7% 8% 7%
Asia/Pacific......................... 8% 8% 8% 8% 7% 8%
Luminescent Systems and Other........ 3% 3% 4% 3% 4% 2%
Gross margin as a percentage of sales..... 61% 61% 62% 62% 60% 58%
Pretax earnings as a percentage of sales.. 17% 16% 17% 16% 14% 13%
Effective tax rate........................ 27% 27% 29% 30% 31% 35%
Net earnings.............................. $ 69.6 $ 66.3 $ 58.2 $ 47.6 $ 36.7 $ 25.3
Percentage increase (decrease)....... 5% 14% 22% 30% 45% 32%
Net earnings as a percentage of sales..... 12% 12% 12% 11% 10% 9%
Return on average stockholders' equity.... 21% 23% 25% 23% 20% 17%
Net earnings per share.................... $ 1.91 $ 1.82 $ 1.62 $ 1.33 $ 1.01 $ .70
Dividends per share....................... $ .68 $ .59 $ .53 $ .37 $ .27 $ .22
Dividends declared as a percentage of
earnings................................ 36% 32% 33% 28% 27% 31%
FINANCIAL POSITION
Current ratio............................. 2.3 2.8 3.0 2.8 2.4 2.0
Working capital........................... $168.0 $209.2 $187.3 $163.3 $141.5 $ 87.0
Net property, plant and equipment......... $122.1 $104.9 $ 82.2 $ 70.1 $ 77.1 $ 62.9
Capital expenditures...................... $ 33.5 $ 29.4 $ 23.6 $ 15.0 $ 16.8 $ 10.6
Depreciation.............................. $ 15.4 $ 11.8 $ 11.3 $ 9.3 $ 9.2 $ 7.5
Total assets.............................. $526.6 $486.8 $402.0 $357.0 $352.7 $270.4
Long-term liabilities..................... $ 40.3 $ 49.1 $ 46.4 $ 44.8 $ 49.6 $ 19.2
Debt as a percentage of debt plus equity.. 11% 15% 15% 17% 24% 19%
Stockholders' equity...................... $357.7 $319.0 $259.7 $223.3 $201.7 $164.6
OTHER DATA
Number of employees at year end........... 3,587 3,680 3,497 3,327 3,237 2,884
Average shares outstanding (in thousands). 36,387 36,402 35,978 35,900 36,242 36,260
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATIONS
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994
For the year ended December 31, 1995, net sales were $785.1 million, an
increase of $81.5 million or 12% over the prior year. The Company's management
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. A
summary (in millions) is as follows:
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LOCAL
DOLLAR CURRENCY
1995 1994 % GROWTH % GROWTH
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SALES:
North American Region....................... $286.0 $293.5 (3)% (1)%
European Region............................. 316.2 258.3 22 14
Asian/Pacific Region........................ 89.4 72.6 23 17
Latin American Region....................... 82.8 67.8 22 23
Luminescent Systems......................... 10.7 11.4 (6) (6)
------ ------ -- --
TOTAL SALES............................ $785.1 $703.6 12% 9%
====== ====== == ==
Industrial Business:
North American Region....................... $159.1 $161.1 (1)% 1%
European Region............................. 173.5 134.7 29 19
Asian/Pacific Region........................ 79.3 63.9 24 17
Latin American Region....................... 24.6 20.3 21 21
Luminescent Systems......................... 10.7 11.4 (6) (6)
------ ------ -- --
Total Industrial Business Sales........ $447.2 $391.4 14% 11%
====== ====== == ==
Automotive Aftermarket Business:
North American Region....................... $ 82.8 $ 85.9 (4)% (3)%
European Region............................. 46.2 43.0 7 (1)
Asian/Pacific Region........................ 8.2 7.2 15 12
Latin American Region....................... 10.7 9.5 14 16
------ ------ -- --
Total Automotive Aftermarket
Business Sales....................... $147.9 $145.6 2% --
====== ====== == ==
Retail Business:
North American Region....................... $ 44.1 $ 46.5 (5)% (5)%
European Region............................. 96.5 80.6 20 13
Asian/Pacific Region........................ 1.9 1.5 29 28
Latin American Region....................... 47.5 38.0 25 26
------ ------ -- --
Total Retail Business Sales............ $190.0 $166.6 14% 11%
====== ====== == ==
</TABLE>
Certain prior period amounts were reclassified between regions and
businesses to conform to the 1995 presentation.
Price changes contributed to the growth in sales for the Company. Average
net prices changed as a result of changes in list price, changes in product mix,
changes in customers, and changes in foreign exchange rates. Such factors are
not quantifiable individually due to the diversity of markets, product
formulations, and product packages.
Sales in the North American region decreased 3% in U.S. dollars and 1% in
local currency when compared to 1994. The industrial business decreased 1% in
U.S. dollars and increased by 1% in local currency. Excluding 1994 Loctite VSI
sales, a small business sold during 1994, the region's sales were flat in U.S.
dollars and increased 2% in local currency and the industrial business increased
4% in U.S. dollars and 7% in local currency. Automotive aftermarket business
sales declined 4% in U.S. dollars and 3% in local currency, while
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retail business sales decreased 5% in both U.S. dollars and local currency. The
sluggish economic climate in the U.S. limited growth in the industrial business
and caused the declines in automotive aftermarket and retail sales. The retail
business was also impacted by the highly competitive domestic market. These
trends resulted in a realignment of the North American region along business
lines rather than functional lines during 1995 which will allow for a clearer
focus on servicing the customer. At the same time, the Company moved to complete
the worldwide structure of manufacturing and distribution operations to one
consolidated organization to serve all regions.
In the European region, sales growth in local currency of 14% was enhanced
to 22% in U.S. dollars as exchange rate movements were favorable throughout
1995. The five major countries (France, Italy, U.K., Germany, and Spain)
reported an average local currency sales growth of 10% despite the impact of a
nation-wide strike in France during December 1995. Also, the Nordic countries of
this region contributed four percentage points to local currency growth in
Europe. The Swedish distribution business acquired in 1995 and the acquisitions
of distribution businesses in Finland and Denmark in September and December of
1994, respectively, contributed significantly to the local currency sales growth
in these countries. Sales in the industrial business in Europe improved by 29%
in U.S. dollars and 19% in local currency as the region benefited from a new
management structure organized along the industrial, automotive aftermarket, and
retail lines of business rather than by country, a re-emphasis on market focus,
and the above mentioned acquisitions. Retail business sales grew by 20% in U.S.
dollars and 13% in local currency as a result of sales efforts and market focus
which were supported by substantial advertising campaigns in France, Italy,
U.K., Germany, and Spain.
The Asian/Pacific region's local currency sales gains of 17% were increased
to 23% 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 currency sales growth of 11%.
Loctite Japan's local currency sales growth of 8% in a recessed economy was
achieved through redirection of business in the country during 1994 and 1995.
Hong Kong and China contributed three and two percentage points, respectively,
to the Asian/Pacific region's local currency sales growth. The acquisition of a
distribution business in April 1995 has contributed significantly to the growth
in Hong Kong. Management's sales efforts and an increase in distribution outlets
contributed to volume increases in major product lines in the industrial
business which grew by 17% in local currency.
Latin American sales increased 22% in U.S. dollars compared to 1994.
Average U.S. dollar sales growth in the five major countries (Brazil, Colombia,
Venezuela, Costa Rica, and Chile) was 23%. In Brazil, sales increases were
experienced in all three businesses as buyers continued to react positively to
the Brazilian government's economic plan implemented during the second quarter
of 1994. Increased market penetration in all major countries resulted in
significant volume increases in major product lines throughout the industrial,
automotive aftermarket and retail businesses.
Prior to the sale in November 1995 of the Luminescent Systems business,
sales were 4% higher than the eleven month period ending in November 1994. The
business, which consisted of aviation lighting and electrical component sales,
was not considered a strategic fit with the Company.
Gross margin increased from 61.1% of sales in 1994 to 61.6 % in 1995.
Improved percentage margins in the European, Asian/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 an increase in
unfavorable cost of sales variances. 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.
Operating expenses as a percentage of sales were 46% in 1995 and 45% in
1994. The increase is primarily due to expanded marketing expenses and the $5.5
million realignment charge recorded during 1995. Of the total $47.0 million
increase, marketing expenses increased by $38.8 million or 18% to support
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. The $5.5 million realignment charge related primarily to separation
9
<PAGE> 12
costs connected with the elimination of 125 jobs in the Company's North American
manufacturing, logistics, administrative and marketing departments.
Interest expense was $2.0 million higher in 1995 than in 1994 due to the
capitalization of certain interest costs in 1994 relative to the construction of
facilities in the U.S. and to higher average interest rates on borrowings in the
U.S.
Other expense increased by $7.3 million from 1994 to 1995 primarily as a
result of the $6.9 million pre-tax loss recorded on the sale of the Loctite
Luminescent Systems business in 1995 and the $1.2 million net pre-tax gain
recorded on the sale of the Loctite VSI businesses in 1994.
Foreign exchange loss improved by $3.9 million during 1995 compared to the
prior year 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 since
its introduction, compared to rates of inflation and currency devaluation of
approximately 40% per month during the first six months of 1994.
Income taxes, as a percentage of earnings before taxes, were 24% for the
year ended December 31, 1995 and 25% for the year ended December 31, 1994. For
further discussion of income taxes see Note 4 of the Notes to Consolidated
Financial Statements.
The Company reported net earnings of $83.9 million for the year ended
December 31, 1995, or $2.40 per share (after a loss of $0.15 per share on the
sale of the Luminescent Systems business and a loss of $0.10 per share for the
realignment charge related to the North American business). For the year ended
December 31, 1994, net earnings were $82.4 million, or $2.33 per share (after a
gain of $0.02 per share on the sale of the Loctite VSI businesses). Excluding
the effect of these sales of businesses and the realignment charge, earnings per
share increased 15% to $2.65 in 1995 from $2.31 in 1994.
10
<PAGE> 13
YEAR ENDED DECEMBER 31, 1994 VERSUS YEAR ENDED DECEMBER 31, 1993
For the year ended December 31, 1994, net sales were $703.6 million, an
increase of $91.0 million or 15% over the prior year. A summary of sales
activity (in millions) is as follows:
<TABLE>
<CAPTION>
LOCAL
DOLLAR CURRENCY
1994 1993 % GROWTH % GROWTH
------ ------ -------- --------
<S> <C> <C> <C> <C>
SALES:
North American Region.......................... $293.5 $270.6 8% 9%
European Region................................ 258.3 217.6 19 18
Asian/Pacific Region........................... 72.6 60.0 21 16
Latin American Region.......................... 67.8 53.9 26 28
Luminescent Systems............................ 11.4 10.5 8 8
------ ------ -- --
TOTAL SALES............................ $703.6 $612.6 15% 15%
====== ====== == ==
Industrial Business:
North American Region.......................... $161.1 $144.8 11% 12%
European Region................................ 134.7 115.7 17 15
Asian/Pacific Region........................... 63.9 52.9 21 16
Latin American Region.......................... 20.3 18.0 13 14
Luminescent Systems............................ 11.4 10.5 8 8
------ ------ -- --
Total Industrial Business Sales........ $391.4 $341.9 14% 14%
====== ====== == ==
Automotive Aftermarket Business:
North American Region.......................... $ 85.9 $ 84.2 2% 3%
European Region................................ 43.0 27.8 54 52
Asian/Pacific Region........................... 7.2 5.5 30 24
Latin American Region.......................... 9.5 8.7 10 13
------ ------ -- --
Total Automotive Aftermarket Business
Sales................................ $145.6 $126.2 15% 15%
====== ====== == ==
Retail Business:
North American Region.......................... $ 46.5 $ 41.6 12% 12%
European Region................................ 80.6 74.1 9 10
Asian/Pacific Region........................... 1.5 1.6 (4) (7)
Latin American Region.......................... 38.0 27.2 40 41
------ ------ -- --
Total Retail Business Sales............ $166.6 $144.5 15% 16%
====== ====== == ==
</TABLE>
Certain prior period amounts were reclassified between regions and
businesses to conform to the 1995 presentation.
Price changes contributed to the growth in sales for the Company. Average
net prices changed as a result of changes in list price, changes in product mix,
changes in customers, and changes in foreign exchange rates. Such factors are
not quantifiable individually due to the diversity of markets, product
formulations, and product packages.
Sales in North America increased by 8% in U.S. dollars and 9% in local
currency when compared to 1993. Volume growth in the core products grew the
industrial business by $16.3 million and the retail business by $4.9 million.
The automotive aftermarket business had a sales increase of 2% in U.S. dollars
and 3% in local currency. This growth was attributed to efforts in the third and
fourth quarters when new products gained distribution and some niche
distributors were added.
In Europe there was substantial sales growth in 1994, 19% in U.S. dollars
and 18% in local currency. Approximately 39% of the $40.7 million sales growth
was attributed to the acquisition of Plastic Padding Holdings Limited ("Plastic
Padding"). Europe, excluding Plastic Padding sales, increased by 11% in both
U.S. dollars and local currency compared to 1993 results. Favorable exchange
rates in the third and fourth
11
<PAGE> 14
quarters offset the negative impact of the relatively strong dollar prevailing
in the first two quarters of 1994. The five major countries (France, Italy,
U.K., Germany, and Spain) reported local currency sales growth of between 7% and
16%.
Annual sales in the Asian/Pacific region increased by $12.6 million
compared to the 1993 results. Volume growth of the core products was in double
digits in this region. Japan and Australia had local currency growth of 3% and
8%, respectively, which translated to 12% and 17%, respectively, in U.S.
dollars. Due to the strength of the U.S. dollar versus the Chinese Yuan, annual
local currency sales growth of 46% in China became a decrease of 2% when
translated into U.S. dollars. All other countries in this region registered
double digit sales gains in both local currency and U.S. dollars.
The Latin American region had strong sales growth in 1994, 26% in U.S.
dollars. One of the core retail product lines in this region experienced a 38%
volume increase over prior year sales. In Brazil, buyers reacted confidently to
the government's implementation of a new financial plan and currency on the
first of July. This can be seen in Brazil's sales growth of 60% in both the
third and fourth quarters of 1994 when compared to prior year's results for the
same periods. Colombia, Chile, and Argentina also achieved double digit sales
growth in U.S. dollars for the year ended December 31, 1994.
Luminescent Systems sales grew 8% over 1993 results. This increase is the
result of an increase in sales of aviation lighting and of electrical components
for the automotive industry.
Overall, gross margin remained basically unchanged at 61% of sales during
1994, although there was some change in geographic mix.
Operating expenses as a percentage of sales remained unchanged at 45% in
1994. In total, expenses increased by 15% or $41.6 million, with Plastic Padding
accounting for $5.8 million of the increase. Sales and marketing expenses
increased 18% or $33.5 million, to support the increased sales volume and the
13% increase in the sales and marketing headcount. Administrative expenses
increased 10% or $6.8 million. Research and development expenses increased 5% or
$1.3 million in 1994.
Investment income was $2.1 million lower in 1994 than in 1993 primarily as
a result of lower average interest rates and deposit levels in foreign
locations.
Interest expense was $0.8 million higher in 1994 than in 1993 due primarily
to higher average short-term debt levels in the U.S.
Net foreign exchange loss decreased by $3.8 million for the twelve month
period over the comparable 1993 period due primarily to the new economic plan
and currency introduced in Brazil during the second quarter of 1994. The plan
had the effect in the third and fourth quarters of dramatically reducing the
rate of inflation and was accompanied by an appreciating currency. Therefore,
for 1994, the rates of inflation and devaluation were significantly lower than
the rates prevailing in 1993.
Income taxes, as a percentage of earnings before taxes, were 25% for the
years ended December 31, 1994 and 1993. For further discussion of income taxes,
see Note 4 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Management relies on cash provided from operations and the strength of the
Company's balance sheet, within prudent limits, to fund growth in operations and
provide an appropriate return to stockholders. The Company's liquidity is
assessed in terms of its overall ability to generate cash and to access the
credit markets on terms favorable to the Company. Of particular importance in
the management of liquidity are cash flows generated from operating activities,
capital expenditure levels, dividends paid, stock repurchases, acquisitions, and
adequate bank lines of credit.
12
<PAGE> 15
As more fully discussed below, the following table highlights some of the
significant factors which affect consolidated cash flow along with their
correlated effect on the net debt position of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
(dollars in thousands)
Net cash flows from operating activities........... $100,574 $ 88,641 $ 78,257
Capital expenditures............................... $ 32,672 $ 57,312 $ 44,509
Common stock repurchases........................... $ 91,316 $ 7,103 $ 48,328
Dividends paid..................................... $ 32,540 $ 28,663 $ 27,980
Cash and short-term investments*................... $ 80,803 $ 67,954 $ 96,130
Total debt......................................... 166,338 100,401 119,255
-------- -------- --------
Net debt........................................... $ 85,535 $ 32,447 $ 23,125
======== ======== ========
</TABLE>
* Includes cash and cash equivalents, time and certificates of deposit, and
short-term marketable securities.
Capital expenditures decreased to $32.7 million in 1995 from $57.3 million
in 1994 due to significant expenditures in 1994 related to the construction of
the North American region headquarters in Rocky Hill, Connecticut. The annual
capital expenditures for calendar years 1996, 1997, and 1998 are expected to
average approximately $41 million per year. Projected capital expenditures are
not firm commitments and are subject to final management approval depending on
the needs of the individual businesses and the business environment at the time
of the expenditure. Approximately 60% of the expected capital expenditures is
intended to support increased product sales and product maintenance.
Approximately 14% will be for new product developments and research and
development. The remaining expenditures will be for building improvements,
computer equipment, legal, health and safety compliance measures, and office
furniture. There are no planned projects that represent a material commitment
for the Company.
During 1995, the Company repurchased 1.8 million shares of Company stock
for $84.3 million pursuant to a 3.35 million share stock repurchase program
announced by the Company in August 1995. Additional expenditures of $7.0 million
in 1995 and $7.1 million in 1994 were made in connection with the systematic
repurchase of Company stock for certain of the Company's employee benefit plans.
Dividends paid to stockholders were $32.5 million in 1995 compared to $28.7
million in 1994. This increase reflects the net impact of a 17% increase in
dividends per share, from $0.82 in 1994 to $0.96 in 1995, and the reduction in
outstanding shares of Company stock during 1995.
During 1995, the Company entered into a $75 million long-term financing
arrangement to assist in funding various operating, investing, and financing
activities.
Accounts and notes receivable increased by $8.7 million from December 31,
1994 to December 31, 1995. A portion of this increase is attributed to a $2.2
million foreign currency translation effect due to a comparatively weaker U.S.
dollar at December 31, 1995 versus December 31, 1994. The largest increases were
reported in Europe, Brazil, and Korea, resulting from increased sales activity.
The increase in prepaid expenses and other current assets and the decrease
in accrued pension and retirement benefits from $11.2 million and $4.4 million
at December 31, 1994 to $19.4 million and $1.8 million, respectively, at
December 31, 1995 relates primarily to increased funding of the Company's
domestic pension plans during 1995.
In 1995, the Company recorded a pretax charge of $5.5 million to realign
its North American operations and charged $1.5 million against the accrual
during the year. At December 31, 1995 liabilities of $3.8 million and $0.2
million, respectively, were included in accrued other liabilities and other
long-term liabilities.
In 1992, the Company recorded a pretax charge of $12.7 million for
restructuring its North American operations. Amounts charged against the accrual
were $1.8 million, $3.3 million, and $3.5 million in 1995,
13
<PAGE> 16
1994, and 1993, respectively. At December 31, 1995, the remaining liability of
$2.7 million was included in accrued other liabilities.
Long-term retirement and postretirement obligations increased from $13.2
million at December 31, 1994 to $17.3 million at December 31, 1995. For further
details, see Notes to Consolidated Financial Statements, Note 10, Pension Plans
and Note 11, Postretirement and Postemployment Benefits.
FOREIGN CURRENCY TRANSLATION
Since a substantial portion of the Company's business is transacted in
foreign locations and currencies, the Company's financial statements are
affected by fluctuations in foreign exchange rates. A stronger U.S. dollar
decreases the translated results of foreign subsidiaries, while a weaker U.S.
dollar increases the translated results. For the year ended December 31, 1995,
the effect of a comparatively weaker U.S. dollar increased sales by
approximately three percentage points when compared to the prior year. For the
year ended December 31, 1994, the effect of currency changes had an immaterial
effect on sales.
The unrealized foreign currency translation adjustment included in
stockholders' equity changed from a loss of $8.6 million at December 31, 1994 to
a loss of $1.8 million at December 31, 1995 due to the impact of a comparatively
weaker U.S. dollar on the Company's net asset position in its foreign
subsidiaries at December 31.
INFLATION AND CHANGING PRICES
The Company's Brazilian subsidiary was subject to a rate of inflation of
approximately fifteen percent in 1995, in excess of eight hundred percent in
1994, and in excess of two thousand percent in 1993. If the Company excluded the
effects of inflation from the Brazilian sales value, Brazilian sales would have
been reduced by $4.5 million and $8.1 million for 1994 and 1993, respectively,
from the net sales amounts reported for the Latin American region. Similarly,
Brazilian earnings from operations would have been reduced by $4.0 million and
$7.1 million for 1994 and 1993, respectively, from the earnings from operations
amounts reported for the Latin American region. Inflation had no material impact
on net sales or earnings from operations reported for the Latin American region
for 1995.
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.
In December 1995, the Company acquired the remaining fifty percent interest
in a French joint venture company which applies the Company's adhesive products
to industrial fasteners on behalf of customers of the Company's sales and
marketing subsidiary, Loctite France S.A. The Company intends to merge this
former joint venture into Loctite France S.A. in the first half of 1996.
The cost of these acquisitions was not material to the Company.
SALE OF LUMINESCENT SYSTEMS
In November 1995, the Company sold the Luminescent Systems business and
recognized a pre-tax loss of $6.9 million (after-tax loss of $5.2 million) on
the sale.
14
<PAGE> 17
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, competitive position,
or liquidity. 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 spent 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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE NO. IN
FORM 10-K
-----------
<S> <C>
Report of Independent Accountants................................................ 16
Management's Responsibility for Financial Statements............................. 17
Consolidated Statement of Earnings for the years ended
December 31, 1995, 1994, and 1993.............................................. 18
Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994, and 1993.............................................. 19
Consolidated Balance Sheet at December 31, 1995 and 1994......................... 20
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1995, 1994, and 1993.............................................. 22
Notes to Consolidated Financial Statements....................................... 23
Financial Statement Schedule VIII -- Valuation and Qualifying Accounts for the
years ended December 31, 1995, 1994, and 1993.................................. 44
</TABLE>
The individual financial statements of Registrant's subsidiaries have been
omitted since Registrant is primarily an operating company and all subsidiaries
included in the consolidated financial statements being filed, in the aggregate,
do not have minority equity interests and/or indebtedness to any person other
than Registrant or its consolidated subsidiaries in amounts which together
exceed five percent of total consolidated assets at December 31, 1995, excepting
indebtedness incurred in the ordinary course of business which is not overdue
and which matures within one year from the date of its creation.
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or the
Notes thereto.
15
<PAGE> 18
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Loctite Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Loctite Corporation and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
[SIG]
One Financial Plaza
Hartford, Connecticut
January 24, 1996
16
<PAGE> 19
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements of Loctite Corporation and subsidiaries, and all other
information presented in this Annual Report on Form 10-K, are the responsibility
of the management of the Company. The financial statements have been prepared in
accordance with generally accepted accounting principles.
Management is responsible for the integrity and objectivity of the financial
statements, including estimates and judgments reflected in them. It fulfills
this responsibility primarily by establishing and maintaining accounting systems
and practices adequately supported by internal accounting controls. These
controls include the selection and training of management and supervisory
personnel; maintenance of an organizational structure providing for delegation
of authority and establishment of responsibilities; communication of
requirements for compliance with approved accounting, control, and business
practices throughout the organization; business planning and review; and a
program of internal audit. However, an effective internal control system, no
matter how well designed, has inherent limitations -- including the possibility
of the circumvention or overriding of controls -- and, therefore, can provide
only reasonable assurance with respect to financial statement preparation and
such safeguarding of assets. Further, because of changes in conditions, internal
control system effectiveness may vary over time. Management believes the
internal accounting controls in use provide reasonable assurance that the
Company's assets are safeguarded, that transactions are executed in accordance
with management's authorizations, and that the financial records are reliable
for the purpose of preparing financial statements.
The concept of reasonable assurance is based on the recognition that the cost of
a system of internal accounting controls must be related to the benefits
derived. The Company maintains an internal audit function which is responsible
for evaluating the adequacy and application of financial and operating controls
and for testing compliance with company policies and procedures.
The Audit and Finance Committee of the Board of Directors is comprised entirely
of individuals who are not employees of the Company. This Committee meets
periodically with management, the independent public accountants and the
internal auditors to consider audit results. This Committee also recommends the
selection of the independent public accountants who are then appointed by the
Board of Directors subject to confirmation by the stockholders. The independent
public accountants are engaged to perform an audit of the consolidated financial
statements in accordance with generally accepted auditing standards. Their
report appears in this Annual Report on Form 10-K.
[SIG]
David Freeman, President and Chief Executive Officer
[SIG]
Robert L. Aller, Senior Vice President and Chief Financial Officer
[SIG]
Richard C. Parker, Vice President and Controller
17
<PAGE> 20
CONSOLIDATED STATEMENT OF EARNINGS
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales..................................................... $785,148 $703,593 $612,612
Cost of sales................................................. 301,843 273,421 241,818
-------- -------- --------
Gross margin.................................................. 483,305 430,172 370,794
-------- -------- --------
Research and development expense.............................. 29,914 27,986 26,700
Selling, general, and administrative expenses................. 333,360 288,256 247,912
-------- -------- --------
363,274 316,242 274,612
-------- -------- --------
Earnings from operations...................................... 120,031 113,930 96,182
Investment income............................................. 6,042 6,216 8,321
Interest expense.............................................. (8,265) (6,236) (5,409)
Other expense................................................. (7,261) (6) (246)
Foreign exchange loss......................................... (135) (4,037) (7,844)
-------- -------- --------
Earnings before income taxes.................................. 110,412 109,867 91,004
Provisions for income taxes................................... 26,499 27,467 22,751
-------- -------- --------
Net earnings.................................................. $ 83,913 $ 82,400 $ 68,253
======== ======== ========
Earnings per share............................................ $ 2.40 $ 2.33 $ 1.92
======== ======== ========
Average number of shares outstanding.......................... 35,004 35,373 35,606
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
18
<PAGE> 21
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $83,913 $82,400 $68,253
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization............................... 31,972 28,246 22,229
Loss (gain) on sales of businesses.......................... 6,881 (1,182) --
Deferred income taxes....................................... (4,023) (7,982) 178
Provision for losses -- accounts receivable................. 2,293 2,431 2,024
Undistributed (earnings) losses of affiliates............... (62) (44) 425
Change in:
Trade and other receivables................................. (10,742) (15,210) (17,040)
Inventory................................................... (5,482) (10,589) (4,686)
Prepaid and other current assets............................ (8,187) 615 (1,000)
Accounts payable and accrued expenses....................... (7,278) 10,335 (778)
Interest payable............................................ 610 (764) 652
Taxes payable............................................... 3,048 3,889 1,428
Other............................................................ 7,631 (3,504) 6,572
-------- -------- --------
Cash provided by operating activities............................ 100,574 88,641 78,257
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment.................. (33,876) (59,061) (46,306)
Dispositions of property, plant and equipment............... 1,905 4,503 1,407
Additions to goodwill....................................... (8,848) (16,503) (5,944)
Other intangible portion of acquisitions.................... (492) (3,791) --
Proceeds from sales of businesses........................... 5,978 7,300 --
Change in short-term investments............................ 15,515 21,266 (7,207)
Purchases of long-term investments.......................... (500) (622) (860)
Sales and maturities of long-term investments............... 1,445 1,299 547
-------- -------- --------
Cash used in investing activities................................ (18,873) (45,609) (58,363)
-------- -------- --------
Cash flows from financing activities:
Stock repurchases........................................... (91,316) (7,103) (48,328)
Issuance of common stock.................................... 5,211 5,403 5,371
Dividends paid.............................................. (32,540) (28,663) (27,980)
(Decrease) increase in short-term debt...................... (9,174) (20,163) 79,823
Borrowings of long-term debt................................ 75,000 -- 88
Payments of long-term debt.................................. (431) (484) (11,390)
Payments under capital lease obligations.................... (1,581) (898) (620)
-------- -------- --------
Cash used in financing activities................................ (54,831) (51,908) (3,036)
-------- -------- --------
Effect of exchange rate changes on cash.......................... 199 (2,412) (2,195)
-------- -------- --------
Increase (decrease) in cash and cash equivalents................. 27,069 (11,288) 14,663
Cash and cash equivalents:
Beginning of period......................................... 33,264 44,552 29,889
-------- -------- --------
End of period............................................... $60,333 $33,264 $44,552
======== ======== ========
Interest paid.................................................... $ 7,351 $ 8,936 $ 5,638
Taxes paid (net of refunds)...................................... $28,727 $29,320 $22,410
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE> 22
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 60,333 $ 33,264
Time and certificates of deposit............................... 20,344 34,594
Marketable securities.......................................... 126 96
Accounts and notes receivable (less allowances of $6,651 and
$5,811)....................................................... 147,743 139,093
Other receivables.............................................. 17,068 14,577
Inventories:
Finished goods............................................ 54,686 49,824
Work in process........................................... 20,063 22,463
Raw materials............................................. 23,028 22,585
-------- --------
97,777 94,872
Deferred income tax benefit.................................... 15,149 13,978
Prepaid expenses and other current assets...................... 19,395 11,150
-------- --------
Total current assets................................................ 377,935 341,624
-------- --------
Venture capital and other long-term investments..................... 4,149 4,879
Property, plant and equipment:
Land and land improvements..................................... 22,359 22,378
Buildings...................................................... 124,443 121,480
Machinery and equipment........................................ 210,538 197,194
Construction in progress....................................... 5,357 1,913
-------- --------
362,697 342,965
Less -- accumulated depreciation............................... 153,613 139,627
-------- --------
209,084 203,338
Deferred income tax benefit......................................... 8,863 6,463
Goodwill (net of amortization of $21,190 and $17,761)............... 97,840 94,725
Other intangibles (net of amortization of $10,128 and $8,743)....... 12,256 14,232
Other assets........................................................ 5,501 3,815
-------- --------
Total assets........................................................ $715,628 $669,076
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE> 23
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.............................................. $ 85,356 $ 94,202
Long-term debt -- current maturities......................... 406 530
Accounts payable............................................. 36,003 35,719
Accrued salaries, wages, and other compensation.............. 22,164 23,185
Accrued taxes, other than income taxes....................... 7,059 5,643
Accrued income taxes......................................... 21,242 18,956
Dividends payable............................................ 8,510 7,428
Accrued pension and retirement benefits...................... 1,819 4,407
Accrued insurance............................................ 7,457 6,595
Accrued liabilities -- other................................. 21,670 21,070
-------- --------
Total current liabilities......................................... 211,686 217,735
-------- --------
Long-term liabilities:
Long-term debt............................................... 77,238 2,694
Capital lease obligations.................................... 2,161 2,189
Retirement and postretirement obligations.................... 17,262 13,236
Other........................................................ 10,483 9,862
-------- --------
107,144 27,981
-------- --------
Stockholders' equity:
Common stock, $.01 par value:................................ 47,489 45,128
Authorized 300,000,000 shares; issued 33,603,019 shares
at December 31, 1995, and 35,369,678 shares at
December 31, 1994
Retained earnings............................................ 351,487 389,514
Foreign currency translation adjustment...................... (1,752) (8,552)
Investment valuation allowance............................... -- (215)
Adjustment for minimum pension liability..................... (426) (2,515)
-------- --------
Total stockholders' equity........................................ 396,798 423,360
-------- --------
Total liabilities and stockholders' equity........................ $715,628 $669,076
======== ========
</TABLE>
21
<PAGE> 24
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, DECEMBER 31, 1994, AND DECEMBER 31, 1993
(dollars in thousands)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- RETAINED STOCKHOLDERS'
SHARES VALUE EARNINGS OTHER EQUITY
---------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992................... 36,370,122 $35,864 $348,938 $ (5,116) $ 379,686
---------- ------- -------- -------- -------------
Net earnings................................... 68,253 68,253
Cash dividends declared........................ (28,130) (28,130)
Stock options exercised........................ 77,570 1,046 1,046
Restricted Stock Plan awards (net of
cancelations)................................ 4,700 473 473
Thrift Investment Plan contributions........... 53,965 2,293 2,293
Common stock awards............................ 1,600 67 67
U.S. tax benefit from stock options and
restricted stock............................. 722 722
Decrease in unearned portion of Restricted
Stock Plan awards............................ 770 770
Repurchases of Company stock................... (1,138,300) (1,313) (46,620) (47,933)
Translation adjustment......................... (18,448) (18,448)
Increase in investment valuation allowance..... (89) (89)
Adjustment for minimum pension liability....... (229) (229)
---------- ------- -------- -------- -------------
Balance at December 31, 1993................... 35,369,657 $39,922 $342,441 $(23,882) $ 358,481
---------- ------- -------- -------- -------------
Net earnings................................... 82,400 82,400
Cash dividends declared........................ (29,012) (29,012)
Stock options exercised........................ 85,030 1,796 1,796
Restricted Stock Plan awards (net of
cancelations)................................ 23,475 1,065 1,065
Thrift Investment Plan contributions........... 44,203 1,862 1,862
Common stock awards............................ 1,400 58 58
Common stock cancelations...................... (2,487) (107) (107)
U.S. tax benefit from stock options and
restricted stock............................. 569 569
Decrease in unearned portion of Restricted
Stock Plan awards............................ 160 160
Repurchases of Company stock................... (151,600) (197) (6,315) (6,512)
Translation adjustment......................... 13,340 13,340
Decrease in investment valuation allowance..... 445 445
Adjustment for minimum pension liability....... (1,185) (1,185)
---------- ------- -------- -------- -------------
Balance at December 31, 1994................... 35,369,678 $45,128 $389,514 $(11,282) $ 423,360
---------- ------- -------- -------- -------------
Net earnings................................... 83,913 83,913
Cash dividends declared........................ (33,622) (33,622)
Stock options exercised........................ 86,850 1,411 1,411
Restricted Stock Plan awards (net of
cancelations)................................ 21,550 1,034 1,034
Thrift Investment Plan contributions........... 45,298 2,140 2,140
Common stock awards............................ 8,959 426 426
Common stock cancelations...................... (17,861) (871) (871)
U.S. tax benefit from stock options and
restricted stock............................. 967 967
Decrease in unearned portion of Restricted
Stock Plan awards............................ 104 104
Repurchases of Company stock................... (1,911,455) (2,850) (88,318) (91,168)
Translation adjustment......................... 6,800 6,800
Decrease in investment valuation allowance..... 215 215
Adjustment for minimum pension liability....... 2,089 2,089
---------- ------- -------- -------- -------------
Balance at December 31, 1995................... 33,603,019 $47,489 $351,487 $ (2,178) $ 396,798
========== ======== ========= ========= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Loctite
Corporation and all majority owned subsidiaries, after the elimination of
intercompany accounts and transactions. The minority interest in earnings of
consolidated subsidiaries that are not 100% owned is included in other expense
on the consolidated statement of earnings and in other long-term liabilities on
the consolidated balance sheet. Investments in which the Company owns 20% to 50%
of the voting stock are accounted for under the equity method. Certain
reclassifications have been made to the 1994 and 1993 amounts to conform with
the 1995 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. For
purposes of the consolidated statement of cash flows, cash flows from forward
foreign exchange contracts, interest rate swap agreements, and other hedges of
identifiable transactions or events are classified in the same category as the
cash flows from the items being hedged.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Marketable Securities and Long-Term Venture Capital Investments
Marketable securities are considered readily available for sale and are
carried at fair value.
The Company has investments in seven venture capital limited partnerships,
which invest in and assist growth oriented businesses. These investments in
venture capital limited partnerships are carried at cost. The carrying value of
these investments is reviewed periodically for potential impairments. Provisions
for permanent impairments are recorded as a reduction of earnings.
Property and Depreciation
Property, plant and equipment is recorded at cost. Plant and equipment is
depreciated using both straight-line and accelerated methods. Estimated lives
used to compute depreciation are: land improvements, 5 to 25 years; buildings
and improvements, 5 to 40 years; and machinery and equipment, 3 to 10 years.
Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. The
Company had no capitalized net interest costs in 1995. The Company capitalized
net interest costs of $1.1 million in 1994 and $0.6 million in 1993.
Business Acquisitions
Goodwill and other intangibles are being amortized on the straight-line
method over periods not exceeding 40 years. On a periodic basis, the Company
estimates the future undiscounted cash flows of the businesses to which goodwill
relates to ensure that the carrying value of such goodwill has not been
impaired.
23
<PAGE> 26
Income Taxes
The Company accounts for its income tax expense, liabilities, and benefits
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," under which provision is made for deferred income
taxes and future income tax benefits applicable to temporary differences between
income tax and financial statement accounting.
Earnings Per Share
Earnings per share are computed by dividing net earnings by the average
number of shares of common stock outstanding during the period. Stock options
granted and shares to be issued under restricted stock plans would result in no
material dilution of earnings.
Translation of Foreign Currencies
Foreign subsidiaries' assets and liabilities are translated at exchange
rates prevailing on the balance sheet date; revenues and expenses are translated
at average exchange rates prevailing during the period; and elements of
stockholders' equity are translated at historical rates. Any resulting
translation gains and losses are reported separately in stockholders' equity.
For the Company's subsidiaries operating in countries with very high inflation
rates, the translation is the same except that inventories, cost of sales,
property, plant and equipment, and depreciation are translated at historical
rates. Resulting translation gains and losses for these subsidiaries are
included in income.
Forward Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts in the normal
course of business to hedge identifiable exposures related to foreign currency
transactions. The gains and losses on these contracts are recognized in the same
period in which gains and losses from the transaction being hedged are
recognized. Additionally, forward foreign exchange contracts may be used to
hedge firm foreign currency commitments. Gains and losses on these contracts are
deferred and included in the measurement of the related foreign currency
transaction.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements as a means of
managing interest rate exposure associated with the Company's underlying
borrowings. The interest differential to be paid or received under these swap
agreements is recorded on an accrual basis as an adjustment to interest expense.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company to estimate
the fair value of each class of financial instruments:
Cash, Cash Equivalents, Time Deposits, and Certificates of
Deposit -- The carrying amounts are a reasonable approximation of fair
value due to the short-term maturity of these instruments.
Marketable Securities -- The fair value of marketable securities is
based on quoted market prices.
Venture Capital and Other Long-Term Investments -- It is not
practicable to estimate the fair value of the Company's investments in
limited partnerships, as there is no liquid market for these investments
and, thus, no readily available source of market quotes.
Short-Term Debt -- The carrying amounts are a reasonable approximation
of fair value due to the short-term maturity of these instruments.
Long-Term Debt -- The fair value of long-term debt is estimated based
on quoted market prices for the same or similar issues or on the current
rates offered to the Company for debt of the same remaining maturities.
24
<PAGE> 27
Forward Foreign Exchange Contracts -- The fair value of forward
foreign exchange contracts is estimated by obtaining quoted market prices.
Interest Rate Swap Agreements -- The fair value of interest rate swap
agreements is estimated from quotes obtained from dealers.
NOTE 2 SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one dominant segment, "adhesives, sealants, and
related products". Sales of this dominant segment account for approximately 90%
of consolidated revenues, operating profit, and operating assets. The Company
has no customer which accounts for 5% or more of net sales. Export sales from
each of the geographic regions were below 10% in each of the years reported.
The Company's management measures results based on individual businesses
(industrial, automotive aftermarket, and retail) and geographic regions. Trade
sales and operating expenses between regions are reflected as those of the
region servicing the customer.
The North American region includes the Company's operations in the United
States, Puerto Rico, Canada, Mexico, and the Caribbean. Europe includes the
Company's operations in Western, Central, and Eastern Europe, the Commonwealth
of Independent States, the Middle East, and Northern and Central Africa. The
Latin American region includes the Company's operations in South and Central
America and Southern Africa. The Asian/Pacific region includes the Company's
operations in Asia and the Pacific Rim. Luminescent Systems includes the
Company's business in electroluminescent lamps.
Research, Development and Engineering (RD&E) encompasses the work of the
major laboratories of the Company together with administrative support.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
(dollars in thousands)
Net sales:
North American Region................................ $286,011 $293,489 $270,585
European Region...................................... 316,218 258,328 217,580
Latin American Region................................ 82,811 67,807 53,904
Asian/Pacific Region................................. 89,444 72,598 60,031
Luminescent Systems.................................. 10,664 11,371 10,512
-------- -------- --------
Net sales................................................. $785,148 $703,593 $612,612
======== ======== ========
Earnings from operations:
North American Region................................ $ 37,897 $ 60,879 $ 59,290
European Region...................................... 93,897 71,934 60,709
Latin American Region................................ 20,089 17,001 12,320
Asian/Pacific Region................................. 14,846 12,446 8,777
Luminescent Systems(1)............................... (83) (1,153) (3,977)
Corporate expenses................................... (15,679) (18,727) (14,874)
Research, Development and Engineering expenses(2).... (30,936) (28,450) (26,063)
-------- -------- --------
Earnings from operations.................................. $120,031 $113,930 $ 96,182
======== ======== ========
Identifiable assets:
North American Region................................ $242,067 $240,973 $210,465
European Region...................................... 318,772 281,652 263,313
Latin American Region................................ 46,834 38,406 28,842
Asian/Pacific Region................................. 90,713 83,753 73,118
Luminescent Systems.................................. 160 13,346 13,469
Corporate............................................ 17,082 10,946 14,020
-------- -------- --------
Total assets.............................................. $715,628 $669,076 $603,227
======== ======== ========
</TABLE>
25
<PAGE> 28
(1) Luminescent Systems expenses included $1.2 million in manufacturing
consolidation charges in the year ended December 31, 1993.
(2) RD&E expenses include administrative expenses related to RD&E which are
included in the selling, general, and administrative expenses and not
the research and development expense amounts reported in the
consolidated statement of earnings.
Certain prior period amounts were reclassified between regions to
conform to the 1995 presentation.
Net sales represents sales to unaffiliated customers. Earnings from
operations includes gross margin less selling, general, administrative, and
research and development expenses. Investment income, interest expense, foreign
exchange gains and losses, intercompany expenses, miscellaneous non-operating
expenses, and income taxes are not included in earnings from operations.
Identifiable assets do not include intercompany receivables and
intercompany profit-in-inventory. Assets pertaining to RD&E are included in the
assets of the business unit where the RD&E facilities are physically located.
Accordingly, Rocky Hill, Connecticut, Newington, Connecticut, and Cleveland,
Ohio RD&E facilities are included with the North American region assets, Irish
and German RD&E facilities are included with the European region assets, and the
Japanese RD&E facility is included with the Asian/Pacific region assets.
Goodwill is included in the business or region's identifiable assets. Corporate
assets include cash, investments, property, prepaid assets, and investments in
joint ventures.
Since a substantial portion of the Company's business is transacted in
foreign locations and currencies, the Company's financial statements are
affected by fluctuations in foreign exchange rates. A stronger U.S. dollar
decreases the translated results of foreign subsidiaries, while a weaker U.S.
dollar increases the translated results.
Foreign subsidiaries' assets and liabilities are translated at exchange
rates prevailing on the balance sheet date. Revenues and expenses are translated
at average exchange rates prevailing during the period, and elements of
stockholders' equity are translated at historical rates. Any resulting
translation gains and losses are reported separately in stockholders' equity.
For the Company's subsidiaries operating in countries with very high inflation
rates (primarily in Latin America and Eastern Europe), the translation is the
same except that inventories, cost of sales, property, plant and equipment, and
depreciation are translated at historical rates. Resulting translation gains and
losses for these subsidiaries are included in income.
The Company's Brazilian subsidiary was subject to a rate of inflation of
approximately fifteen percent in 1995, in excess of eight hundred percent in
1994, and in excess of two thousand percent in 1993. If the Company excluded the
effects of inflation from the Brazilian sales value, Brazilian sales would have
been reduced by $4.5 million and $8.1 million for 1994 and 1993, respectively,
from the net sales amounts reported for the Latin American region. Similarly,
Brazilian earnings from operations would have been reduced by $4.0 million and
$7.1 million for 1994 and 1993, respectively, from the earnings from operations
amounts reported for the Latin American region. Inflation had no material impact
on net sales or earnings from operations reported for the Latin American region
for 1995.
26
<PAGE> 29
NOTE 3 SHORT-TERM DEBT
Short-term debt and bank lines of credit are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
(dollars in thousands)
Short-term debt:
Domestic bank debt........................................... $ 75,704 $ 85,013
Foreign bank debt............................................ 5,563 4,838
Other........................................................ 4,089 4,351
-------- --------
Total short-term debt.......................................... $ 85,356 $ 94,202
======== ========
Available bank lines of credit:
Amount available to parent Company........................... $274,542 $230,000
Amount available to foreign subsidiaries..................... 37,415 35,251
-------- --------
Total available bank lines of credit........................... $311,957 $265,251
======== ========
Average aggregate short-term bank debt......................... $109,482 $107,464
Maximum bank debt outstanding at any month end................. $134,633 $113,551
Average interest rate on short-term bank debt during the
period....................................................... 6% 5%
Average interest rate on short-term bank debt at end of
period....................................................... 6% 6%
</TABLE>
Substantially all of the Company's bank lines of credit are of an
uncommitted or informal nature. As such, the lines of credit may generally be
canceled at any time either by the Company or the banks. Borrowings under these
lines are on such terms and conditions as may be mutually agreed upon.
There were no significant compensating balance requirements at December 31,
1995.
NOTE 4 INCOME TAXES
The Company's consolidated effective tax rates have been less than the
United States Federal statutory tax rate for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory rate................................... 35.0% 35.0% 35.0%
Decrease resulting from operations of Irish subsidiaries...... (12.6%) (8.7%) (9.3%)
Decrease resulting from operations of Puerto Rican
subsidiary.................................................. (3.3%) (4.1%) (5.2%)
Decrease resulting from utilization of foreign operating loss
carryovers.................................................. (1.4%) (1.3%) (.5%)
Increase resulting from higher taxed foreign earnings and
foreign operating losses with no current or deferred tax
benefit..................................................... 2.2% 0.7% 2.3%
Net Federal and foreign taxes on repatriated foreign
earnings.................................................... 1.6% 0.7% 0.9%
All other (individual items less than 5% of U.S. Federal
statutory rate)............................................. 2.5% 2.7% 1.8%
---- ---- ----
Effective tax rate............................................ 24.0% 25.0% 25.0%
==== ==== ====
</TABLE>
A significant portion of the Company's earnings is derived from operations
located in Ireland and Puerto Rico. Substantially all of the earnings of the
Company's manufacturing subsidiary in Ireland are subject to a 10% income tax.
This reduced tax rate is provided under an industrial relief incentive provided
by Irish tax law and is in effect through December 31, 2010.
27
<PAGE> 30
Prior to 1994, no U.S. tax was paid on the earnings of the Company's
subsidiary in Puerto Rico because of the availability of a tax credit equal to
the subsidiary's U.S. tax. In 1994, U.S. tax law changes became effective which
reduced this tax credit, but a significant credit was still generated, resulting
in a tax benefit. Also, although the earnings of this subsidiary can be remitted
as dividends without the imposition of U.S. regular income tax, such dividends
are subject to the U.S. alternative minimum tax and to Puerto Rican withholding
taxes equal to 7% of the remitted earnings. No "tollgate" withholding taxes have
been provided on $28.7 million of cumulative undistributed earnings of the
Puerto Rican subsidiary because these earnings are indefinitely reinvested in
Puerto Rico.
The Company's subsidiary in Puerto Rico currently operates under a grant of
partial tax exemption which extends to June 30, 2002. Under the terms of the
grant, 90% of this subsidiary's manufacturing income is exempt from Puerto Rican
corporate income tax.
At December 31, 1995, applicable U.S. income and foreign withholding taxes
have not been provided on $260.5 million of accumulated earnings of foreign
subsidiaries because it is the Company's intention to indefinitely reinvest
these earnings overseas, or to repatriate these earnings only when it is tax
effective to do so. It is not practicable to accurately estimate the amount of
unrecognized deferred U.S. tax liability on these undistributed earnings.
During 1995, the U.S. Internal Revenue Service concluded its audit of the
Company's fiscal years 1986 through 1989. The audit resulted in a refund due to
the Company of $7.6 million (tax plus interest accrued through December 31,
1995), which is currently being reviewed by the Congressional Joint Committee on
Taxation because the refund exceeds $1.0 million. The Company expects receipt of
this refund during 1996. The full financial impact of this refund has been
recorded by the Company in 1995 and in previous years.
The components of earnings before income taxes and the provision for income
taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- -------
(dollars in thousands)
<S> <C> <C> <C>
Earnings before income taxes:
United States..................................... $(15,726) $ 9,721 $12,870
Foreign........................................... 126,138 100,146 78,134
-------- -------- -------
$110,412 $109,867 $91,004
======== ======== =======
Current provision:
United States..................................... $ 1,107 $ 10,223 $ 5,726
Foreign........................................... 30,144 24,827 17,015
-------- -------- -------
31,251 35,050 22,741
-------- -------- -------
Deferred provision:
United States..................................... (4,326) (5,913) 599
Foreign........................................... (426) (1,670) (589)
-------- -------- -------
(4,752) (7,583) 10
-------- -------- -------
Total provision for income taxes.................... $ 26,499 $ 27,467 $22,751
======== ======== =======
</TABLE>
Earnings before income taxes presented above are distributed geographically
according to where the income is taxed. This differs from the earnings from
operations presented in Note 2 in which items of income and expense are
allocated to the region where revenues are generated.
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. If it is more likely than not that
a deferred tax asset, in whole or in part, will not be realized, a valuation
allowance is established which reduces the asset to its realizable value.
28
<PAGE> 31
The following is a summary of the tax effects of the significant temporary
differences which comprise the Company's deferred tax assets and liabilities as
of December 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
(dollars in thousands)
Deferred tax assets:
Inventory valuation...................................... $ 1,495 $ 2,449
Self-insurance........................................... 2,549 2,508
Allowance for doubtful accounts.......................... 1,470 1,467
Accrued FAS 87 pension................................... 891 1,626
Postretirement/employment benefits....................... 2,747 1,925
Restructuring/reorganization costs....................... 1,093 1,802
Profit in inventory...................................... 2,043 3,034
Foreign tax credit carryforwards......................... 6,903 6,051
Net operating losses..................................... 6,593 5,390
Unremitted foreign dividends............................. (2,221) (4,904)
Other.................................................... 7,863 5,712
Valuation allowance...................................... (7,414) (6,619)
------- -------
Total assets............................................... $ 24,012 $ 20,441
======= =======
Deferred tax liabilities:
Depreciation............................................. $ 1,280 $ 1,149
Other.................................................... 705 1,242
------- -------
Total liabilities.......................................... $ 1,985 $ 2,391
======= =======
</TABLE>
As of December 31, 1995, the Company has net operating loss (NOL)
carryforwards, capital loss carryforwards, and U.S. tax credit carryforwards
which will expire, if unused, as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
FOREIGN U.S. STATE FOREIGN TAX CAPITAL R&D
YEAR OF EXPIRATION NOL NOL CREDIT LOSS CREDIT
------------------------------------------ ------- ---------- ----------- ------- ------
<S> <C> <C> <C> <C> <C>
1996-2000................................. $14,014 $ 10,752 $ 6,903 $ 2,344
After 2000................................ 437 460 -- -- $283
Indefinite................................ 1,914 5,669 -- -- --
------- ------- ------ ------ ----
Total..................................... $16,365 $ 16,881 $ 6,903 $ 2,344 $283
======= ======= ====== ====== ====
</TABLE>
The net operating losses and capital losses shown above may generate future
tax benefits of $6.6 million and $0.9 million, respectively, of which only $0.4
million has been recognized in the Company's financial statements to date. The
balance of the potential benefit, or $7.1 million, has been offset by a
valuation allowance because of the uncertainty of ultimate realization.
During 1995, no significant changes occurred in the conclusions regarding
the need for a valuation allowance in any tax jurisdiction.
NOTE 5 FINANCIAL INSTRUMENTS
The Company has limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to reduce the risks
associated with changes in interest rates and foreign exchange rates as more
fully discussed below.
29
<PAGE> 32
INTEREST RATE SWAP AGREEMENTS
The Company has entered into a series of interest rate swap agreements
which have effectively fixed the interest rates on a portion of its domestic
floating rate short-term bank debt. These agreements serve the purposes of
reducing the volatility of reported results due to fluctuating short-term U.S.
interest rates and of effectively providing long-term financing at costs which
may be favorable to alternative forms of fixed rate borrowings.
Under these agreements, the Company will pay the counterparties interest at
a fixed rate and receive in return interest at a variable rate based on the
London Interbank Offered Rate (LIBOR). At December 31, 1995, the Company had
contracts in place which served to fix the interest rate on $40.0 million of
underlying short-term bank debt: $20.0 million to July 1996; $10.0 million to
October 2000; and $10.0 million to October 2003. The weighted average fixed rate
payable by the Company on these contracts is approximately 5 1/2%.
The Company's current intention is to maintain these contracts as long as
the underlying domestic short-term bank debt remains outstanding. Since it is
the Company's policy not to speculate, terminating (or reversing) contracts
would be entered into to the extent that aggregate domestic short-term bank debt
falls below the aggregate amount of contracts outstanding.
Given generally declining U.S. interest rates in 1995, the estimated fair
market value of these agreements was approximately $0.2 million at December 31,
1995 as compared to approximately $3.2 million at December 31, 1994. This
unrecognized benefit represented the estimated amount that the Company would
have received if the agreements had been terminated.
The $40.0 million notional amount of the contracts is not a measure of the
Company's counterparty credit risk. The amounts ultimately exchanged are
determined by reference to the notional amounts and the specific terms contained
in the agreements. The counterparties to the Company's interest rate swap
agreements consist of a number of major international financial institutions.
The Company monitors its position with, and the credit quality of, these
institutions and does not anticipate any losses as a result of counterparty non-
performance.
FORWARD FOREIGN EXCHANGE CONTRACTS
The Company enters into forward foreign exchange contracts primarily to
hedge intercompany receivables and intercompany lending activity. These
contracts are not used for speculative purposes and do not subject the Company
to risk due to exchange rate movements because gains and losses on these
contracts effectively offset gains and losses on the transactions being hedged.
Contracts for the above purposes totaled $57.1 million at December 31, 1995 and
$66.4 million at December 31, 1994 with the fair value of the contracts
approximating the carrying value. Additionally, forward foreign exchange
contracts may be used to hedge firm foreign currency commitments. Contracts for
this purpose totaled approximately $1.0 million and $5.5 million, at December
31, 1995 and December 31, 1994, respectively. Deferred gains and losses were
insignificant. In general, the maturities of the Company's forward foreign
exchange contracts coincide with the underlying exposure positions they are
intended to hedge, usually less than six months.
The counterparties to the Company's forward foreign exchange contracts
consist of a number of major international financial institutions. The Company
monitors its position with, and the credit quality of, these financial
institutions and does not anticipate any losses as a result of counterparty
non-performance.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash investments and trade
accounts and notes receivable. Accounts and notes receivable were $154.4 million
and $144.9 million at December 31, 1995 and 1994, respectively.
The Company's cash investments are with major international financial
institutions, with limitations established as to the maximum amount of cash that
may be invested with any one financial institution. Concentrations of credit
risk with respect to trade accounts and notes receivable are limited due to the
large
30
<PAGE> 33
number of customers comprising the Company's customer base and their dispersion
across different businesses and geographic areas.
As of December 31, 1995, the Company had no significant concentrations of
credit risk.
NOTE 6 COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have entered into long-term lease
agreements for real property and equipment. The following information reflects
rental commitments under noncancelable operating leases in effect at December
31, 1995:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
1996........................................................................ $6,287
1997........................................................................ $4,964
1998........................................................................ $2,586
1999........................................................................ $ 702
2000........................................................................ $ 350
2001 and thereafter......................................................... $ 323
</TABLE>
Rental expense was $12.0 million in 1995, $10.8 million in 1994, and $11.0
million in 1993.
NOTE 7 LONG-TERM DEBT
Long-term debt outstanding is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
(dollars in thousands) 1995 1994
------------ ------------
<S> <C> <C>
Unsecured domestic promissory note; fixed interest rate of
6.14%; three annual payments of $25,000; December 1998 to
December 2000............................................ $75,000
Other...................................................... 2,644 $3,224
------- -------
77,644 3,224
Less -- current portion.................................... 406 530
------- -------
$77,238 $2,694
======= =======
</TABLE>
Under the terms of the unsecured domestic promissory note, the Company
must, among other things, limit "priority debt", as defined in the agreement, to
a percentage of consolidated net worth. However, no such terms are expected to
impose any practical limitations on the Company over the life of the note as
regards the ability to issue or incur additional debt. At December 31, 1995 and
December 31, 1994, there was no material difference between the fair value of
long-term debt and the carrying value.
Long-term debt at December 31, 1995 matures during the following years:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
1996....................................................................... $ 406
1997....................................................................... $ 405
1998....................................................................... $25,410
1999....................................................................... $25,413
2000....................................................................... $25,419
2001 and thereafter........................................................ $ 591
</TABLE>
31
<PAGE> 34
NOTE 8 EMPLOYEE STOCK PLANS
STOCK OPTION PLANS
Under the Company's stock option plans, options have been granted for
periods of ten years at prices equal to the market price on the date of grant.
Options are exercisable cumulatively at the rate of 20% per year with 20%
exercisable at the end of the first year and 20% at the beginning of each
succeeding year. Through December 31, 1995, 1,000,000 shares were reserved for
the program. Information regarding transactions under these plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Option shares:
Outstanding at beginning of period.................... 605,120 514,950 542,880
Granted............................................... 95,000 184,000 56,000
Exercised............................................. (86,850) (85,030) (77,570)
Canceled.............................................. (6,400) (8,800) (6,360)
------- ------- -------
Outstanding at end of period.......................... 606,870 605,120 514,950
======= ======= =======
Exercisable at end of period.......................... 372,130 339,280 351,590
Shares reserved for future grants..................... 615,400 706,400 882,000
Price range of outstanding options at end of period:
Low................................................... $10.13 $ 7.00 $ 7.00
Average............................................... $38.59 $34.12 $28.98
High.................................................. $47.75 $47.75 $47.75
Average price of exercised options during the
period.............................................. $16.24 $21.12 $13.47
</TABLE>
RESTRICTED STOCK PLAN
Under the Company's Restricted Stock Plan, awards are issued without any
payment of cash consideration by the participant. The restricted shares become
available to the employee at the rate of 50% on the third anniversary of the
grant and the remaining 50% on the sixth anniversary of the grant. Expense
associated with these shares is amortized over the life of the grant.
Compensation expense was $1.1 million for 1995, $1.2 million for 1994, and $1.2
million for 1993. Through December 31, 1995, 500,000 shares were reserved for
the program. Information regarding transactions under this plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of period.................... 182,550 215,200 251,500
Awarded............................................... 26,600 27,900 22,500
Vested................................................ (75,175) (56,125) (41,000)
Canceled.............................................. (5,050) (4,425) (17,800)
------- ------- -------
Outstanding at end of period.......................... 128,925 182,550 215,200
======= ======= =======
Shares reserved for future awards..................... 293,800 320,400 348,300
</TABLE>
THRIFT INVESTMENT PLAN
Under the Company's Thrift Investment Plan, eligible employees may save, by
payroll deductions, a portion of their salaries. Up to 25% of the amount saved
may be invested in the Company's Common Stock. In addition, the Company matches,
in the Company's Common Stock, one half of the first 6% saved by the employee.
The Company also maintains a Nonqualified Thrift Investment and Deferred
Compensation Plan to supplement benefits for designated employees whose plan
benefits are limited by the provisions of the Internal Revenue Code. Amounts
related to this plan are included in the disclosures below.
32
<PAGE> 35
The cost of the Company match was $1.6 million in 1995, $1.4 million in
1994, and $1.4 million in 1993. The average market price of the stock on a
monthly basis is used in determining employee purchases and the Company's
matching contribution. Vesting of Company contributions takes place after five
years of service or after two years of participation in the Plan, whichever is
more favorable to the employee. Shares issued under the Plan were 45,298 in
1995, 44,203 in 1994, and 53,965 in 1993. The average issue price was $47.25,
$42.12, and $42.48, respectively.
SALES FORCE AWARD PLAN
On August 16, 1994, the Board of Directors approved the North American
Group Field Sales Force Stock Award Plan. Under the Plan, awards are issued
without any payment of cash consideration by the participant. This Plan is
designed to recognize sales and profitability achievement above projected Annual
Business Plan growth levels by providing limited awards of the Company's Common
Stock. Continuation of the Plan will be reviewed annually by the Board of
Directors. During 1995, 6,009 shares with an average issue price of $46.51 were
issued under the Plan.
NOTE 9 SHAREHOLDER RIGHTS PLAN
On April 14, 1994, the Board of Directors adopted a Shareholder Rights Plan
(the "Plan"). This Plan will protect shareholders against unsolicited attempts
to acquire control of the Company that do not offer what the Company believes to
be an adequate price to all shareholders.
Under the Plan, each outstanding share of the Company's Common Stock has
associated with it a Right to purchase, upon the occurrence of certain events,
one share of the Company's Common Stock at a price of $175 per share, subject to
adjustment. The Rights will become exercisable only if a person or group (other
than certain grandfathered shareholders) acquires stock representing 10 percent
or more of the power to vote generally in the election of directors (an
"Acquiring Person") or 10 days (or such later date as the Company's Board of
Directors may determine) following the commencement by a person or group of a
tender or exchange offer (other than a permitted offer) which would result in
such person or group becoming an Acquiring Person. Generally, under the Plan,
Henkel Corporation and its affiliates may own up to 35% of the outstanding
shares of the Company's Common Stock without triggering the Plan.
Upon exercise, each Right (other than Rights held by the Acquiring Person)
will entitle the holder to purchase, at the Right's then-current exercise price,
Common Stock of the Company having a market value of twice such exercise price.
If the Company is acquired in a merger or similar transaction, the Rights may be
exercised to purchase common stock of the surviving company having a market
value of two times the exercise price. The Rights may be redeemed by the Company
at a price of one cent per Right at any time prior to the Rights becoming
exercisable or prior to their expiration in April 2004.
NOTE 10 PENSION PLANS
The Company maintains a non-contributory defined benefit plan for all
eligible employees in the United States. Plan assets are invested primarily in
fixed income contracts and equity securities.
The Company maintains a nonqualified retirement plan to supplement benefits
for designated employees whose pension plan benefits are limited by the
provisions of the Internal Revenue Code. The Company also has a pension plan for
outside directors and a Supplemental Retirement Agreement with its Chairman and
former Chief Executive Officer. Amounts related to these plans are included in
the disclosures below.
Certain of the Company's international subsidiaries provide retirement
benefits to eligible employees under defined benefit plans. The benefits are
based on salary and length of service. Plan assets for these plans are invested
primarily in equity and fixed income securities.
It is the Company's policy to make contributions to these plans sufficient
to meet the minimum funding requirements of applicable laws and regulations.
33
<PAGE> 36
The Company accounts for the cost of its defined benefit plans in
accordance with Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions" (SFAS No. 87). In accordance with the provisions of
SFAS No. 87, the Company has recorded an additional minimum liability at the end
of each year representing the excess of the accumulated benefit obligations over
the fair value of plan assets and accrued pension liabilities. The liabilities
have been offset by intangible assets to the extent possible. Because the asset
recognized may not exceed the amount of unrecognized prior service cost, the
balance of the liability at the end of the period is reported as a separate
reduction of stockholders' equity, net of tax benefits.
UNITED STATES PLANS
Net U.S. periodic pension cost is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(dollars in thousands) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost for benefits earned during the year......... $3,045 $3,359 $3,170
Interest cost on projected benefit obligation............ 2,454 1,997 1,721
Actual return on assets.................................. (5,510) (371) (3,690)
Net amortization and deferral............................ 3,139 (1,867) 1,758
------ ------ ------
Net periodic pension cost................................ $3,128 $3,118 $2,959
====== ====== ======
</TABLE>
The following table sets forth the U.S. defined benefit plans' funded
status and amounts recognized in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
--------------------------- ------------
ASSETS ACCUMULATED ACCUMULATED
EXCEED BENEFITS BENEFITS
ACCUMULATED EXCEED EXCEED
(dollars in thousands) BENEFITS ASSETS ASSETS
----------- ----------- ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................... $31,357 $ 2,162 $ 29,053
Non-vested benefit obligation................ 3,213 180 2,910
------- ------- -------
Accumulated benefit obligation............... 34,570 2,342 31,963
Effect of proposed compensation increases.... 195 62 106
------- ------- -------
Projected benefit obligation................... 34,765 2,404 32,069
Plan assets at fair value...................... 36,474 -- 26,951
------- ------- -------
Excess (deficiency) of plan assets over
projected benefit obligation................. 1,709 (2,404) (5,118)
Unrecognized net loss.......................... 2,888 708 4,672
Unrecognized net transition (asset)
liability.................................... (395) 24 (346)
Adjustment to recognize minimum liability...... -- (701) (4,198)
------- ------- -------
Prepaid (accrued) pension cost recognized in
the consolidated balance sheet............... $ 4,202 $(2,373) $ (4,990)
======= ======= =======
</TABLE>
The projected benefit obligation for the U.S. plans was determined using
the following assumptions:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Weighted average discount rate............................. 7.25% 8.0%
Rate of increase in compensation levels.................... 5.0% 5.0%
Expected long-term rate of return on assets................ 9.0% 9.0%
</TABLE>
34
<PAGE> 37
INTERNATIONAL PLANS
Net international periodic pension cost is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
(dollars in thousands) 1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Service cost for benefits earned during the
year......................................... $ 1,640 $ 1,793 $1,639
Interest cost on projected benefit
obligation................................... 2,007 1,985 1,905
Actual return on assets........................ (1,852) (875) (4,893)
Net amortization and deferral.................. 750 (682) 3,781
------ ------ --------
Net periodic pension cost...................... $ 2,545 $ 2,221 $2,432
====== ====== ========
</TABLE>
The following table sets forth the international defined benefit plans'
funded status and amounts recognized in the Company's consolidated balance
sheet:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
(dollars in thousands) BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation.......... $ 7,842 $ 6,285 $10,135 $ 5,120
Non-vested benefit obligation...... 2,908 261 1,521 289
------- ------- ------ -------
Accumulated benefit obligation..... 10,750 6,546 11,656 5,409
Effect of proposed compensation
increases....................... 6,925 1,292 7,877 1,360
------- ------- ------ -------
Projected benefit obligation......... 17,675 7,838 19,533 6,769
Plan assets at fair value............ 17,426 1,136 20,308 848
------- ------- ------ -------
Excess (deficiency) of plan assets
over projected benefit
obligation......................... (249) (6,702) 775 (5,921)
Unrecognized plan amendments......... 1,874 -- 2,347 --
Unrecognized net gain................ (3,706) (115) (3,435) 420
Unrecognized net transition (asset)
liability.......................... 438 1,813 (845) 1,805
Adjustment to recognize
minimum liability.................. -- (1,131) -- (1,064)
------- ------- ------ -------
Accrued pension cost recognized in
the consolidated balance sheet..... $(1,643) $(6,135) $(1,158) $(4,760)
======= ======= ====== =======
</TABLE>
The projected benefit obligation for the international plans was determined
using the following assumptions:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Weighted average discount rate............................. 5.0 - 15.5% 5.0 - 16.5 %
Rate of increase in compensation levels.................... 3.0 - 13.0% 3.0 - 13.0 %
Expected long-term rate of return on assets................ 4.7 - 15.0% 4.75 - 15.0 %
</TABLE>
The Company's Puerto Rican subsidiary and certain of its international
subsidiaries provide retirement benefits to eligible employees under defined
contribution plans. Contributions are determined under various formulas. Certain
other international subsidiaries have pension and severance benefits that are
not covered under formal pension plans, including those accruing to employees
under foreign government regulations.
35
<PAGE> 38
Expenses are determined in accordance with local law. Pension expense for these
subsidiaries amounted to $2.8 million, $2.2 million, and $1.6 million in 1995,
1994, and 1993 respectively.
NOTE 11 POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides postretirement health care and life insurance benefits
for all eligible employees in the United States and Puerto Rico. The benefit
plan is contributory based upon years of service and age at retirement. Health
care benefits are also extended to spouses of eligible employees and are fully
paid by retiree contributions. The Company funds medical and life insurance
postretirement benefits as incurred.
The Company accounts for the cost of its postretirement health care and
life insurance benefits in accordance with Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" (SFAS No. 106). The statement requires that annual postretirement
benefit costs be accrued during an employee's years of active service. The
Company adopted SFAS No. 106 in 1993 by electing to amortize the transition
obligation of $13.3 million over twenty years.
Net periodic postretirement benefit cost is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(dollars in thousands) 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Service cost for benefits earned during the
year......................................... $ 725 $ 720 $ 795
Interest cost on accumulated postretirement
obligation................................... 1,241 1,138 1,127
Amortization of transition obligation.......... 644 666 666
Effect of curtailment/settlement............... (102) (173) --
------ ------ ------
Net periodic postretirement benefit cost....... $2,508 $2,351 $2,588
====== ====== ======
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
(dollars in thousands) 1995 1994
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $ (4,884) $ (4,645)
Employees fully eligible................................. (3,399) (3,094)
Other active participants................................ (8,392) (7,004)
-------- --------
Total accumulated postretirement benefit obligation........ (16,675) (14,743)
Unrecognized transition obligation......................... 10,456 11,971
Unrecognized gain.......................................... (483) (1,768)
-------- --------
Accrued postretirement benefit cost recognized in the
consolidated balance sheet............................... $ (6,702) $ (4,540)
======== ========
</TABLE>
The health care cost trend for active United States employees and domestic
retirees 65 years and older is assumed to be 5.5% in 1996 and beyond. A rate of
10% in 1996, decreasing by 1% per year to 6% in the year 2000, and 5.5% for all
years thereafter is assumed for Puerto Rico and for current domestic retirees
under 65 years of age. At December 31, 1994 the health care cost trend rate was
assumed to be 11% for 1995 decreasing 1% per year until the ultimate rate of
5.5% was achieved in the year 2001. A one percentage point increase in the
assumed health care cost trend rate would have increased the accumulated benefit
obligation by $2.5 million at December 31, 1995 and by $2.2 million at December
31, 1994 and the net periodic postretirement benefit cost by $0.3 million for
1995 and 1994. Weighted average discount rates of 7.75% in 1995 and 8.5% in 1994
and an increase in compensation levels of 5% in 1995 and 1994 were used in
determining the accumulated benefit obligations.
36
<PAGE> 39
The Company accounts for the cost of its postemployment benefits in
accordance with Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS No. 112). The statement requires
employers to accrue the cost of benefits to former or inactive employees, their
beneficiaries, and covered dependents, after employment, but before retirement.
Prior to 1994, the Company expensed the costs of such benefits when paid. The
Company had no postemployment benefit expense in 1995 and $0.8 million expense
in 1994.
NOTE 12 RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123) effective for years beginning after December 15,
1995. Under the provisions of this accounting standard, the Company is not
required to change its method of accounting for stock-based compensation.
Management expects to retain its current method of accounting.
NOTE 13 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(dollars in thousands, except per share amounts)
Net sales....................................... $196,797 $201,161 $195,751 $191,439
Gross margin.................................... $122,865 $125,947 $118,812 $115,681
Gross margin %.................................. 62% 63% 61% 60%
Net earnings.................................... $ 24,640 $ 24,114 $ 19,378 $ 15,781
Net earnings per share.......................... $ .70 $ .68 $ .55 $ .47
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................................... $159,882 $177,808 $183,344 $182,559
Gross margin.................................... $ 97,807 $108,663 $111,974 $111,728
Gross margin %.................................. 61% 61% 61% 61%
Net earnings.................................... $ 18,304 $ 20,204 $ 22,630 $ 21,262
Net earnings per share.......................... $ .52 $ .57 $ .64 $ .60
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements between Registrant and its independent
accountants on accounting and financial disclosure during the year ended
December 31, 1995.
37
<PAGE> 40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Executive Officers of the Registrant*
<TABLE>
<CAPTION>
POSITION OR OFFICE WITH
THE COMPANY AND BUSINESS
SERVED AS EXPERIENCE DURING PAST
NAME AGE OFFICER SINCE FIVE (5) YEAR PERIOD
- ------------------------------ --- -------------- ---------------------------------------------
<S> <C> <C> <C>
David Freeman................. 51 October 1984 President and Chief Executive Officer, 1993;
President and Chief Operating Officer,
1991; Executive Vice President and Chief
Operating Officer, 1990.
Robert L. Aller............... 61 July 1979 Senior Vice President and Chief Financial
Officer, 1990.
Louis J. Baccei............... 54 February 1992 Senior Vice President and President,
Research, Development and Engineering, 1991.
Eugene F. Miller.............. 53 October 1986 Vice President, Secretary and General
Counsel, 1986.
</TABLE>
* All officers are elected by the Board of Directors and serve an indefinite
term at the discretion of the Board.
The information contained in the Company's 1996 Proxy Statement on pages
2-6, under the heading "ELECTION OF DIRECTORS -- Nominees for Election as
Directors" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Company's 1996 Proxy Statement under the
heading "ELECTION OF DIRECTORS -- Board of Directors, Committee Meetings and
Director Compensation" on pages 7-9; "ELECTION OF DIRECTORS -- Executive
Compensation and Other Information, Summary Compensation Table" and "Options" on
pages 11-12; and "ELECTION OF DIRECTORS -- Executive Compensation and Other
Information -- Pension Benefits", " -- Executive and Consulting Agreements," and
"Severance Agreement" on pages 17-19, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Company's 1996 Proxy Statement, on pages 6
and 20-21, under the headings "ELECTION OF DIRECTORS -- Stock Ownership of
Management" and "ELECTION OF DIRECTORS -- Ownership of the Company's Securities"
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Company's 1996 Proxy Statement, on pages
21-22, under the heading "ELECTION OF DIRECTORS -- CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" is incorporated herein by reference.
38
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NO. IN
FORM 10-K
-----------
<S> <C> <C>
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS:
See detailed index under Item 8.
(2) FINANCIAL STATEMENT SCHEDULE:
See financial statement index under Item 8.
(3) CONSENT OF INDEPENDENT ACCOUNTANTS...................................... 43
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Registrant during the fourth quarter
ended December 31, 1995.
(c) Exhibits
<TABLE>
<S> <C>
(3) Articles of Incorporation and By-Laws of Loctite Corporation (filed as Exhibit 3
to Loctite Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference).
(4) Rights Agreement, dated as of April 14, 1994, between Loctite Corporation and The
First National Bank of Boston, as Rights Agent, which includes, as Exhibit A-1
thereto, the form of Transferee Agreement, as Exhibit A-2 thereto, the Form of
Transferee Executive Officer's Certificate, as Exhibit B thereto, the Form of
Rights Certificate, and as Exhibit C thereto, the Summary of Rights to Purchase
Common Share (filed with the Company's Registration Statement on Form 8-A dated
April 15, 1994 and incorporated herein by reference).
(10)a* 1976 Stock Option Plan, as amended (filed as Exhibit A to Loctite Corporation's
definitive Proxy Statement for the 1979 Annual Meeting of Stockholders, dated
October 2, 1979, and incorporated herein by reference).
(10)b* 1989 Restricted Stock Plan (filed as Exhibit A to Loctite Corporation's definitive
Proxy Statement for the 1989 Annual Meeting of Stockholders, dated October 6,
1989, and incorporated herein by reference).
(10)c* 1992 Stock Option Plan (filed as Exhibit A to Loctite Corporation's definitive
Proxy Statement for the 1992 Annual Meeting of Stockholders, dated March 17, 1992,
and incorporated herein by reference).
(10)d* Loctite Corporation Non-qualified Employee Thrift Investment and Deferred
Compensation Plan effective July 1, 1995.
(10)e* Management Incentive Compensation Plan of 1983 (filed as Exhibit (10)e to Loctite
Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1983,
and incorporated herein by reference).
(10)f* National Union Fire Insurance Company of Pittsburgh, Pennsylvania, Policy No. 435
04 35 -- Directors and Officers Insurance and Company Reimbursement Policy
effective June 30, 1989 (filed as Exhibit (10)g to Loctite Corporation's Annual
Report on Form 10-K for the fiscal year ended June 30, 1989, and incorporated
herein by reference).
(10)g* Retirement Plan for Non-Employee Directors (filed as Exhibit (10)i to Loctite
Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1990,
and incorporated herein by reference).
(10)h* Supplemental Retirement Agreement for Chairman and former Chief Executive Officer
(filed as Exhibit (10)j to Loctite Corporation's Annual Report on Form 10-K for
the fiscal year ended June 30, 1990 and incorporated herein by reference).
</TABLE>
39
<PAGE> 42
<TABLE>
<S> <C>
(10)i* Non-Qualified Retirement Plan of Loctite Corporation (filed as Exhibit (10)l to
Loctite Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference).
(10)j Agreement, dated as of April 14, 1994, among Henkel Corporation, Henkel KGaA, HC
Investments, Inc., and Loctite Corporation (filed as Exhibit (10)j to Loctite
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
(21) Subsidiaries of Registrant.
(27) Financial Data Schedule.
</TABLE>
* Management contracts or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of this Report.
40
<PAGE> 43
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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
By /s/ DAVID FREEMAN
------------------------------------
DAVID FREEMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: February 20, 1996
POWER OF ATTORNEY
EACH OF THE UNDERSIGNED HEREBY APPOINTS EUGENE F. MILLER AND WILLIAM V.
GRICKIS, JR., AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL ATTORNEYS TO
EXECUTE ON BEHALF OF THE UNDERSIGNED ANY AND ALL AMENDMENTS TO THIS ANNUAL
REPORT ON FORM 10-K AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION.
EACH SUCH ATTORNEY WILL HAVE THE POWER TO ACT HEREUNDER WITH OR WITHOUT THE
OTHERS. EACH OF THE UNDERSIGNED HEREBY RATIFIES AND CONFIRMS ALL THAT SUCH
ATTORNEYS, OR ANY OF THEM, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
------------------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ DAVID FREEMAN Director, President and February 20, 1996
- --------------------------------------------- Chief Executive Officer
DAVID FREEMAN (Principal Executive
Officer)
/s/ KENNETH W. BUTTERWORTH Director, Chairman February 20, 1996
- ---------------------------------------------
KENNETH W. BUTTERWORTH
/s/ ROBERT W. FIONDELLA Director February 20, 1996
- ---------------------------------------------
ROBERT W. FIONDELLA
/s/ ROBERT E. IX Director February 20, 1996
- ---------------------------------------------
ROBERT E. IX
/s/ FREDERICK B. KRIEBLE Director February 20, 1996
- ---------------------------------------------
FREDERICK B. KRIEBLE
/s/ DR. ROMAN DOHR Director February 20, 1996
- ---------------------------------------------
DR. ROMAN DOHR
/s/ DR. JURGEN MANCHOT Director February 20, 1996
- ---------------------------------------------
DR. JURGEN MANCHOT
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ STEPHEN J. TRACHTENBERG Director February 20, 1996
- ---------------------------------------------
STEPHEN J. TRACHTENBERG
/s/ WALLACE BARNES Director February 20, 1996
- ---------------------------------------------
WALLACE BARNES
/s/ PETER C. BROWNING Director February 20, 1996
- ---------------------------------------------
PETER C. BROWNING
/s/ STEPHEN F. PAGE Director February 20, 1996
- ---------------------------------------------
STEPHEN F. PAGE
/s/ CHRISTOPH HENKEL Director February 20, 1996
- ---------------------------------------------
CHRISTOPH HENKEL
/s/ ROBERT L. ALLER Senior Vice President and February 20, 1996
- --------------------------------------------- Chief Financial Officer
ROBERT L. ALLER (Principal Financial and
Accounting Officer)
</TABLE>
42
<PAGE> 45
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Post-Effective Amendments to the Registration
Statements on Form S-8 (Nos. 2-74537, 2-65775, 2-57724, 2-49684, 33-34061,
33-35125, 33-32379, 33-57063, and 33-57067) of Loctite Corporation of our report
dated January 24, 1996 appearing on page 16 of Loctite Corporation's Annual
Report on Form 10-K for the year ended December 31, 1995. We also consent to the
reference to us under the heading "Experts" in such Prospectuses.
[SIG]
PRICE WATERHOUSE LLP
One Financial Plaza
Hartford, Connecticut
March 12, 1996
43
<PAGE> 46
SCHEDULE VIII
LOCTITE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCES FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ACCOUNTS
BEGINNING CHARGED TO WRITTEN OFF BALANCE AT
PERIOD OF PERIOD EXPENSES AND OTHER END OF PERIOD
- -------------------------------------------------- ------------ ---------- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Year Ended December 31, 1995...................... $5,811 $2,293 $ 1,453 $ 6,651
Year Ended December 31, 1994...................... $4,659 $2,431 $ 1,279 $ 5,811
Year Ended December 31, 1993...................... $4,740 $2,028 $ 2,109 $ 4,659
</TABLE>
44
<PAGE> 1
LOCTITE CORPORATION NONQUALIFIED
EMPLOYEE THRIFT INVESTMENT
AND DEFERRED COMPENSATION PLAN
AMENDED AND RESTATED EFFECTIVE JULY 1, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 - Eligibility; Enrollment; Commencement of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Enrollment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Commencement of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Termination of Employee Participation on Account of Ineligibility . . . . . . . . . . . . . . . . . . 4
ARTICLE 3 - Deferral Limits and Elections; Interest Crediting; Installment Distributions; Matching Amounts . . . . . . 5
3.1 Deferral Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Elections to Defer; Effect of Election Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Withholding of Deferral Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Matching Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Interest Crediting Prior to Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 Installment Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.7 FICA Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 4 - Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election . . . . . . . . . . . . . . . . 7
4.1 Short-Term Payout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies . . . . . . . . . . . . . . . . 7
4.3 Withdrawal Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 5 - Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Payment of Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Death Prior to Completion of Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 6 - Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Payment of Pre-Retirement Survivor Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 7 - Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Termination Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Payment of Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 8 - Disability Waiver and Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1 Disability Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 9 - Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Beneficiary Designation; Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.3 Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.4 No Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.6 Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
-2-
<TABLE>
<S> <C>
ARTICLE 10 - Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.1 Paid Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.2 Unpaid Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 11 - Termination, Amendment or Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.3 Effect of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 12 - Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.1 Committee Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.2 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.3 Binding Effect of Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.4 Indemnification of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 13 - Other Benefits and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13.1 Coordination with Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 14 - Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.1 Presentation of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.2 Notification of Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.3 Review of a Denied Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.4 Decision on Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.5 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 15 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.1 Unsecured General Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2 Employer's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.3 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.4 Not a Contract of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.5 Furnishing Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.6 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.7 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.9 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.10 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.11 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.12 Distribution in the Event of Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15.13 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15.14 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15.15 Court Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE> 4
LOCTITE CORPORATION NONQUALIFIED
EMPLOYEE THRIFT INVESTMENT AND DEFERRED COMPENSATION PLAN
Amended and Restated Effective July 1, 1995
Purpose
The purpose of this Plan is to provide specified benefits to
Directors (as hereinafter defined) and to a select group of management or
highly compensated employees who contribute materially to the continued growth,
development and future business success of Loctite Corporation. This Plan
shall be unfunded for tax purposes and for purposes of Title I of ERISA. The
Plan originally was effective January 1, 1995. Effective July 1, 1995, the
Deferral Accounts of certain employees under the Loctite Corporation Deferred
Compensation Plan were credited under this Plan.
ARTICLE 1
Definitions
For purposes hereof, unless otherwise clearly apparent from
the context, the following phrases or terms shall have the following meanings:
1.1 "Account Balance" shall mean with respect to each Participant (i) the
sum of the Deferral Amount, the Matching Amount, the balance, if any,
of the Deferral Account under the Loctite Corporation Deferred
Compensation Plan as of June 30, 1995, and interest credited in
accordance with the applicable interest crediting provisions of the
Plan, less (ii) all distributions. This account shall be a
bookkeeping entry only and shall be utilized solely as a device for
the measurement and determination of the amounts to be paid to a
Participant or Beneficiary pursuant to this Plan.
1.2 "Annual Deferral Amount" shall mean that portion of a Participant's
Compensation that a Participant elects to have and is actually
deferred, in accordance with Article 3, for any Plan Year. In the
event of Retirement, Disability, death or a Termination of Employment
prior to the end of a Plan Year, such Plan Year's Annual Deferral
Amount shall be the actual amount withheld prior to such event.
1.3 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled
to receive benefits under this Plan upon the death of a Participant.
1.4 "Beneficiary Designation Form" shall mean the form established from
time to time by the Committee that a Participant completes, signs and
returns to the Committee to designate one or more Beneficiaries.
1.5 "Board' shall mean the Board of Directors of the Company.
1.6 "Bonus Plan" shall mean any documented bonus plan or program of the
Employer, excluding any plan or program for the payment of
commissions.
1.7 "Claimant" shall have the meaning set forth in Section 14.1.
<PAGE> 5
-2-
1.8 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.9 "Committee" shall mean the committee appointed to administer the
Qualified TIP that shall also manage and administer this Plan in
accordance with the provisions of Article 12.
1.10 "Company" shall mean Loctite Corporation.
1.11 "Compensation" shall mean all cash remuneration received by an
Employee while a Participant from the Company or an Affiliate (as such
term is defined in the Qualified TIP) for services actually rendered,
including overtime, commissions, bonus and incentive payments if
related to services, as reported by the Company or Affiliate as income
to such Employee for income tax purposes; provided, however, (i) that
Compensation does not include cost-of-living, housing or other
allowances, or, except as provided above, other employee benefits,
including, but not limited to, rights under any stock purchase plan,
insurance program or any benefits to any of the Employees thereunder,
stock options, restricted stock grants or stock appreciation rights or
dividend equivalents paid thereon, and (ii) that Compensation includes
amounts deferred as Salary Deferral Contributions (as such term is
defined in the Qualified TIP) pursuant to the Qualified TIP, the
amount of any reduction in an Employee's Compensation that is
contributed to a cafeteria plan qualified under Section 125 of the
Code, and amounts that would otherwise be considered Compensation but
have been deferred pursuant to any non-qualified plan or arrangement
of any Employer, including this Plan. However, in the case of a
Director, "Compensation" shall mean the cash portion of the fees paid
to the Director by the Company for service on the Board.
1.12 "Crediting Rate" shall mean, for each Plan Year, an interest rate
determined and announced by the Committee that is the Moody's Rate.
The Moody's Rate for a Plan Year shall be an interest rate that is
published in Moody's Bond Record under the heading of "Moody's
Corporate Bond Yield Averages -- Av. Corp." on the September 30 (or
the date most closely preceding September 30) preceding the first day
of such Plan Year.
1.13 "Deferral Amount" shall mean the sum of all of a Participant's Annual
Deferral Amounts.
1.14 "Director" shall mean a non-employee member of the Board.
1.15 "Disability" shall have the meaning set forth in the Qualified TIP.
1.16 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.17 "Election Form" shall mean the form established from time to time by
the Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.18 "Employer" shall mean the Company and/or any of its subsidiaries that
have been selected by the Board to participate in the Plan.
<PAGE> 6
-3-
1.19 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.20 "Matching Amount" shall mean any amount credited by the Company to a
Participant's account in accordance with Section 3.4.
1.21 "Participant" shall mean any employee of an Employer who is eligible
and elects to participate in the Plan pursuant to Article 2 and any
Director who elects to participate in the Plan pursuant to Article 2.
1.22 "Plan" shall mean the Loctite Corporation Nonqualified Employee Thrift
Investment and Deferred Compensation Plan, which shall be evidenced by
this instrument and by each Plan Agreement, as amended from time to
time.
1.23 "Plan Agreement" shall mean a written agreement, as may be amended
from time to time, which is entered into by and between an Employer
and a Participant. Each Plan Agreement executed by a Participant
shall provide for the entire benefit to which such Participant is
entitled under the Plan, and the Plan Agreement bearing the latest
date of acceptance by the Committee shall govern such entitlement.
1.24 "Plan Entry Date" shall mean one of two dates, January 1 and July 1,
in any Plan Year on which an employee who is eligible to become a
Participant commences participation in the Plan in accordance with
Article 2. Deferral elections are also made effective as of such
dates in accordance with Article 3.
1.25 "Plan Year" shall mean the calendar year.
1.26 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.27 "Qualified TIP" shall mean the Loctite Corporation Employee Thrift
Investment Plan, as amended from time to time.
1.28 "Retirement," "Retires" or "Retired" shall mean, in the case of a
Participant who is not a Director, severance from employment from all
Employers for any reason other than a leave of absence, death or
Disability on or after the Participant's attainment of his or her
"Early Retirement Date" under the Retirement Plan of Loctite
Corporation and, in the case of a Participant who is a Director, the
cessation of the Director's service on the Board for any reason other
than death or Disability.
1.29 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.30 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.31 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.32 "Termination of Employment" shall mean the ceasing of employment with
all Employers, voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
1.33 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the
Participant that would result in severe
<PAGE> 7
-4-
financial hardship to the Participant resulting from (i) a sudden and
unexpected illness or accident of the Participant or a dependent of
the Participant, (ii) a loss of the Participant's property due to
casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the
Committee.
ARTICLE 2
Eligibility; Enrollment; Commencement of Participation
2.1 Eligibility. Participation in the Plan shall be limited to Directors
and a select group of management or highly compensated employees of
the Employers. Accordingly, only employees of an Employer meeting
either of the following requirements shall be eligible to become
Participants in the Plan:
(a) The employee's base salary as of the first day
of the month prior to a Plan Entry Date is at least $100,000;
or
(b) The employee's base salary as of the first day
of the month prior to a Plan Entry Date is at least $80,000
and the employee's average annual Compensation for the most
recently completed 3 calendar years prior to such Plan Entry
Date is at least $100,000.
If an employee shall satisfy either of the foregoing requirements and
commence participation in the Plan as of a Plan Entry Date in
accordance with Section 2.3, such employee shall remain eligible to
participate in the Plan as long as the employee's base salary is at
least $80,000.
2.2 Enrollment Requirements. As a condition of participation, each
eligible employee pursuant to Section 2.1 and each Director shall
complete, execute and return to the Committee, prior to his or her
proposed Plan Entry Date, a Plan Agreement, an Election Form and a
Beneficiary Designation Form. In addition, the Committee shall
establish from time to time such other enrollment requirements as it
determines, in its sole discretion, are necessary.
2.3 Commencement of Participation. Provided an employee or a Director has
met all requirements to be a Participant set forth in this Plan and
imposed by the Committee, that employee or Director shall commence
participation in the Plan on the Plan Entry Date that immediately
follows his or her election to participate in the Plan. If an
employee or a Director fails to meet all such requirements prior to
that Plan Entry Date, that employee or Director shall not be eligible
to participate in the Plan until the Plan Entry Date that follows his
or her satisfaction of those requirements.
2.4 Termination of Employee Participation on Account of Ineligibility. If
an employee participating in the Plan ceases to meet the requirements
of Section 2.1 or if, in accordance with temporary or final
regulations of the U.S. Department of Labor, it is determined that the
employee does not belong to a "select group of management or highly
compensated employees," as that phrase is used in Section 201(2) of
ERISA, the employee shall cease to be eligible to participate in the
Plan and his or her Account Balance shall be distributed as soon as
practicable in a single sum.
<PAGE> 8
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ARTICLE 3
Deferral Limits and Elections; Interest Crediting;
Installment Distributions; Matching Amounts
3.1 Deferral Limits. As a condition of making a deferral of Compensation
under this Plan for each Plan Year, each Participant who is not a
Director must have elected to make the maximum before-tax salary
deferral contribution permitted under the Qualified TIP with respect
to such Plan Year. Subject to such condition, a Participant may elect
to defer such percentage or dollar amount of Compensation as the
Participant shall specify in the Election Form.
3.2 Elections to Defer; Effect of Election Form.
(a) Deferral Elections in General. Deferral elections with
respect to Compensation excluding amounts payable under a
Bonus Plan shall be made prior to each January 1 Plan Entry
Date for the following Plan year. Deferral elections with
respect to Compensation excluding all amounts other than
amounts payable under a Bonus Plan shall be made prior to the
July 1 Plan Entry Date for amounts payable under a Bonus Plan
during the following Plan Year. Except as otherwise provided
in Articles 4 and 8, a deferral election shall be irrevocable
for the 12 month period beginning on the Plan Entry Date as of
which the election first becomes effective. Notwithstanding
the foregoing, deferral elections with respect to
Compensation, including amounts payable under a Bonus Plan,
may be made prior to July 1, 1995, and such elections shall
remain in effect for the remainder of the 1995 Plan Year, with
respect to Compensation other than amounts payable under a
Bonus Plan, and until July 1, 1996, with respect to amounts
payable under a Bonus Plan.
(b) Initial Deferral Elections. In connection with a
Participant's commencement of participation in the Plan, and
prior to the Participant's Plan Entry Date, the Participant
shall make a deferral election in accordance with Section
3.2(a) by delivering to the Committee a completed and signed
Election Form, which Election Form must be accepted by the
Committee for a valid election to exist. If the Participant's
Plan Entry Date is January 1, during the same Plan Year a
second Election Form may be completed, signed, and delivered
to the Committee prior to the July 1 Plan Entry Date in
accordance with Section 3.2(a), which Election Form must be
accepted by the Committee for a valid election to exist.
(c) Additional Deferral Elections. For each succeeding Plan Year,
new Election Forms must be delivered to the Committee, in
accordance with its rules and procedures, before each Plan
Entry Date as of which the election is to be effective in
accordance with Section 3.2(a). If an Election Form is not
timely delivered for a deferral election, no Annual Deferral
Amount shall be withheld with respect to Compensation that
could be deferred pursuant to that Election Form in accordance
with Section 3.2(a).
<PAGE> 9
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3.3 Withholding of Deferral Amounts. For each Plan Year with respect to
Compensation excluding amounts payable under a Bonus Plan, the Annual
Deferral Amount shall be withheld each payroll period (in the case of
a Director, each period for which fees as a Director are payable) from
such Compensation at the time such Compensation otherwise would be
paid to the Participant. For each Plan Year with respect to
Compensation excluding all amounts other than amounts payable under a
Bonus Plan, the Annual Deferral Amount shall be withheld from such
Compensation at the time such Compensation otherwise would be paid to
the Participant. In no case shall Annual Deferral Amounts be withheld
from Compensation otherwise payable during a Plan Year, unless it is
certain that the maximum permitted before-tax contributions will be
made to the Qualified TIP for the same Plan Year.
3.4 Matching Amounts. For each Participant who is not a Director, a
Matching Amount shall be credited to a Participant's Account Balance
for each Plan Year, as of the end of the Plan Year. The Matching
Amount shall be the amount of additional employer matching
contributions that would have been made to the Qualified TIP had the
Deferral Amount under this Plan been contributed to the Qualified TIP
as a before-tax salary deferral contribution and had the limit on such
employer matching contributions been 50% of the sum of before-tax
salary deferral contributions and after-tax contributions, but only to
the extent such sum does not exceed 6% of the Participant's
Compensation. For purposes of the preceding sentence, "Compensation"
shall have the meaning set forth in Section 1.11, excluding, however,
amounts in excess of $250,000, and only Deferral Amounts with respect
to Compensation as so defined shall be considered.
3.5 Interest Crediting Prior to Distribution. Prior to the commencement
of any distribution of benefits under Article 4, 5, 6, 7 or 8,
interest at the applicable Crediting Rate shall be credited and
compounded annually on a Participant's Account Balance. For purposes
of such credits of interest, Annual Deferral Amounts and Matching
Amounts credited to a Participant's Account Balance for a Plan Year
shall be credited with interest as though these amounts were credited
to the Participant's Account Balance on the first day of the month in
which the Participant commenced deferrals of Compensation under the
Plan for such Plan Year. In the event of Retirement, death or a
Termination of Employment prior to the end of a Plan Year, the basis
for that year's interest crediting at the applicable Crediting Rate
will be a fraction of the full year's interest based on the number of
full months that the Participant was employed by the Employer during
the Plan Year prior to the occurrence of such event. If a
distribution is made under this Plan, for purposes of crediting
interest, the Account Balance shall be reduced as of the first day of
the month in which the distribution is made.
3.6 Installment Distributions. If a benefit is paid in installments under
Articles 5, 6 or 8, installment payment amounts shall be determined in
the following manner:
(a) Interest Rate. The interest rate to be used to calculate
installment payment amounts shall be the Crediting Rates for
the Plan Years in which installment payments are made.
(b) "Deemed" Installment Payments. For purposes of calculating
installment payment amounts only (and notwithstanding the fact
that installment payments shall actually be paid monthly),
installment payments for each 12 month
<PAGE> 10
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period, starting with the date that the Participant becomes
eligible to receive a distribution of an Account Balance under
this Plan (the "Eligibility Date") and continuing thereafter
for each additional 12 month period until the Account Balance
is paid in full, shall be deemed to have been paid in one sum
as of the first day of each such 12 month period. (The result
of this is that interest crediting shall be made on an annual
basis after taking into account the "deemed" annual installment
payment for the 12 month period.)
(c) Amortization. Based on the interest rate determined in
accordance with Section 3.6(a) above and the "deemed" form of
installment payments determined in accordance with Section
3.6(b) above, the Participant's Account Balance shall be
amortized in equal annual installment payments over the term
of the specified payment period (stated in years rather than
months). Accordingly, payments throughout the distribution
period will be computed by annual amortization of the
remaining Account Balance over the remaining payment period
(stated in years rather than months) based on the Crediting
Rate for the Plan Year in which the annual payment is deemed
to occur, and such annual amortization shall be computed
initially as of the Eligibility Date and recomputed thereafter
as of each anniversary of the Eligibility Date.
(d) Monthly Payments. The annual installment payment determined in
Section 3.6(c) above shall be divided by 12, and the resulting
number shall be the monthly installment payment that is to be
paid each month during the year.
3.7 FICA Taxes. For each Plan Year in which an Annual Deferral Amount is
being withheld or a Matching Amount is being credited, the
Participant's Employer(s) shall ratably withhold from that portion of
the Participant's Compensation that is not being deferred the
Participant's share of applicable FICA taxes. If necessary, the
Committee shall reduce the Annual Deferral Amount in order to comply
with this Section 3.7.
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election
4.1 Short-Term Payout. In connection with each election to defer an
Annual Deferral Amount, a Participant may elect to receive a future
"Short-Term Payout" from the Plan with respect to that Annual Deferral
Amount. The Short-Term Payout shall be a lump sum payment in an
amount that is equal to the Annual Deferral Amount plus interest
credited in the manner provided in Section 3.5 above. Subject to the
other terms and conditions of this Plan, each Short-Term payout
elected shall be paid within 90 days of the later of (i) the first day
of the Plan Year that is 5 years after the first day of the Plan Year
to which the applicable Annual Deferral Amount election relates, or
(ii) the first day of any Plan Year thereafter elected by the
Participant on the Election Form electing the Annual Deferral Amount.
4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.
If the Participant experiences an Unforeseeable Financial Emergency,
the Participant may petition the Committee to (i) suspend any
deferrals required to be made by a Participant and/or (ii) receive a
partial or full payout from the Plan. The payout
<PAGE> 11
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shall not exceed the lesser of the Participant's Account Balance, or
the amount reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the Committee, the
petition for a suspension and/or payout is approved, suspension shall
take effect upon the date of approval and any payout shall be made
within 90 days of the date of approval.
4.3 Withdrawal Election. A Participant may elect, at any time, to
withdraw all of his or her Account Balance less a 10% withdrawal
penalty (the net amount shall be referred to as the "Withdrawal
Amount"). No partial withdrawals of that balance shall be allowed.
The Participant shall make this election by giving the Committee
advance written notice of the election in a form determined from time
to time by the Committee. The penalty shall be equal to 10% of the
Participant's Account Balance determined immediately prior to the
withdrawal. The Participant shall be paid the Withdrawal Amount
within 90 days of his or her election. Once the Withdrawal Amount is
paid, the Participant's participation in the Plan shall terminate, and
the Participant shall not be eligible to participate in the Plan in
the future.
ARTICLE 5
Retirement Benefit
5.1 Retirement Benefit. A Participant who Retires shall receive, as a
Retirement Benefit, his or her Account Balance.
5.2 Payment of Retirement Benefits. A Participant, in connection with his
or her commencement of participation in the Plan, shall elect on an
Election Form to receive the Retirement Benefit in a lump sum or in
equal monthly payments (the latter determined in accordance with
Section 3.6 above) over a period of 60, 120 or 180 months. The
Participant may change his or her election to an allowable alternative
payout period by submitting a new Election Form to the Plan
Administrator, provided that any such Election Form is submitted at
least one year prior to the Participant's Retirement and such change
is approved by the Committee, which approval may be granted or
withheld in the Committee's sole and absolute discretion. The
Election Form most recently accepted by the Plan Administrator shall
govern the payout of the Retirement Benefit. The lump sum payment
shall be made, or installment payments shall commence, no later than
90 days after the date the Participant Retires. Notwithstanding the
foregoing, Account Balances of $25,000 or less shall be paid in a lump
sum.
5.3 Death Prior to Completion of Retirement Benefits. If a Participant
dies after Retirement but before the Retirement Benefit is paid in
full, the Participant's unpaid Retirement Benefit payments shall
continue and shall be paid to the Participant's Beneficiary (i) over
the remaining number of months and in the same amounts as that benefit
would have been paid to the Participant had the Participant survived,
or (ii) in a lump sum, if allowed in the sole discretion of the
Committee, that is equal to the Participant's unpaid remaining Account
Balance.
<PAGE> 12
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ARTICLE 6
Pre-Retirement Survivor Benefit
6.1 Pre-Retirement Survivor Benefit. If a Participant dies before he or
she Retires, experiences a Termination of Employment or suffers a
Disability, the Participant's Beneficiary shall receive a
Pre-Retirement Survivor Benefit equal to the Participant's Account
Balance.
6.2 Payment of Pre-Retirement Survivor Benefits. The Pre-Retirement
Survivor Benefit shall be paid in a lump sum. However, if the
Pre-Retirement Survivor Benefit exceeds $25,000, payment may be made,
at the sole discretion of the Committee, in equal monthly payments
over a period of time. In no event, however, shall that period of
time exceed the payment period previously elected by the Participant
for the payment of the Retirement Benefit, or, if no election was
made, 15 years. The first payment (or only payment, if made in a lump
sum) shall be made within 90 days of the Committee's receiving proof
of the Participant's death.
ARTICLE 7
Termination Benefit
7.1 Termination Benefits. If a Participant experiences a Termination of
Employment prior to his or her Retirement, death or Disability, the
Participant shall receive a Termination Benefit, which shall be equal
to the Participant's Account Balance.
7.2 Payment of Termination Benefit. The Termination Benefit shall be paid
in a lump sum within 90 days of the Termination of Employment.
ARTICLE 8
Disability Waiver and Benefit
8.1 Disability Waiver.
(a) Eligibility. By participating in the Plan, all Participants
are eligible for this waiver.
(b) Waiver of Deferral. A Participant who is determined by the
Committee to be suffering from a Disability shall be excused
from fulfilling that portion of the Annual Deferral Amount
commitment that would otherwise have been withheld from a
Participant's Compensation for the Plan Year during which the
Participant first suffers a Disability. During the period of
Disability, the Participant shall not be allowed to make any
additional deferral elections.
(c) Return to Work. If a Participant returns to employment with
an Employer or to service as a Director after a Disability
ceases, the Participant may elect to defer an Annual Deferral
Amount for the Plan Year following his or her return to such
employment or service and for every Plan Year thereafter while
<PAGE> 13
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a Participant in the Plan; provided such deferral elections are
otherwise allowed and an Election Form is delivered to and
accepted by the Committee for each such election in accordance
with Section 3.2 above.
8.2 Disability Benefit. A Participant suffering a Disability shall, for
benefit purposes under this Plan, continue to be considered to be
employed or in service and shall be eligible for the benefits provided
for in Articles 4, 5, 6 or 7 in accordance with the provisions of
those Articles. Notwithstanding the above, the Participant, with the
consent of the Committee, shall have the right to declare his or her
employment or service terminated for purposes of Articles 5 and 7.
ARTICLE 9
Beneficiary Designation
9.1 Beneficiary. Each Participant shall have the right, at any time, to
designate his or her Beneficiary (both primary as well as contingent)
to receive any benefits payable under the Plan to a Beneficiary upon
the death of a Participant. The Beneficiary designated under this
Plan may be the same as or different from the beneficiary designation
under any other plan of an Employer in which the Participant
participates.
9.2 Beneficiary Designation; Change. A Participant shall designate his or
her Beneficiary by completing and signing the Beneficiary Designation
Form, and returning it to the Committee or its designated agent. A
Participant shall have the right to change a Beneficiary by
completing, signing and otherwise complying with the terms of the
Beneficiary Designation Form and the Committee's rules and procedures,
as in effect from time to time. Upon the acceptance by the Committee
of a new Beneficiary Designation Form, all Beneficiary designations
previously filed shall be cancelled. The Committee shall be entitled
to rely on the last Beneficiary Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.
9.3 Acknowledgment. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and
acknowledged in writing by the Committee or its designated agent.
9.4 No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's spouse shall be the designated Beneficiary. If the
Participant has no surviving spouse, the benefits remaining under the
Plan to be paid to a Beneficiary shall be payable to the executor or
personal representative of the Participant's estate.
9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, in its sole discretion, to cause the
Participant's Employer to withhold such payments until this matter is
resolved to the Committee's satisfaction.
<PAGE> 14
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9.6 Discharge of Obligations. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to
the Participant, and that Participant's Plan Agreement shall terminate
upon such full payment of benefits.
ARTICLE 10
Leave of Absence
10.1 Paid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to
be considered employed by the Employer and the Annual Deferral Amount
shall continue to be withheld during such paid leave of absence in
accordance with Section 3.3.
10.2 Unpaid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of
absence from the employment of the Employer, the Participant shall
continue to be considered employed by the Employer, but the
Participant shall be excused from making deferrals until the earlier
of the date the leave of absence expires or the Participant returns to
a paid employment status. Upon such expiration or return, deferrals
shall resume for the remaining portion of the Plan Year in which the
expiration or return occurs, based on the deferral election, if any,
made for that Plan Year. If no election was made for that Plan Year,
no deferral shall be withheld.
ARTICLE 11
Termination, Amendment or Modification
11.1 Termination. The Company, at any time and by action of the Board,
reserves the right to terminate the Plan at any time with respect to
Participants. Upon the termination of the Plan, all Plan Agreements
shall terminate and a Participant's Account Balance shall be paid out
in accordance with the benefits that the Participant would have
received if the Participant had experienced a Termination of
Employment on the date of Plan termination. The Employer shall be
required to pay such benefits in a lump sum. The termination of the
Plan shall not adversely affect any Participant or Beneficiary who has
become entitled to the payment of any benefits under the Plan as of
the date of termination; provided, however, that the Employer shall
have the right to accelerate installment payments by paying the
present value equivalent of such payments, using the Crediting Rate
for the Plan Year in which the termination occurs as the discount
rate, in a lump sum or pursuant to a different payment schedule.
11.2 Amendment. The Company, at any time and by action of the Board, may
amend or modify the Plan, in whole or in part; provided, however, that
no amendment or modification shall be effective to decrease or
restrict the present value equivalent, using the Crediting Rate for
the Plan Year of the amendment or modification as the discount rate,
of a Participant's Account Balance in existence at the time the
amendment or modification is made, calculated as if the Participant
had experienced
<PAGE> 15
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a Termination of Employment (or a Retirement, in the case of a
Director) as of the effective date of the amendment or modification.
The amendment or modification of the Plan shall not affect any
Participant or Beneficiary who has become entitled to the payment of
benefits under the Plan as of the date of the amendment or
modification; provided, however, that the Company or the Committee, as
the case may be, shall have the right to accelerate installment
payments by paying the present value equivalent of such payments,
using the Crediting Rate for the Plan Year of the amendment or
modification as the discount rate, in a lump sum or pursuant to a
different payment schedule.
11.3 Effect of Payment. The full payment of the Participant's Account
Balance under Articles 4, 5, 6, 7 and/or 8 of the Plan shall
completely discharge all obligations to a Participant under this Plan
and the Participant's Plan Agreement shall terminate.
ARTICLE 12
Administration
12.1 Committee Duties. This Plan shall be administered by the Committee,
which shall have the discretion and authority to make, amend,
interpret, and enforce all appropriate rules and regulations for the
administration of this Plan and decide or resolve any and all
questions, including interpretations of this Plan, as may arise in
connection with the Plan.
12.2 Agents. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative
duties as it sees fit and may from time to time consult with counsel,
who may be counsel to any Employer.
12.3 Binding Effect of Decisions. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the
rules and regulations promulgated hereunder shall be final, conclusive
and binding upon all persons having any interest in the Plan.
12.4 Indemnification of Committee. All Employers shall indemnify and hold
harmless the members of the Committee against any and all claims,
losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except in the case of
willful misconduct by the Committee or any of its members.
ARTICLE 13
Other Benefits and Agreements
13.1 Coordination with Other Benefits. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant under any
other plan or program for employees of the Participant's Employer.
The Plan shall supplement and shall not supersede, modify or amend any
other such plan or program except as may otherwise be expressly
provided.
<PAGE> 16
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ARTICLE 14
Claims Procedure
14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below
as a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such
Claimant from the Plan. If such a claim relates to the contents of a
notice received by the Claimant, the claim must be made within 60 days
after such notice was received by the Claimant. All other claims must
be made within 180 days of the date on which the event that caused the
claim to arise occurred. The claim must state with particularity the
determination desired by the Claimant.
14.2 Notification of Decision. The Committee shall consider a Claimant's
claim within a reasonable time, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole
or in part, to the Claimant's requested determination, and
such notice must set forth in a manner calculated to be
understood by the Claimant:
(i) the specific reason(s) for the denial of the claim,
or any part of it;
(ii) specific reference(s) to pertinent provisions of the
Plan upon which such denial was based;
(iii) a description of any additional material or
information necessary for the Claimant to perfect the
claim, and an explanation of why such material or
information is necessary; and
(iv) an explanation of the claim review procedure set forth
in Section 14.3 below.
14.3 Review of a Denied Claim. Within 60 days after receiving a notice
from the Committee that a claim has been denied, in whole or in part,
a Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
<PAGE> 17
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14.4 Decision on Review. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood
by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon
which the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 Legal Action. A Claimant's compliance with the foregoing provisions
of this Article 14 is a mandatory prerequisite to a Claimant's right
to commence any legal action with respect to any claim for benefits
under this Plan.
ARTICLE 15
Miscellaneous
15.1 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable rights,
interest or claims in any property or assets of an Employer. Any and
all of an Employer's assets shall be, and remain, the general,
unpledged, unrestricted assets of the Employer. An Employer's
obligation under the Plan shall be merely that of an unfunded and
unsecured promise to pay money in the future. The foregoing shall not
prevent the Employer from establishing a trust or other arrangement
for the payment of Plan benefits as long as such arrangement does not
cause such benefits to be other than "unfunded," as that term is used
in Sections 201(2), 301(a)(3), 401(a)(1), and 4021(a)(6) of ERISA.
15.2 Employer's Liability. An Employer's liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer
shall have no obligation to a Participant under the Plan except as
expressly provided in the Plan and his or her Plan Agreement.
15.3 Nonassignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are expressly
declared to be unassignable and non-transferable. No part of the
amounts payable shall, prior to actual payment, be subject to seizure
or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or
any other person's bankruptcy or insolvency.
15.4 Not a Contract of Employment. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any
Employer and the
<PAGE> 18
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Participant. Such employment is hereby acknowledged to be an "at
will" employment relationship that can be terminated at any time for
any reason, with or without cause, unless otherwise expressly provided
in a written employment agreement. Nothing in this Plan shall be
deemed to give a Participant the right to be retained in the service
of any Employer, or to interfere with the right of any Employer to
discipline or discharge the Participant at any time.
15.5 Furnishing Information. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and
the payments of benefits hereunder.
15.6 Terms. Whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural
or the singular, as the case may be, in all cases where they would so
apply.
15.7 Captions. The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
15.8 Governing Law. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the laws of the State of
Connecticut.
15.9 Notice. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to:
Committee for the Loctite Corporation
Nonqualified Employee Thrift Investment and Deferred
Compensation Plan
c/o Doris Wright
Loctite Corporation
10 Columbus Boulevard
Hartford, Connecticut 06106
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing and
hand-delivered, or sent by mail, to the last known address of the
Participant.
15.10 Successors. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns
and the Participant, the Participant's Beneficiaries, and their
permitted successors and assigns.
15.11 Spouse's Interest. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor shall such interest pass under the laws of intestate
succession.
<PAGE> 19
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15.12 Distribution in the Event of Taxation. If, for any reason, all or any
portion of a Participant's benefit under this Plan becomes taxable to
the Participant prior to receipt, a Participant may petition the
Committee for a distribution of that portion of his or her benefit
that has become taxable. Upon the grant of such a petition, which
grant shall not be unreasonably withheld, a Participant's Employer
shall distribute to the Participant immediately available funds in an
amount equal to the taxable portion of his or her benefit (which
amount shall not exceed a Participant's unpaid Account Balance under
the Plan). If the petition is granted, the tax liability distribution
shall be made within 90 days of the date when the Participant's
petition is granted. Such a distribution shall reduce the benefits to
be paid under this Plan.
15.13 Validity. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidly shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been
inserted herein.
15.14 Incompetent. If the Committee determines, in its sole discretion,
that a benefit under this Plan is to be paid to a minor, a person
declared incompetent or to a person incapable of handling the
disposition of that person's property, the Committee may direct
payment of such benefit to the guardian, legal representative or
person having the care and custody of such minor, incompetent or
incapable person. The Committee may require proof of minority,
incompetency, incapacity or guardianship, as it may deem appropriate
prior to distribution of the benefit. Any payment of a benefit shall
be a payment for the account of the Participant and the Participant's
Beneficiary, as the case may be, and shall be a complete discharge of
any liability under the Plan for such payment amount.
15.15 Court Order. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the
Committee has been named as a party.
IN WITNESS WHEREOF, the Company has executed this amended and
restated Plan document this 31st day of May, 1995.
Loctite Corporation
By: /s/ EUGENE F. MILLER
---------------------------------------------
Its: Vice-President
<PAGE> 1
EXHIBIT (21)
SUBSIDIARIES OF LOCTITE CORPORATION
Listed below are Loctite Corporation's subsidiaries which are included in
the consolidated financial statements of Loctite Corporation. Inactive and minor
subsidiaries, which considered in the aggregate are not significant, are
excluded.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY AND JURISDICTION PERCENT OF VOTING STOCK
IN WHICH INCORPORATED OR ORGANIZED OWNED BY REGISTRANT
- ------------------------------------------------------------------------- -----------------------
<S> <C>
Ifalcos Corporation N.V., Netherlands Antilles........................... 100%
Loctite Argentina S.A., Argentina........................................ 100%
Loctite (Asia) Ltd., Hong Kong........................................... 100%
Loctite Australia Pty. Ltd., Australia................................... 100%
Loctite Belgium N.V., Belgium............................................ 100%
Loctite Brasil Ltda., Brazil............................................. 100%
Loctite Canada Inc., Canada.............................................. 100%
Loctite (China) Company, Ltd., People's Republic of China................ 75%
Loctite Colombia S.A., Colombia.......................................... 100%
Loctite COMET S.A.R.L., France........................................... 100%
Loctite Company de Mexico, S.A. de C.V., Mexico.......................... 100%
Loctite Corp. Chile Ltda., Chile......................................... 100%
Loctite CZ s.r.o., Czech Republic........................................ 100%
Loctite d.o.o., Slovenia................................................. 100%
Loctite de Costa Rica S.A., Costa Rica................................... 100%
Loctite de Venezuela C.A., Venezuela..................................... 100%
Loctite Denmark A/S, Denmark............................................. 100%
Loctite Deutschland G.m.b.H., Germany.................................... 100%
Loctite Espana, S.A., Spain.............................................. 100%
Loctite Europa Ges.m.b.H., Austria....................................... 100%
Loctite FAS S.p.A., Italy................................................ 100%
Loctite Finland Oy, Finland.............................................. 100%
Loctite France S.A., France.............................................. 100%
Loctite F.S.C. (V.I.), Inc., U.S. Virgin Islands......................... 100%
Loctite Holdings SCA, France............................................. 100%
Loctite Hong Kong Ltd., Hong Kong........................................ 100%
Loctite Hungary Ltd., Hungary............................................ 100%
Loctite (India) Pvt. Ltd., India......................................... 100%
Loctite International B.V., Netherlands.................................. 100%
Loctite International Services, Ltd., Delaware........................... 100%
Loctite (Ireland) Investments, Ireland................................... 100%
Loctite (Ireland) Limited, Ireland....................................... 100%
Loctite Italia S.p.A., Italy............................................. 100%
Loctite (Japan) Corporation, Japan....................................... 100%
Loctite Korea, Inc., Republic of Korea................................... 100%
Loctite Luminescent Systems, Inc., New Hampshire......................... 100%
Loctite (Malaysia) Sdn. Bhd., Malaysia................................... 100%
Loctite Nederland B.V., Netherlands...................................... 100%
Loctite Norge A/S, Norway................................................ 100%
Loctite (Overseas) Ltd., Ireland......................................... 100%
Loctite Philippines Corporation, The Philippines......................... 100%
Loctite Polska Sp.z.o.o., Poland......................................... 100%
</TABLE>
45
<PAGE> 2
EXHIBIT (21)
(CONTINUED)
SUBSIDIARIES OF LOCTITE CORPORATION
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY AND JURISDICTION PERCENT OF VOTING STOCK
IN WHICH INCORPORATED OR ORGANIZED OWNED BY REGISTRANT
- ------------------------------------------------------------------------- -----------------------
<S> <C>
Loctite Puerto Rico, Inc., Connecticut (doing business in Puerto Rico)... 100%
Loctite ROEES Handelsges.m.b.H., Austria................................. 100%
Loctite SA (Pty.) Ltd., South Africa..................................... 100%
Loctite (Singapore) Pte. Ltd., Singapore................................. 100%
Loctite SK s.r.o., Slovak Republic....................................... 100%
Loctite Sweden AB, Sweden................................................ 100%
Loctite (Taiwan) Co., Ltd., Taiwan....................................... 51%
Loctite (Thailand) Ltd., Thailand........................................ 100%
Loctite UK Limited, United Kingdom....................................... 100%
Loctite Yapistiricilar A.S., Turkey...................................... 100%
Notex, Ltd., Ireland..................................................... 100%
Plastic Padding Holdings Ltd., United Kingdom............................ 100%
Plastic Padding Ltd., United Kingdom..................................... 100%
</TABLE>
46
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 60,333
<SECURITIES> 126
<RECEIVABLES> 154,394
<ALLOWANCES> 6,651
<INVENTORY> 97,777
<CURRENT-ASSETS> 377,935
<PP&E> 362,697
<DEPRECIATION> 153,613
<TOTAL-ASSETS> 715,628
<CURRENT-LIABILITIES> 191,686
<BONDS> 99,399
0
0
<COMMON> 47,489
<OTHER-SE> 349,309
<TOTAL-LIABILITY-AND-EQUITY> 715,628
<SALES> 785,148
<TOTAL-REVENUES> 785,148
<CGS> 301,843
<TOTAL-COSTS> 301,843
<OTHER-EXPENSES> 360,981
<LOSS-PROVISION> 2,293
<INTEREST-EXPENSE> 8,265
<INCOME-PRETAX> 110,412
<INCOME-TAX> 26,499
<INCOME-CONTINUING> 83,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,913
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.40
</TABLE>
