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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7608
LOCTITE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-0701067
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10 COLUMBUS BOULEVARD, HARTFORD, CONNECTICUT 06106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(203) 520-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The number of shares of common stock outstanding as of September 30, 1994,
was 35,358,196, $.01 par value.
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INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings and Retained Earnings for the
quarters ended September 30, 1994 and 1993, and the nine-month
periods ended September 30, 1994 and 1993......................... 2
Consolidated Statement of Cash Flows for the nine-month periods
ended September 30, 1994 and 1993................................. 3
Consolidated Balance Sheet at September 30, 1994 and December 31,
1993.............................................................. 4-5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Changes in Financial Condition.................................... 7-12
PART II. OTHER INFORMATION
Item 6. Listing of Exhibits and Reports on Form 8-K......................... 13
Signatures.................................................................... 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
(Unaudited)
(dollars in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
---------------------- ----------------------
Net sales..................................... $183,344 $153,385 $521,034 $460,611
Cost of sales................................. 71,370 60,598 202,590 182,327
-------- -------- -------- --------
Gross margin.................................. 111,974 92,787 318,444 278,284
-------- -------- -------- --------
Research & development expense................ 6,971 6,790 20,422 20,013
Selling, general and administrative
expenses.................................... 74,212 62,761 210,815 183,449
-------- -------- -------- --------
81,183 69,551 231,237 203,462
-------- -------- -------- --------
Earnings from operations...................... 30,791 23,236 87,207 74,822
Investment income............................. 1,172 2,107 4,581 6,186
Interest expense.............................. (1,505) (1,579) (4,385) (3,748)
Other expense................................. (641) (11) (1,709) (455)
Foreign exchange gain (loss).................. 356 (2,002) (4,177) (5,576)
-------- -------- -------- --------
Earnings before income taxes.................. 30,173 21,751 81,517 71,229
Provisions for income taxes................... 7,543 5,437 20,379 17,807
-------- -------- -------- --------
Net earnings.................................. $ 22,630 $ 16,314 61,138 53,422
======== ========
Retained earnings, beginning of period........ 342,441 348,938
Less:
Cash dividends declared (1994 -- $.61 and
1993 -- $.59)............................... 21,586 21,051
Stock repurchases............................. 6,172 45,545
-------- --------
Retained earnings, end of period.............. $375,821 $335,764
======== ========
Earnings per share............................ $ 0.64 $ 0.46 $ 1.73 $ 1.50
======== ======== ======== ========
Average number of shares outstanding (000s)... 35,368 35,382 35,375 35,674
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
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LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(dollars in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
---------------------
Cash flows from operating activities:
Net earnings...................................................... $ 61,138 $ 53,422
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization................................ 20,921 18,262
Deferred income taxes........................................ (1,499) 103
(Gain) loss on sale of fixed assets.......................... 1,019 (137)
Provision for losses -- accounts receivable.................. 1,835 1,353
Undistributed earnings of affiliates......................... 11 478
Change in:
Trade and other receivables.................................. (21,446) (20,896)
Inventory.................................................... (4,900) (1,385)
Prepaid and other current assets............................. 1,164 (3,725)
Accounts payable and accrued expenses........................ 1,067 (4,437)
Interest payable............................................. (680) 123
Taxes payable................................................ (463) 1,428
Other............................................................. 3,395 4,905
-------- --------
Cash provided by operating activities.................................. 61,562 49,494
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment........................ (38,935) (28,402)
Dispositions of property, plant and equipment..................... 230 883
Goodwill & intangible portion of acquisitions..................... (16,471) (5,761)
Change in short-term investments.................................. 12,641 (15,689)
(Increase) decrease in long-term investments...................... (74) 192
-------- --------
Cash used in investing activities...................................... (42,609) (48,777)
-------- --------
Cash flows from financing activities:
Stock repurchases................................................. (7,104) (46,415)
Issuances of common stock......................................... 3,986 3,596
Dividends paid.................................................... (21,235) (20,899)
Increase (decrease) in short-term debt............................ (10,535) 72,046
Decrease in long-term debt........................................ (179) (10,707)
-------- --------
Cash used in financing activities...................................... (35,067) (2,379)
-------- --------
Effect of exchange rate changes on cash................................ (213) (829)
-------- --------
Decrease in cash and cash equivalents.................................. (16,327) (2,491)
Cash and cash equivalents:
January 1......................................................... 44,552 29,889
-------- --------
September 30...................................................... $ 28,225 $ 27,398
======== ========
Interest paid.......................................................... $ 7,047 $ 4,581
Taxes paid (net of refunds)............................................ $ 22,268 $ 18,004
The accompanying notes are an integral part of these statements.
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LOCTITE CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(dollars in thousands)
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 28,225 $ 44,552
Time and certificates of deposit.............................. 43,556 51,499
Marketable securities (approximates market)................... 89 79
Accounts and notes receivable (less allowances of $5,937 and
$4,659)...................................................... 147,063 119,316
Other receivables............................................. 16,097 12,874
Inventories:
Finished goods........................................... 46,717 43,248
Work in progress......................................... 24,549 18,413
Raw materials............................................ 20,800 22,020
-------- --------
92,066 83,681
Deferred income tax benefit................................... 6,627 5,473
Prepaid expenses and other current assets..................... 10,709 11,406
-------- --------
Total current assets............................................... 344,432 328,880
-------- --------
Investments:
Marketable securities (approximates market)................... 5 126
Venture capital investments................................... 5,191 4,978
-------- --------
5,196 5,104
-------- --------
Property, plant and equipment:
Land and land improvements.................................... 21,895 12,674
Buildings..................................................... 123,802 84,096
Machinery and equipment....................................... 177,217 157,593
Construction in progress...................................... 1,900 26,227
-------- --------
324,814 280,590
Less -- accumulated depreciation.............................. 132,750 116,077
-------- --------
192,064 164,513
Deferred income tax benefit........................................ 7,885 7,429
Other assets....................................................... 20,155 17,205
Excess of purchase price over fair value of net assets of acquired
companies
(net of amortization of $16,765 and $14,638)..................... 92,081 80,096
-------- --------
Total assets....................................................... $661,813 $603,227
======== ========
The accompanying notes are an integral part of these statements.
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SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................ $104,008 $103,047
Long-term debt -- current maturities........................... 400 11,732
Accounts payable............................................... 32,300 32,776
Accrued salaries, wages and other compensation................. 21,213 16,309
Accrued taxes, other than income taxes......................... 7,494 5,886
Accrued income taxes........................................... 12,843 13,798
Dividends payable.............................................. 7,430 7,079
Accrued pension and retirement benefits........................ 3,334 6,620
Accrued insurance.............................................. 6,599 5,936
Accrued liabilities -- other................................... 24,483 12,917
-------- --------
Total current liabilities........................................... 220,104 216,100
-------- --------
Long-term liabilities:
Long-term debt................................................. 3,009 3,028
Retirement and postretirement obligations...................... 13,293 6,222
Other.......................................................... 12,850 19,396
-------- --------
29,152 28,646
-------- --------
Stockholders' equity:
Common Stock, $.01 par value:.................................. 43,715 39,922
Authorized 100,000,000 shares; issued 35,358,196
shares -- September 30, 1994 and 35,369,657
shares -- December 31, 1993
Retained earnings.............................................. 375,821 342,441
Foreign currency translation adjustment........................ (5,150) (21,892)
Investment valuation allowance................................. (589) (660)
Adjustment for minimum pension liability....................... (1,240) (1,330)
-------- --------
Total stockholders' equity.......................................... 412,557 358,481
-------- --------
Total liabilities and stockholders' equity.......................... $661,813 $603,227
======== ========
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LOCTITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included in the accompanying
unaudited financial statements. All such adjustments are of a normal recurring
nature.
The notes to the consolidated financial statements contained in Loctite
Corporation's December 31, 1993 Annual Report on Form 10-K should be read in
conjunction with the consolidated financial statements and notes to consolidated
financial statements contained herein.
NOTE 2 -- POSTEMPLOYMENT BENEFITS
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS No. 112). The statement requires the recognition
of the cost of postemployment benefits (after employment but before retirement)
on an accrual basis. In prior years, the Company expensed the cost of such
benefits when paid. The effect of adoption in 1994 for postemployment benefits
under SFAS No. 112 is not material to the Company.
NOTE 3 -- ACQUISITIONS
During the first quarter of 1994, the Company completed the acquisition of
100% of the capital stock of Plastic Padding Holdings Limited, a producer of
automotive aftermarket chemical products with distribution networks in the U.K.,
Ireland, and Scandinavia. The acquisition was accounted for as a purchase with
the results of Plastic Padding included from the effective date of the
acquisition. In April 1994, the Company also completed the purchase of the
remaining 49% interest in its subsidiary in Thailand, bringing the Company's
total ownership to 100%. In September 1994, the Company acquired certain assets
and liabilities from its distributors in Finland and Turkey and now operates
wholly owned subsidiaries in these countries.
The cost of these acquisitions is not material to the Company for purposes
of pro forma presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND CHANGES IN FINANCIAL CONDITION
OPERATING RESULTS
QUARTER ENDED SEPTEMBER 30, 1994 VERSUS QUARTER ENDED SEPTEMBER 30, 1993
Loctite management primarily measures the results of the Company based on
businesses and regions. Trade sales between regions are reflected as sales of
the region servicing the customer.
Net sales for the quarters ended September 30, 1994, and September 30,
1993, were $183.3 million and $153.4 million, respectively. A summary (in
millions of dollars) is as follows:
QUARTER QUARTER LOCAL
ENDED ENDED DOLLAR CURRENCY
9/30/94 9/30/93 % GROWTH % GROWTH
------- ------- -------- --------
SALES:
North American Region............................. $ 76.4 $ 69.1 11% 11%
European Region................................... 66.6 53.6 24 18
Asia/Pacific Region............................... 19.7 16.0 23 18
Latin American Region............................. 17.8 12.3 44 46
Luminescent Systems............................... 2.8 2.4 19 18
------ ------ --- ---
TOTAL SALES.................................. $183.3 $153.4 20% 17%
====== ====== === ===
Industrial Business:
North American Region............................. $ 40.2 $ 36.7 10% 10%
European Region................................... 33.4 27.1 23 17
Asia/Pacific Region............................... 17.2 14.1 22 18
Latin American Region............................. 5.1 4.3 18 19
Luminescent Systems............................... 2.8 2.4 19 18
------ ------ --- ---
Total Industrial Business Sales.............. $ 98.7 $ 84.6 17% 14%
====== ====== === ===
Automotive Aftermarket Business:
North American Region............................. $ 16.3 $ 15.0 9% 10%
European Region (excluding Plastic Padding
Holdings)....................................... 7.4 7.0 7 0
Plastic Padding Holdings.......................... 3.7 -- -- --
Asia/Pacific Region............................... 2.2 1.6 38 30
Latin American Region............................. 2.3 1.9 18 20
------ ------ --- ---
Total Automotive Aftermarket Business
Sales...................................... $ 31.9 $ 25.5 25% 23%
====== ====== === ===
Retail (Consumer) Business:
North American Region............................. $ 19.9 $ 17.4 15% 15%
European Region (excluding Plastic Padding
Holdings)....................................... 21.5 19.5 11 6
Plastic Padding Holdings.......................... .6 -- -- --
Asia/Pacific Region............................... .3 .3 (15) (28)
Latin American Region............................. 10.4 6.1 71 73
------ ------ --- ---
Total Retail (Consumer) Business Sales....... $ 52.7 $ 43.3 22% 20%
====== ====== === ===
- - ---------------
Plastic Padding Holdings Limited was acquired in the first quarter of 1994.
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Sales in the North American region increased by 11% in local currency and
U.S. dollars in the third quarter of 1994 as compared to the third quarter of
1993, with rates of local currency growth ranging between 10% and 15% across the
three businesses. Increased volumes in most core products contributed to the 10%
growth in both local currency and U.S. dollars in the industrial business. The
automotive aftermarket, which had been lagging in previous quarters,
significantly improved as the business benefited from new products gaining
distribution and the addition of some niche distributors. Sales in the retail
(consumer) business grew by 15% in local currency and U.S. dollars over the
prior year quarter due to volume increases in major product lines.
In the European region, local currency sales growth of 18% was enhanced to
24% as the exchange rate comparison turned favorable. European sales excluding
Plastic Padding increased 10% in local currency and 16% in U.S. dollars compared
to the third quarter of 1993. All major countries other than Germany reported
local currency sales growth, with Italy and Spain showing double digit
percentage sales gains. The European business environment has begun to
contribute to sales growth, but the major element of sales increases resulted
from the Company's focused sales and marketing efforts in underpenetrated
markets. Major industrial and consumer product lines increased in volumes, while
Plastic Padding sales were responsible for sales gains in the automotive
aftermarket business.
The Asia/Pacific region maintained its momentum, growing sales by 18% in
local currency and 23% when converted to U.S. dollars. All major countries
reported sales gains. Japan, which began to show sales increases in the second
quarter of 1994, continued to strengthen as the Company's effort in new
sub-markets and new applications in the industrial area began to show results.
The Japanese economy is still sluggish and only nominally aided the Company's
efforts. Australia's 8% local currency sales gains translated to 19% in U.S.
dollars. China's sales increase of 136% in local currency was reduced to 58%
when converted to U.S. dollars. All other subsidiaries reported double digit
percentage growth in both local currency and U.S. dollars.
The Latin American region reported sales gains of 44% in U.S. dollars. All
countries, with the exception of Venezuela, experienced sales gains. The retail
(consumer) business, where approximately 60% of the region's sales occurred,
increased by 71% in U.S. dollars, primarily due to a doubling of sales of a
major product line. Brazil, the largest contributor to sales, reported 60% sales
growth as compared to the third quarter of 1993. There were three key elements
in this exceptional growth: Problems with a distributor in the retail (consumer)
business resulted in decreased sales in the third quarter of last year;
distribution channels for the Company's products were being refilled during the
third quarter of 1994 after the disruption experienced in the second quarter of
this year with the uncertainty about the change of currency on the first of
July; and the strengthening of local currency against the dollar by 15%.
Luminescent Systems' sales increased by 19% in U.S. dollars in the third
quarter of 1994 as compared to the third quarter of 1993. Increased sales of
commercial aircraft lighting and electronic components for the auto industry
were the primary contributors to the sales gains.
Gross margin increased from 60.5% in the third quarter of 1993 to 61.1% in
the third quarter of 1994. The improved margins in the Latin American region and
Luminescent Systems were partially offset by the decrease in the other three
regions' gross margins.
Operating expenses as a percentage of sales in the third quarters of 1994
and 1993 were 44% and 45%, respectively. In total, operating expenses increased
17% or $11.6 million. Plastic Padding, acquired in the first quarter of 1994,
accounted for $1.4 million of the increase. Excluding Plastic Padding, marketing
expenses increased 18% or $8.5 million to support sales growth, and
administrative expenses increased 10% or $1.6 million. Total research and
development expenses increased 3% or $0.2 million.
Investment income for the quarter ended September 30, 1994, was $0.9
million lower than the respective prior year quarter principally as a result of
lower average interest rates and deposit levels in foreign locations.
Net foreign exchange gain (loss) improved by $2.4 million during the three
month period versus the comparable prior year 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 quarter of dramatically reducing the
rate of
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inflation and was accompanied by an appreciating currency, in contrast to rates
of inflation and currency devaluation in excess of 30% per month during the
third quarter of the prior year.
Income taxes remained at 25% of earnings before taxes for the comparable
three month periods.
NINE MONTHS ENDED SEPTEMBER 30, 1994 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1993
Net sales for the nine months ended September 30, 1994, and September 30,
1993, were $521.0 million and $460.6 million, respectively. A summary (in
millions of dollars) is as follows:
9 MONTHS 9 MONTHS LOCAL
ENDED ENDED DOLLAR CURRENCY
9/30/94 9/30/93 % GROWTH % GROWTH
-------- -------- -------- --------
SALES:
North American Region.............................. $217.5 $201.5 8% 9%
European Region.................................... 195.9 168.5 16 18
Asia/Pacific Region................................ 52.8 43.9 21 17
Latin American Region.............................. 46.5 38.3 21 23
Luminescent Systems................................ 8.3 8.4 0 0
------ ------ --- ---
TOTAL SALES................................... $521.0 $460.6 13% 14%
====== ====== === ===
Industrial Business:
North American Region.............................. $118.2 $106.9 11% 11%
European Region.................................... 100.3 88.3 14 15
Asia/Pacific Region................................ 46.5 38.6 20 16
Latin American Region.............................. 13.8 12.7 8 9
Luminescent Systems................................ 8.3 8.4 0 0
------ ------ --- ---
Total Industrial Business Sales............... $287.1 $254.9 13% 13%
====== ====== === ===
Automotive Aftermarket Business:
North American Region.............................. $ 44.8 $ 44.7 0% 1%
European Region (excluding Plastic Padding
Holdings)........................................ 22.9 22.1 4 5
Plastic Padding Holdings........................... 10.6 -- -- --
Asia/Pacific Region................................ 5.2 4.0 32 27
Latin American Region.............................. 6.3 6.0 5 8
------ ------ --- ---
Total Automotive Aftermarket Business Sales... $ 89.8 $ 76.8 17% 18%
====== ====== === ===
Retail (Consumer) Business:
North American Region.............................. $ 54.5 $ 49.9 9% 9%
European Region (excluding Plastic Padding
Holdings)........................................ 60.2 58.1 4 7
Plastic Padding Holdings........................... 1.9 -- -- --
Asia/Pacific Region................................ 1.1 1.3 (10) (13)
Latin American Region.............................. 26.4 19.6 35 36
------ ------ --- ---
Total Retail (Consumer) Business Sales........ $144.1 $128.9 12% 13%
====== ====== === ===
- - ---------------
Plastic Padding Holdings Limited was acquired in the first quarter of 1994.
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Sales in the first nine months of 1994 in the North American region
increased 9% in local currency and 8% in U.S. dollars over the comparable prior
year period. Volume increases in core industrial products contributed to the 11%
growth in local currency and U.S. dollars in the industrial business. The retail
(consumer) business reported sales growth of 9% in local currency and U.S.
dollars, in large part due to increases in sales of major product lines. Sales
in the automotive aftermarket business were flat as compared to sales in the
same time period last year.
Year-to-date sales in the European region grew by 18% in local currency and
16% in U.S. dollars over the comparable 1993 nine month period. The favorable
exchange rate comparison in the third quarter of 1994 lessened the negative
impact of the relatively stronger dollar which prevailed during the first two
quarters of this year. Excluding Plastic Padding sales, the European region's
sales increased by 11% in local currency and 9% in U.S. dollars over the first
nine months of 1993. All major countries reported sales growth, with Italy and
Spain reporting double digit local currency percentage sales gains.
The 17% increase in sales over the comparable 1993 period in the
Asia/Pacific region translated to 21% in U.S. dollars. Japan showed a modest
increase in year-to-date local currency sales which became an 11% gain when
converted to U.S. dollars, and Australia's 7% local currency sales increase
translated to 13% in U.S. dollars. Due to the relative strength of the U.S.
dollar versus the Chinese Yuan, U.S. dollar sales in China were flat as compared
to the prior year nine month period although local currency sales grew 49%. All
other countries registered double digit sales gains in both local currency and
U.S. dollars.
The Latin American region recorded a strong increase in sales of 21% in
U.S. dollars. All countries with the exception of Venezuela registered sales
gains. Brazil's year-to-date sales were 27% higher in U.S. dollars than the
comparable prior year period as a result of the 60% growth in the third quarter
of 1994 versus the third quarter of 1993. Buyers reacted positively during the
third quarter of 1994 to the government's implementation of a new financial
package and currency on the first of July. The retail (consumer) business in the
Latin American region reported 35% U.S. dollar sales gains as sales of major
consumer products expanded.
The 1994 third quarter sales gain reported by Luminescent Systems offset
sales declines of the prior two quarters, making year-to-date sales flat as
compared to last year. Actual 1994 baseline sales were ahead of 1993 by 5% when
one time shipments for the English Channel Tunnel project are excluded from
first quarter sales of 1993.
Gross margin as a percentage of sales increased from 60% for the first nine
months of 1993 to 61% for the first nine months of 1994. The increase in the
Latin American region's margin as well as geographic mix were the primary
factors of this positive change.
Year-to-date operating expenses as a percentage of sales remained unchanged
at 44% from the comparable prior year period. Total operating expenses increased
by 14% or $27.8 million with Plastic Padding accounting for $4.2 million of the
increase. Excluding Plastic Padding, marketing expenses increased 15% or $20.2
million to support increased sales, and administrative expenses increased 6% or
$2.9 million. Research and development expenses increased by 2% or $0.4 million.
Investment income decreased by $1.6 million in the nine month period ended
September 30, 1994, versus the comparable prior year period due largely to lower
average interest rates and deposit levels in foreign locations.
Other expense increased by $1.3 million during the nine month period ended
September 30, 1994, versus the prior year nine month period due largely to a
loss associated with the disposition of a small division, Canton Biomedical
Division of Loctite V.S.I., Inc., during the first quarter of 1994 and to losses
recorded on the disposition of fixed assets in the third quarter of 1994.
Net foreign exchange gain (loss) improved by $1.4 million during the nine
month period ended September 30, 1994, versus the comparable prior year period
due principally to the favorable effects in the third quarter associated with
the new economic plan and currency in Brazil as more fully discussed in the
section on quarter results.
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Income taxes as a percentage of earnings before taxes were 25% for the nine
month periods ended September 30, 1994 and 1993.
FINANCIAL CONDITION
Cash and cash equivalents were $28.2 million at September 30, 1994, and
$44.6 million at December 31, 1993. The decrease was primarily a result of the
acquisition of Plastic Padding Holdings, additions to property, plant and
equipment, dividends paid, increased trade receivables and a decrease in
short-term debt, partially offset by net earnings and a reduction in short-term
investments. For complete details of the change in cash and cash equivalents,
please see the financial statement titled "Consolidated Statement of Cash
Flows."
Accounts and notes receivable increased by $27.7 million, including a $6.3
million currency effect from December 31, 1993, to September 30, 1994. The large
increase resulted from increased sales activity in the third quarter of 1994
compared to the fourth quarter of 1993.
The $27.6 million increase in net property, plant and equipment including a
$6.5 million currency impact from December 31, 1993, to September 30, 1994, was
primarily a result of the construction of the Company's new 200,000 square foot
facility on 57 acres of land in Rocky Hill, Connecticut. The facility was
completed in the third quarter. From inception of the construction through
September 30, 1994, a total of $6.8 million was spent on land and land
improvements and $32.5 million was spent on the building for the Rocky Hill
facility. Expenditures in 1994 amounted to $13.8 million for the building. Total
machinery and equipment increased by $19.6 million due to a $5.9 million
currency impact, increased capabilities in manufacturing facilities, upgrades in
management information systems and the purchase of lab equipment and furnishings
for the new Rocky Hill facility. Assets acquired in conjunction with the
acquisition of Plastic Padding Holdings also contributed to the increase in net
property, plant and equipment.
The increase in goodwill from $80.1 million at December 31, 1993, to $92.1
million at September 30, 1994, was primarily due to the acquisition of Plastic
Padding Holdings during the first quarter of 1994.
Accrued liabilities -- other increased from $12.9 million at December 31,
1993, to $24.5 million at September 30, 1994, primarily due to a
reclassification of the North American restructuring charge recorded in 1992
from other long-term liabilities to reflect the current portion of this
liability.
The reduction in the negative foreign currency translation adjustment in
stockholders' equity from $21.9 million at December 31, 1993, to $5.2 million at
September 30, 1994, was due to the effect of a comparatively weaker U.S. dollar
on the Company's net asset position at September 30 in its foreign subsidiaries.
ACQUISITIONS
During the first quarter of 1994, the Company acquired Plastic Padding
Holdings Limited, a producer of automotive aftermarket chemical products with
strong brand presence and established distribution networks in the U.K.,
Ireland, and Scandinavia.
In April 1994, the Company purchased the remaining 49% interest in its
subsidiary in Thailand, bringing the Company's percent of voting stock owned to
100%.
In September 1994, the Company acquired certain assets and liabilities from
its distributors in Finland and Turkey and now operates wholly owned
subsidiaries in these countries.
The cost of these acquisitions was not material to the Company.
SALE OF DIVISION
The Company sold a small division, Canton Biomedical Division of Loctite
VSI, Inc., to Chemfab Corporation and recorded a loss of $0.8 million in the
first quarter of 1994.
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ADOPTION OF ACCOUNTING PRONOUNCEMENT
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS No. 112). The statement requires the recognition
of the cost of postemployment benefits (after employment but before retirement)
on an accrual basis. In prior years, the Company expensed the cost of such
benefits when paid. The effect of adoption in 1994 for postemployment benefits
under SFAS No. 112 is not material to the Company.
ENVIRONMENTAL MATTERS
Continuing compliance with existing federal, state, and local provisions
dealing with protection of the environment is not expected to have a material
effect upon the Company's capital expenditures, earnings, and competitive
position. As previously reported in its 1992 and 1993 Annual Reports on Form
10-K, the Company has been investigating a soil and groundwater contamination
problem at its Newington, Connecticut, facility which has probably resulted from
the failure of an underground storage tank and/or prior waste handling practices
by Company personnel, or by other prior or concurrent users of the site, and/or
adjacent sites. The tank, which formerly held chlorinated solvents, has been
removed. Consultants hired by the Company have been working closely with
officials of the Connecticut Department of Environmental Protection ("DEP") to
identify the exact source(s) of the contamination and its/their parameters. The
company spent approximately $170,000 in fiscal 1993 and will spend approximately
$450,000 in fiscal 1994 in continuing subsurface investigation and is nearing
the completion of the investigative phase of the work at this site. The Company
expects to spend approximately $450,000 in 1995 for capital equipment to be used
to implement a site remediation plan developed by the Company's environmental
consultants and approximately $250,000 for additional professional consulting
services related thereto, including additional investigative work, on-going
operation and maintenance of equipment, and initial monitoring costs.
In the future it is possible that the Company may become subject to a
corrective action order under the Resource Conservation and Recovery Act
("RCRA") by the United States Environmental Protection Agency ("EPA"), which
would involve an EPA supervised remediation program. However, the Company is
continuing discussions with the EPA as to whether the EPA has jurisdiction over
the Newington site, since it is the Company's belief that it has never operated
as a treatment, storage or disposal facility for hazardous wastes, but only as a
generator of such wastes. If the EPA agrees with the Company's position, then
remediation of the Newington site would be overseen only by the DEP. If the EPA
does not agree with the Company's position and issues a corrective action order,
it is possible that the Company might have to modify some aspects of its
remediation plan. However, the Company does not believe, based on advice from
its consultants, that the EPA's approach to remediation is likely to differ in
any material way from that now being implemented by the Company. After 1995, the
Company believes that it will be necessary to spend approximately $65,000 per
year for an indefinite period to operate and maintain the site remediation
equipment and does not presently anticipate any further expenditures in
connection with site remediation.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K -- none
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOCTITE CORPORATION
-------------------
(Registrant)
Date: November 14, 1994 By: /s/ DAVID FREEMAN
-----------------------------------------
David Freeman
President and Chief Executive Officer
Date: November 14, 1994 By: /s/ ROBERT L. ALLER
-----------------------------------------
Robert L. Aller, Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
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