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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, 1994
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)
DELAWARE 06-0701067
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
10 COLUMBUS BOULEVARD, HARTFORD, CT 06106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 520-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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
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 28, 1995 was $1,623,470,375. On that date, there were
35,389,000 outstanding shares of the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the 1995 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, 1994
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................................ 14
Item 9. Disagreements on Accounting and Financial Disclosure....................... 38
PART III
Item 10. Directors and Executive Officers of Registrant............................. 39
Item 11. Executive Compensation..................................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 39
Item 13. Certain Relationships and Related Transactions............................. 39
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 40
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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
consumer 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 moved ahead with its decision to consolidate the
industrial and automotive aftermarket and consumer groups into the North
American Region. The North American Region includes all of the Company's U.S.,
Canadian, Mexican, and Caribbean business activities, except for its
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 sealants
and adhesives 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 sealants and
adhesives 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 sealants and
adhesives having different chemical properties designed to suit a wide variety
of applications. Special and standard equipment for the application of sealants
and adhesives is also marketed by the Company, along with a variety of specialty
chemical items which complement the sealants and adhesives line. The principal
products are anaerobic sealants and adhesives and cyanoacrylate adhesives.
Anaerobics. Anaerobic sealants and adhesives 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 sealants and adhesives can be used without solvent removal
processes, and in many cases permit the relaxation of machining
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tolerances. The net result is less complexity in manufacture and assembly
operations for the user, frequently providing substantial overall cost savings.
Anaerobic sealants and adhesives 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 Sealants, Adhesives and Related Products. The Company manufactures
and sells other engineering adhesives, 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, hand cleaners, and electroluminescent
lamps.
Marketing
The Company sells its products in essentially all industrialized countries
of the world. Sales in North America and in Europe for the year ended December
31, 1994 accounted for approximately 42% and 37%, respectively, of consolidated
net sales. Sales in the balance of the world accounted for approximately 21% of
consolidated net sales.
The Company has three principal user markets for its products: the
industrial market, the retail (consumer) market, and the automotive aftermarket.
The Company reaches user markets through its four regional marketing
organizations: North American; European; Latin American; and Asia/Pacific. 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(consumer) 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.
The backlog of firm orders as of December 31, 1994 was $22.4 million versus
$19.0 million as of December 31, 1993. The current backlog is expected to be
substantially filled within the current fiscal year.
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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 10 percent or more of
consolidated net sales.
Research and Development
Research and development expenditures were $28.0 million for the year ended
December 31, 1994, $26.7 million for the year ended December 31, 1993, and $26.2
million for the year ended December 31, 1992.
Competition
Competitive products, including anaerobic sealants and adhesives and
cyanoacrylate adhesives, are being marketed in countries where the Company
conducts business. The Company has patent protection on various aspects of its
sealants and adhesives in the United States and, to a lesser extent, in a number
of foreign countries. Nearly all competitive anaerobic sealants and adhesives
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, it believes that 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 sealants and adhesives are available, many of which are
produced by companies which are larger and have substantially greater financial
resources than the Company. Alternatives to liquid sealants and adhesives, 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, and competitive
position. For further discussion on environmental matters, see Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Employees
At December 31, 1994, the Company had approximately 4,200 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 sealants and adhesives, and certain other sealants and adhesives,
including cyanoacrylate adhesives, or on related products, uses, or
manufacturing processes. These patents expire on various dates from 1995 to
2012. 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). Listed below are the approximate
square footage numbers by region.
-- The North American properties total 1,110,000 square feet, of which
176,000 square feet are leased. Major locations include 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). In August of 1994, the
consolidated North American sales, marketing, and administrative
functions, as well as the research, development, and engineering
functions moved into a new 200,000 square foot building on 57 acres in
Rocky Hill, Connecticut.
-- The European properties total 656,000 square feet, of which 310,000
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 (70,000 square feet), Sweden (65,000
square feet), and the U.K. (41,000 square feet), which include
warehousing, marketing, and administrative functions.
-- The Latin American properties total 190,000 square feet, of which 38,000
square feet are leased. The largest facility is in Brazil (126,000
square feet), which is used for manufacturing, marketing, warehousing,
and administrative functions.
-- The Asia/Pacific properties total 279,000 square feet, of which 104,000
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, 1994.
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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 28, 1995, was 3,744. 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.
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
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
YEAR ENDED DECEMBER 31, 1993
-------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
Market price of Loctite stock
--High............................................... $ 45 5/8 $ 42 3/8 $ 41 1/2 $ 38 7/8
--Low................................................ $ 38 $ 35 7/8 $ 35 1/8 $ 34 3/4
Dividends per share.................................... $ .19 $ .20 $ .20 $ .20
YEAR ENDED DECEMBER 31, 1992
-------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
Market price of Loctite stock
--High............................................... $ 50 7/8 $ 47 5/8 $ 45 3/8 $ 47 3/4
--Low................................................ $ 44 1/4 $ 40 1/2 $ 39 5/8 $ 40 5/8
Dividends per share.................................... $ .17 $ .19 $ .19 $ .19
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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 and as noted)
SELECTED FINANCIAL DATA
RESTATED TO A CALENDAR YEAR BASIS
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1992 1991
------------ ------------ ------------ ------------
OPERATING RESULTS
Net sales.................................... $703.6 $612.6 $608.0 $561.2
Percentage increase (decrease).......... 15% 1% 8% 1%
Sales by region:
North America........................... 42% 44% 42% 42%
Europe.................................. 37% 36% 40% 39%
Latin America........................... 9% 8% 8% 8%
Asia/Pacific............................ 10% 10% 8% 8%
Luminescent Systems and Other........... 2% 2% 2% 3%
Gross margin as a percentage of sales........ 61% 61% 62% 61%
Pretax earnings as a percentage of sales..... 16% 15% 16% 17%
Effective tax rate........................... 25% 25% 24% 27%
Net earnings................................. $ 82.4 $ 68.3 $ 72.1 $ 69.6
Percentage increase (decrease).......... 21% (5%) 4% 5%
Net earnings as a percentage of sales........ 12% 11% 12% 12%
Return on average stockholders' equity....... 21% 19% 19% 21%
Net earnings per share....................... $ 2.33 $ 1.92 $ 1.98 $ 1.91
Dividends per share.......................... $ .82 $ .79 $ .74 $ .68
Dividends declared as a percentage of
earnings................................... 35% 41% 37% 36%
FINANCIAL POSITION
Current ratio................................ 1.6 1.5 2.2 2.3
Working capital.............................. $123.9 $116.4 $167.2 $168.0
Net property, plant and equipment............ $203.3 $166.2 $140.4 $122.1
Capital expenditures......................... $ 57.3 $ 44.5 $ 40.2 $ 33.5
Depreciation................................. $ 23.8 $ 18.1 $ 17.4 $ 15.4
Total assets................................. $669.1 $603.2 $553.5 $526.6
Long-term liabilities........................ $ 28.0 $ 32.2 $ 36.4 $ 40.3
Debt as a percentage of net worth............ 24% 33% 13% 13%
Stockholders' equity......................... $423.4 $358.5 $379.7 $357.7
OTHER DATA
Number of employees at year end.............. 4,242 3,953 3,689 3,587
Average shares outstanding (in thousands).... 35,373 35,606 36,375 36,387
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DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1990 1989 1988 1987
------------ ------------ ------------ ------------
OPERATING RESULTS
Net sales.................................... $555.2 $473.9 $438.9 $383.4
Percentage increase (decrease).......... 17% 8% 14% 31%
Sales by region:
North America........................... 40% 41% 41% 41%
Europe.................................. 40% 39% 41% 40%
Latin America........................... 9% 8% 7% 8%
Asia/Pacific............................ 8% 8% 8% 7%
Luminescent Systems and Other........... 3% 4% 3% 4%
Gross margin as a percentage of sales........ 61% 62% 62% 60%
Pretax earnings as a percentage of sales..... 16% 17% 16% 14%
Effective tax rate........................... 27% 29% 30% 31%
Net earnings................................. $ 66.3 $ 58.2 $ 47.6 $ 36.7
Percentage increase (decrease).......... 14% 22% 30% 45%
Net earnings as a percentage of sales........ 12% 12% 11% 10%
Return on average stockholders' equity....... 23% 25% 23% 20%
Net earnings per share....................... $ 1.82 $ 1.62 $ 1.33 $ 1.01
Dividends per share.......................... $ .59 $ .53 $ .37 $ .27
Dividends declared as a percentage of
earnings................................... 32% 33% 28% 27%
FINANCIAL POSITION
Current ratio................................ 2.8 3.0 2.8 2.4
Working capital.............................. $209.2 $187.3 $163.3 $141.5
Net property, plant and equipment............ $104.9 $ 82.2 $ 70.1 $ 77.1
Capital expenditures......................... $ 29.4 $ 23.6 $ 15.0 $ 16.8
Depreciation................................. $ 11.8 $ 11.3 $ 9.3 $ 9.2
Total assets................................. $486.8 $402.0 $357.0 $352.7
Long-term liabilities........................ $ 49.1 $ 46.4 $ 44.8 $ 49.6
Debt as a percentage of net worth............ 18% 17% 20% 32%
Stockholders' equity......................... $319.0 $259.7 $223.3 $201.7
OTHER DATA
Number of employees at year end.............. 3,680 3,497 3,327 3,237
Average shares outstanding (in thousands).... 36,402 35,978 35,900 36,242
DECEMBER 31, DECEMBER 31,
1986 1985
------------ ------------
OPERATING RESULTS
Net sales.................................... $292.4 $239.9
Percentage increase (decrease).......... 22% (2%)
Sales by region:
North America........................... 47% 58%
Europe.................................. 36% 29%
Latin America........................... 7% 7%
Asia/Pacific............................ 8% 6%
Luminescent Systems and Other........... 2% --
Gross margin as a percentage of sales........ 58% 59%
Pretax earnings as a percentage of sales..... 13% 12%
Effective tax rate........................... 35% 34%
Net earnings................................. $ 25.3 $ 19.1
Percentage increase (decrease).......... 32% (26%)
Net earnings as a percentage of sales........ 9% 8%
Return on average stockholders' equity....... 17% 15%
Net earnings per share....................... $ .70 $ .53
Dividends per share.......................... $ .22 $ .20
Dividends declared as a percentage of
earnings................................... 31% 38%
FINANCIAL POSITION
Current ratio................................ 2.0 2.0
Working capital.............................. $ 87.0 $ 85.7
Net property, plant and equipment............ $ 62.9 $ 53.8
Capital expenditures......................... $ 10.6 $ 9.2
Depreciation................................. $ 7.5 $ 6.5
Total assets................................. $270.4 $240.3
Long-term liabilities........................ $ 19.2 $ 17.3
Debt as a percentage of net worth............ 24% 25%
Stockholders' equity......................... $164.6 $139.0
OTHER DATA
Number of employees at year end.............. 2,884 2,631
Average shares outstanding (in thousands).... 36,260 36,100
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATIONS
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. 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 of sales activity (in millions) is as follows:
LOCAL
DOLLAR CURRENCY
1994 1993 % GROWTH % GROWTH
------ ------ --------- --------
SALES:
North American Region....................... $293.5 $270.6 8% 9%
European Region............................. 244.5 219.7 11 11
Plastic Padding Holdings.................... 16.0 -- -- --
Asia/Pacific Region......................... 72.6 60.0 21 16
Latin American Region....................... 65.6 51.8 27 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............................. 135.6 116.9 16 15
Plastic Padding Holdings.................... .4 -- -- --
Asia/Pacific Region......................... 63.9 52.9 21 16
Latin American Region....................... 19.0 16.8 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....................... $ 61.9 $ 60.7 2% 3%
European Region............................. 30.5 28.6 7 5
Plastic Padding Holdings.................... 13.4 -- -- --
Asia/Pacific Region......................... 7.2 5.5 30 24
Latin American Region....................... 8.6 7.9 9 12
------ ------ -- --
Total Automotive Aftermarket
Business Sales....................... $121.6 $102.7 18% 18%
====== ====== == ==
Retail (Consumer) Business:
North American Region....................... $ 70.5 $ 65.1 8% 8%
European Region............................. 78.4 74.2 6 6
Plastic Padding Holdings.................... 2.2 -- -- --
Asia/Pacific Region......................... 1.5 1.6 (4) (7)
Latin American Region....................... 38.0 27.1 40 41
------ ------ -- --
Total Retail (Consumer) Business
Sales................................ $190.6 $168.0 13% 14%
====== ====== == ==
Plastic Padding Holdings Limited was acquired in the first quarter of 1994.
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,
and changes in customers. Such factors are not quantifiable individually due to
the diversity of markets, product formulations, and product packages.
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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 (Consumer) business by $5.4
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 $40.8 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 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 Asia/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, 27% in U.S.
dollars. One of the core consumer 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
year ended December 31, 1994. For further discussion of income taxes, see Notes
to Consolidated Financial Statements, Note 4, Income Taxes.
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YEAR ENDED DECEMBER 31, 1993 VERSUS YEAR ENDED DECEMBER 31, 1992
For the year ended December 31, 1993, net sales were $612.6 million, an
increase of $4.6 million or 1% over the prior year. A summary of sales activity
(in millions) is as follows:
LOCAL
DOLLAR CURRENCY
1993 1992 % GROWTH % GROWTH
------ ------ -------- --------
North American Industrial.................. $154.4 $141.8 9% 10%
U.S. AAM & Retail (Consumer)............... 116.2 111.8 4 4
Europe..................................... 219.7 244.2 (10) 2
Latin America.............................. 51.8 49.9 4 4
Asia/Pacific............................... 60.0 47.2 27 20
Luminescent Systems........................ 10.5 13.1 (20) (19)
------ ------ --- ---
Total............................ $612.6 $608.0 1% 6%
====== ====== === ===
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,
and changes in customers. Such factors are not quantifiable individually due to
the wide variety of markets, product formulations, and product packages.
North American sales increased by 7% in both local currency and U.S.
dollars when compared to 1992. The North American Industrial business grew 10%
on a local currency basis and 9% on a dollar basis as a result of a focus on the
maintenance market, as well as a general upturn in industrial output in the U.S.
economy. U.S. Automotive Aftermarket (AAM) sales were flat while the Retail
(Consumer) business reported an 8% sales gain, for a combined growth of 4%.
Volume increases contributed to the growth.
Poor economic conditions in Europe held sales growth in local currency to
2% over the prior year. This figure translated to a decline of 10% when
converted to dollars because of the impact of the relatively stronger dollar
compared to last year. There was a wide range of local currency sales growth
reported within the region as each country is affected by different economic
conditions. Of the five major countries in Europe (in terms of Loctite sales),
France's local currency sales were flat with the prior year, Italy was up 11%,
the U.K. was up 6%, Germany was down 9%, and Spain had local currency growth of
1%. With respect to products, volume decreases in major industrial products were
offset by growth in other products and business mix.
Latin American sales growth in 1993 was 4%. Although Costa Rica, Colombia,
and Chile experienced double digit percentage sales growth, Brazil's sales were
down slightly. In Brazil, prices are changed monthly to keep up with the effects
of inflation (see paragraph under Inflation and Changing Prices). Excluding the
effects of inflation, Brazil reported a 5% decrease in sales versus 1992.
Unstable economic conditions were a contributing factor.
Local currency sales in the Asia/Pacific region increased by 20% versus the
prior year. This translated into a 27% increase when converted to dollars. All
countries except Japan reported strong local currency growth. Although Japan's
local currency sales decreased by 7% when compared to 1992, in dollars the
growth was 6% due to the strength of the yen relative to the U.S. dollar.
Included in this year's results are those of new subsidiaries operating in
Malaysia, Singapore, China, and India which resulted in $7.9 million of
additional sales.
Luminescent Systems sales decreased by 19% in local currency and 20% in
U.S. dollars when compared to 1992. Sales continued to suffer in response to the
decline in the defense and airline industries.
Gross margin decreased from 62% of sales in 1992 to 61% of sales in 1993.
The decrease was caused by lower margins in Europe and North America as well as
geographic mix.
As a percentage of sales, operating expenses were 45% in 1993 and 44% in
1992. In total, expenses increased $8.8 million or 3% over the prior year.
Expenses in the Company's new subsidiaries operating in Malaysia, Singapore,
India, China, Czech Republic, Slovakia, Hungary, Poland, Slovenia, and Norway
accounted for $5.8 million of the increase. Included in administrative expenses
is a $1.2 million charge related to the closing of a manufacturing facility of
Loctite Luminescent Systems, a small subsidiary which has seen
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13
its market shrink. The closing of this Rocky Hill, Connecticut facility will
allow all manufacturing for this business to be concentrated in New Hampshire,
adjacent to its management function. Additional monies were spent in the
Asia/Pacific area to strengthen the Company's industrial and automotive
aftermarket selling skills, and in Brazil, to upgrade manufacturing, technical,
and selling skills to take advantage of an underpenetrated industrial market.
North America reported expense increases of 8% primarily to support higher sales
levels. In local currencies, European expenses increased by 6% versus the prior
year, but when translated into dollars, current year expenses decreased by 7%
when compared to the prior year.
Investment income was $0.9 million lower in 1993 than in 1992 primarily as
a result of lower average interest rates on deposits in foreign locations
translated into dollars at comparatively weaker average exchange rates.
Interest expense decreased by $0.2 million year-to-year as the effects of
significant increases in average short-term debt levels in the U.S. were offset
by benefits derived from the refinancing of maturing long-term debt, the
capitalization of certain interest costs associated with the financing of
construction-in-progress, and lower average short-term debt levels in Brazil.
Net foreign exchange losses decreased by $0.8 million for the 12 month
period over the comparable 1992 period due primarily to favorable transaction
related exchange results in Ireland.
Income taxes, as a percentage of earnings before taxes, were 25% for the
year ended December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994, the Company had $33.3 million in cash and cash
equivalents, a decrease of $11.3 million from the previous year's balance. The
decrease was primarily due to capital expenditures, dividends paid, acquisitions
mentioned below, repayments of short-term debt, and an increase in trade and
other receivables, partially offset by net earnings. For complete details of the
change in cash and cash equivalents see the financial statement titled
"Consolidated Statement of Cash Flows".
The reduction of $16.9 million in time and certificates of deposit was used
to fund working capital needs.
The Company has significant financial resources available for future
growth. Time and certificates of deposit of $34.6 million, cash from operations,
and existing unused credit lines at December 31, 1994 will provide additional
financing flexibility.
The increase in accounts and notes receivable from $119.3 million at
December 31, 1993, to $139.1 million at December 31, 1994 resulted from
increased sales activity in the fourth quarter of 1994 compared to the fourth
quarter of 1993. Foreign currency changes contributed $5.1 million of the
increase.
The $11.2 million increase in inventory from December 31, 1993, to December
31, 1994 was primarily the result of North America's efforts to support higher
sales levels. In addition, North America increased safety stock to maintain
customer service while implementing new software for operations. Other
contributing factors were the added inventory level from the acquisition of
Plastic Padding and the impact of currency fluctuations to the U.S. dollar.
Deferred income tax benefits increased by $7.5 million from December 31,
1993, to December 31, 1994. For more details, see Notes to Consolidated
Financial Statements, Note 4, Income Taxes.
While not a capital intensive business, the Company's practice is to ensure
that sufficient operating capacity is available to meet its customers' needs. In
the year ended December 31, 1994, capital expenditures were $57.3 million. In
1994, the Company completed the construction of its new 200,000 square foot
facility on 57 acres of land in Rocky Hill, Connecticut accounting for
approximately 29% of total capital expenditures for the year. From inception of
the construction until the completion in the third quarter of 1994, a total of
$6.8 million was spent on land and land improvements and $35.6 million was spent
on the building. In 1994, expenditures for the building amounted to $16.8
million. Also contributing to the increase in net property, plant and equipment
was a $5.8 million currency impact and $5.9 million of equipment purchased to
support manufacturing.
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The annual capital expenditures for calendar years 1995, 1996, and 1997 are
expected to be approximately $34 - $47 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 10% will be for new product developments and research
and development. The remaining expenditures will be for building improvements,
computer equipment, legal, health and safety, and office furniture. There are no
planned projects that represent a material commitment for the Company.
The increase in goodwill from $80.1 million at December 31, 1993, to $94.7
million at December 31, 1994 was primarily due to the acquisition of Plastic
Padding in the first quarter of 1994.
Short-term debt decreased by $8.8 million year-to-year as cash was received
from the sale of two businesses (see discussion on Sale of VSI Businesses), and
because of the repatriation of foreign profits to the U.S.
Long-term debt current decreased by $11.2 million during 1994 as scheduled
promissory note payments were made in 1994.
The Company's current tax liability increased by $5.2 million during 1994,
primarily due to higher year-end tax liabilities in various countries, primarily
Brazil ($2.5 million) and France ($1.2 million). These liabilities will be paid
during 1995.
Accrued other current liabilities increased from $12.9 million in 1993 to
$21.1 million in 1994 due in part to a reclassification in the North American
restructuring liabilities of $3.9 million from accrued other long-term
liabilities. Currency had a $1.3 million effect on current liabilities and there
was a capital accrual made for $1.3 million, as two major manufacturing projects
were started in the last quarter of 1994.
In 1992, the Company recorded a pretax charge of $12.7 million for
restructuring its North American operations. Amounts charged against the accrual
were $3.3 million in 1994, $3.5 million in 1993, and $1.4 million in 1992. At
December 31, 1994, there is $0.7 million remaining recorded as a long-term
liability and $3.8 million remaining recorded as short-term liabilities.
Retirement and postretirement obligations increased from $9.8 million in
1993 to $13.2 million in 1994. For further details see Notes to Consolidated
Financial Statements, Note 10, Pension Plans, and Note 11, Postretirement Health
Care and Life Insurance Benefits.
Other long-term liabilities decreased by $8.7 million during 1994 in large
part due to the reclassification of the North American restructuring liability
to other short-term liabilities mentioned above. Also contributing to the
decrease was a reclassification from long-term to short-term of liabilities
associated with prior year acquisitions.
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, 1994,
the effect of currency changes had an immaterial effect on sales. For the year
ended December 31, 1993, the effect of a comparatively stronger dollar decreased
sales by approximately five percentage points when compared to the prior year.
The unrealized foreign currency translation adjustment included in
stockholders' equity changed from a loss of $21.9 million at December 31, 1993
to a loss of $8.6 million at December 31, 1994 due to the impact of a
comparatively weaker U.S. dollar on the Company's net asset position at December
31 in its foreign subsidiaries.
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INFLATION AND CHANGING PRICES
The Company's Brazilian subsidiary was subject to a rate of inflation in
excess of eight hundred percent in 1994, in excess of two thousand percent in
1993, and in excess of one thousand percent in 1992. If the Company excluded the
effects of inflation from the Brazilian sales value, Brazilian sales would have
been reduced by $4.5 million (1994), $8.1 million (1993), and $7.0 million
(1992) from the net sales amounts reported for Latin America. Similarly,
Brazilian earnings from operations would have been reduced by $4.0 million
(1994), $7.1 million (1993), and $5.6 million (1992) from the earnings from
operations amounts reported for Latin America.
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, which brought 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 began to operate wholly owned
subsidiaries in these countries.
In November 1994, the Company acquired certain assets from its distributors
in Denmark and merged this business with its Plastic Padding Denmark subsidiary
(now called Loctite Denmark).
In December 1994, the Company acquired the remaining 49% interest in its
Venezuelan subsidiary, which brought the Company's percent of voting stock owned
to 100%.
The cost of these acquisitions was approximately $24.3 million which is not
material to the Company for purposes of pro forma presentation.
During the first quarter of 1995 the Company acquired certain assets from
its distributor in Sweden and merged this business with its Plastic Padding
Sweden subsidiary (now called Loctite Sweden). The cost of this acquisition was
not material to the Company.
SALE OF VSI BUSINESSES
The Company sold a small division, Canton Biomedical Division of Loctite
VSI, Inc., and recorded a loss of $0.8 million in the first quarter of 1994. In
December 1994 the Company sold the balance of the Loctite VSI, Inc. business for
a gain of $1.9 million. Thus, a net pretax gain of $1.1 million was recognized
on the two separate sales of Loctite VSI, Inc. businesses in 1994.
ACCOUNTING CHANGES -- 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 employers to
accrue the cost of benefits to former or inactive employees, their beneficiaries
and covered dependents, after employment, but before retirement. In prior years,
the Company expensed the costs of such benefits when paid. In 1994,
postemployment benefit expense under SFAS No. 112 was $0.8 million.
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 1993 Annual Report on Form 10-K, the
Company has been investigating a soil and groundwater contamination problem at
its Newington, Connecticut facility which has probably resulted from the failure
of an underground storage tank and/or prior waste handling practices by Company
personnel, or by other prior or concurrent users of the site, and/or adjacent
sites. The tank, which
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16
formerly held chlorinated solvents, has been removed. Consultants hired by the
Company have been working closely with officials of the Connecticut Department
of Environmental Protection ("DEP") to identify the exact source(s) of the
contamination and its/their parameters. The Company spent approximately $0.2
million in 1993 and approximately $0.5 million in 1994 in continuing subsurface
investigation and is nearing the completion of the investigative phase of the
work at this site. The Company expects to spend approximately $0.6 million in
1995 for capital equipment to be used to implement a site remediation plan
developed by the Company's environmental consultants and approximately $0.3
million for additional professional consulting services related thereto,
including additional investigative work, on-going operation and maintenance of
equipment, and initial monitoring costs.
The DEP, in consultation with the U.S. Environmental Protection Agency, has
recently determined that the remediation program is not subject to federal
jurisdiction as a hazardous waste storage facility under the Resource
Conservation and Recovery Act. Therefore, the remediation program will be
implemented with the oversight of the DEP. Given this program, the Company
believes that the aforementioned costs are reasonable and that after 1995
expenditures will be in the range of $0.1 million per year for an indefinite
period to operate and maintain site remediation equipment. The Company does not
presently anticipate any further expenditures in connection with site
remediation beyond those mentioned above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS:
PAGE NO. IN
FORM 10-K
-----------
Report of Independent Accountants................................................ 16
Consolidated Statement of Earnings for the years ended
December 31, 1994, 1993, and 1992.............................................. 18
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1993, and 1992.............................................. 19
Consolidated Balance Sheet at December 31, 1994 and 1993......................... 20-21
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1994, 1993, and 1992.............................................. 22
Notes to Consolidated Financial Statements....................................... 23-38
Financial Statement Schedule VIII -- Valuation and Qualifying Accounts for the
years ended December 31, 1994, 1993, and 1992.................................. 45
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, 1994, 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.
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15
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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, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, 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.
Price Waterhouse L.L.P. [LOGO]
One Financial Plaza
Hartford, Connecticut
January 24, 1995
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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 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.
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.
David Freeman
President and Chief Executive Officer
Robert L. Aller
Senior Vice President and Chief Financial Officer
Richard C. Parker
Vice President -- Controller
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CONSOLIDATED STATEMENT OF EARNINGS
(amounts in thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
Net sales..................................................... $703,593 $612,612 $607,967
Cost of sales................................................. 273,421 241,818 229,175
-------- -------- --------
Gross margin.................................................. 430,172 370,794 378,792
-------- -------- --------
Research and development expense.............................. 27,986 26,700 26,152
Selling, general, and administrative expenses................. 288,256 247,912 239,640
Restructuring charges......................................... -- -- 12,740
-------- -------- --------
316,242 274,612 278,532
-------- -------- --------
Earnings from operations...................................... 113,930 96,182 100,260
Investment income............................................. 6,216 8,321 9,173
Interest expense.............................................. (6,236) (5,409) (5,593)
Other expense................................................. (6) (246) (94)
Foreign exchange loss......................................... (4,037) (7,844) (8,601)
-------- -------- --------
Earnings before income taxes.................................. 109,867 91,004 95,145
Provisions for income taxes................................... 27,467 22,751 23,064
-------- -------- --------
Net earnings.................................................. $ 82,400 $ 68,253 $ 72,081
======== ======== ========
Earnings per share............................................ $ 2.33 $ 1.92 $ 1.98
======== ======== ========
Average number of shares outstanding.......................... 35,373 35,606 36,375
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
Cash flows from operating activities:
Net earnings................................................ $82,400 $68,253 $72,081
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization............................... 28,246 22,229 21,694
Deferred income taxes....................................... (7,982) 178 (4,293)
(Gain) loss on sale of fixed assets......................... 1,330 (114) 229
Provision for losses -- accounts receivable................. 2,431 2,024 832
Undistributed (earnings) losses of affiliates............... (44) 425 (330)
Change in:
Trade and other receivables................................. (15,210) (17,040) (11,445)
Inventory................................................... (8,479) (4,686) (13,964)
Prepaid and other current assets............................ 615 (1,000) (2,098)
Accounts payable and accrued expenses....................... 10,335 (778) 9,611
Interest payable............................................ (764) 652 (395)
Taxes payable............................................... 3,889 1,428 (6,743)
Other............................................................ (1,734) 6,686 1,615
------- ------- -------
Cash provided by operating activities............................ 95,033 78,257 66,794
------- ------- -------
Cash flows from investing activities:
Additions to property, plant and equipment.................. (59,061) (46,306) (40,178)
Dispositions of property, plant and equipment............... 5,411 1,407 1,096
Additions to goodwill....................................... (16,503) (5,944) --
Intangible portion of acquisitions.......................... (3,791) -- --
Change in short-term investments............................ 21,266 (7,207) (6,775)
Purchases of long-term investments.......................... (622) (860) (835)
Maturities of long-term investments......................... 12 28 508
Sales of long-term investments.............................. 1,287 519 862
------- ------- -------
Cash used in investing activities................................ (52,001) (58,363) (45,322)
------- ------- -------
Cash flows from financing activities:
Stock repurchase............................................ (7,103) (48,328) (10,295)
Issuance of common stock.................................... 5,403 5,371 7,130
Dividends paid.............................................. (28,663) (27,980) (26,194)
Increase (decrease) in short-term debt...................... (20,163) 79,823 16,324
Borrowings of long-term debt................................ -- 88 --
Payments of long-term debt.................................. (484) (11,390) (11,181)
Payments under capital lease obligations.................... (898) (620) (604)
------- ------- -------
Cash used in financing activities................................ (51,908) (3,036) (24,820)
------- ------- -------
Effect of exchange rate changes on cash.......................... (2,412) (2,195) (2,292)
------- ------- -------
Increase (decrease) in cash and cash equivalents................. (11,288) 14,663 (5,640)
Cash and cash equivalents:
Beginning of period......................................... 44,552 29,889 35,529
------- ------- -------
End of period............................................... $33,264 $44,552 $29,889
======= ======= =======
Interest paid.................................................... $ 8,936 $ 5,638 $ 6,223
Taxes paid (net of refunds)...................................... $29,320 $22,410 $33,732
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED BALANCE SHEET
(dollars in thousands)
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 33,264 $ 44,552
Time and certificates of deposit............................. 34,594 51,499
Marketable securities........................................ 96 79
Accounts and notes receivable (less allowances of $5,811 and
$4,659)..................................................... 139,093 119,316
Other receivables............................................ 14,577 12,874
Inventories:
Finished goods.......................................... 49,824 43,248
Work in process......................................... 22,463 18,413
Raw materials........................................... 22,585 22,020
-------- --------
94,872 83,681
Deferred income tax benefit.................................. 13,978 5,473
Prepaid expenses and other current assets.................... 11,150 11,406
-------- --------
Total current assets.............................................. 341,624 328,880
-------- --------
Investments:
Marketable securities and other long-term investments........ 192 126
Venture capital investments.................................. 4,687 4,978
-------- --------
4,879 5,104
-------- --------
Property, plant and equipment:
Land and land improvements................................... 22,378 12,691
Buildings.................................................... 121,480 84,155
Machinery and equipment...................................... 197,194 161,389
Construction in progress..................................... 1,913 26,227
-------- --------
342,965 284,462
Less -- accumulated depreciation............................. 139,627 118,255
-------- --------
203,338 166,207
Deferred income tax benefit....................................... 6,463 7,429
Goodwill (net of amortization of $17,761 and $14,638)............. 94,725 80,096
Other intangibles (net of amortization of $8,743 and $7,394)...... 14,232 12,001
Other assets...................................................... 3,815 3,510
-------- --------
Total assets...................................................... $669,076 $603,227
======== ========
See accompanying Notes to Consolidated Financial Statements.
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23
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.............................................. $ 94,202 $103,047
Long-term debt -- current maturities......................... 530 11,732
Accounts payable............................................. 35,719 32,776
Accrued salaries, wages, and other compensation.............. 23,185 16,309
Accrued taxes, other than income taxes....................... 5,643 5,886
Accrued income taxes......................................... 18,956 13,798
Dividends payable............................................ 7,428 7,079
Accrued pension and retirement benefits...................... 4,407 3,022
Accrued insurance............................................ 6,595 5,936
Accrued liabilities -- other................................. 21,070 12,917
-------- --------
Total current liabilities......................................... 217,735 212,502
-------- --------
Long-term liabilities:
Long-term debt............................................... 2,694 3,028
Capital lease obligations.................................... 2,189 877
Retirement and postretirement obligations.................... 13,236 9,820
Other........................................................ 9,862 18,519
-------- --------
27,981 32,244
-------- --------
Stockholders' equity:
Common stock, $.01 par value:................................ 45,128 39,922
Authorized 100,000,000 shares; issued 35,369,678 shares at
December 31, 1994, and 35,369,657 shares at December 31,
1993
Retained earnings............................................ 389,514 342,441
Foreign currency translation adjustment...................... (8,552) (21,892)
Investment valuation allowance............................... (215) (660)
Adjustment for minimum pension liability..................... (2,515) (1,330)
-------- --------
Total stockholders' equity........................................ 423,360 358,481
-------- --------
Total liabilities and stockholders' equity........................ $669,076 $603,227
======== ========
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, DECEMBER 31, 1993, AND DECEMBER 31, 1992
(dollars in thousands, except share amounts)
COMMON STOCK TOTAL
--------------------- RETAINED STOCKHOLDERS'
SHARES VALUE EARNINGS OTHER EQUITY
---------- ------- -------- -------- -------------
Balance at December 31, 1991................... 36,384,039 $28,993 $314,537 $ 14,189 $ 357,719
---------- ------- -------- -------- ---------
Net earnings................................... 72,081 72,081
Cash dividends declared........................ (26,937) (26,937)
Stock options exercised........................ 164,788 1,846 1,846
Restricted Stock Plan awards (net of
cancellations)............................... 24,200 1,204 1,204
Thrift Investment Plan contributions........... 43,813 1,822 1,822
Common stock awards............................ 2,400 107 107
Common stock cancellations..................... (5,918) (271) (271)
U.S. tax benefit from stock options and
restricted stock............................. 2,001 2,001
Decrease in unearned portion of Restricted
Stock Plan awards............................ 412 412
Repurchase of Company stock.................... (243,200) (250) (10,743) (10,993)
Translation adjustment......................... (18,516) (18,516)
Increase in investment valuation allowance..... (416) (416)
Adjustment for minimum pension liability....... (373) (373)
---------- ------- -------- -------- ---------
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
cancellations)............................... 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
Repurchase 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
cancellations)............................... 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 cancellations..................... (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
Repurchase 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
========== ======= ======== ======== =========
See accompanying Notes to Consolidated Financial Statements.
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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. Intercompany balances and
transactions have been eliminated. 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 1993 and 1992 amounts to conform with the
1994 presentation.
Cash Equivalents
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with a maturity of three months or less
at the time of purchase to be cash equivalents. 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. Unrealized gains or losses relating to marketable
securities are recorded in stockholders' equity. The Company has investments in
seven venture capital limited partnerships, which invest in and assist growth
oriented businesses. These investments 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. Ordinary maintenance and
repairs are expensed; replacements and betterments are capitalized. The cost and
related accumulated depreciation of disposed assets are removed from the
accounts; any resulting gain or loss is reflected in earnings.
Plant and equipment is depreciated using both straight-line and accelerated
methods. Estimated lives used to compute depreciation are: land improvements, 3
to 25 years; buildings and improvements, 3 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 capitalized net interest costs of $1.1 million in 1994, $0.6 million in
1993, and $0.4 million in 1992.
Business Acquisitions
Goodwill and other intangibles are being amortized on the straight-line
method up to 40 years. The carrying value of goodwill and other intangibles is
assessed annually.
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.
23
26
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.
Long-Term Venture Capital 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 the 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.
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. This value
represents the estimated amount the Company would receive or pay to
terminate the agreements.
24
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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 10% or more of net sales. Export sales in
each of the geographic regions were below 10% in each of the years reported.
The Company's management measures results based on individual businesses
and geographic regions. Trade sales and operating expenses between regions are
reflected as those of the region servicing the customer.
North America includes the Company's operations in the United States,
Puerto Rico, Canada, Mexico, and the Caribbean. Europe includes the Company's
operations in Europe and Africa. Latin America includes the Company's operations
in South and Central America. Asia/Pacific 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 efforts of the
major laboratories of the Company together with administrative support.
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(dollars in thousands)
Net sales:
North America........................................ $293,489 $270,585 $253,611
Europe............................................... 260,564 219,652 244,159
Latin America........................................ 65,571 51,832 49,916
Asia/Pacific......................................... 72,598 60,031 47,177
Luminescent Systems & Other.......................... 11,371 10,512 13,104
-------- -------- --------
Net sales................................................. $703,593 $612,612 $607,967
======== ======== ========
Earnings from operations:
North America *...................................... $ 60,879 $ 59,290 $ 46,369
Europe............................................... 72,754 61,464 78,121
Latin America........................................ 16,499 11,681 13,479
Asia/Pacific......................................... 12,446 8,777 5,743
Luminescent Systems & Other **....................... (1,153) (3,977) (2,308)
Corporate expenses................................... (19,045) (14,990) (15,361)
Research, Development and Engineering expenses....... (28,450) (26,063) (25,783)
-------- -------- --------
Earnings from operations.................................. $113,930 $ 96,182 $100,260
======== ======== ========
Identifiable assets:
North America........................................ $240,973 $210,465 $175,503
Europe............................................... 272,556 242,900 246,412
Latin America........................................ 37,559 28,209 35,528
Asia/Pacific......................................... 83,753 73,118 57,682
Luminescent Systems & Other.......................... 13,346 13,469 16,316
Corporate............................................ 20,889 35,066 22,017
-------- -------- --------
Total assets.............................................. $669,076 $603,227 $553,458
======== ======== ========
* North American expenses included $12.7 million in restructuring charges
in the year ended December 31, 1992.
** Luminescent Systems expenses included $1.2 million in manufacturing
consolidation charges in the year ended December 31, 1993.
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,
25
28
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, Newington, and Cleveland RD&E facilities are included
with North American assets, Irish and German RD&E facilities are included with
European assets, and the Japanese RD&E facility is included with Asia/Pacific
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 as well as the cash and investments of certain
holding companies whose records are maintained at Corporate Headquarters.
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), 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 in
excess of eight hundred percent in 1994, in excess of two thousand percent in
1993, and in excess of one thousand percent in 1992. If the Company excluded the
effects of inflation from the Brazilian sales value, Brazilian sales would have
been reduced by $4.5 million (1994), $8.1 million (1993), and $7.0 million
(1992) from the net sales amounts reported above for Latin America. Similarly,
Brazilian earnings from operations would have been reduced by $4.0 million
(1994), $7.1 million (1993), and $5.6 million (1992) from the earnings from
operations amounts reported for Latin America.
26
29
NOTE 3 SHORT-TERM DEBT
Short-term debt and bank lines of credit are summarized as follows:
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(dollars in thousands)
Short-term debt:
Domestic bank debt............................................. $ 85,013 $ 96,829
Foreign bank debt.............................................. 4,838 3,537
Other.......................................................... 4,351 2,681
-------- --------
Total short-term debt............................................ $ 94,202 $103,047
======== ========
Available bank lines of credit:
Amount available to parent Company............................. $230,000 $225,000
Amount available to foreign subsidiaries....................... 35,251 28,228
-------- --------
Total available bank lines of credit............................. $265,251 $253,228
======== ========
Amounts outstanding under above bank lines of credit............. $ 89,656 $ 99,963
Average aggregate short-term bank debt........................... $107,464 $ 79,396
Maximum bank debt outstanding at any month end................... $113,551 $101,767
Average interest rate on short-term bank debt during the
period*........................................................ 5% 5%
Average interest rate on short-term bank debt at end of
period*........................................................ 6% 4%
* Average and period ending interest rates on consolidated short-term bank
debt include the effects of local currency borrowings in highly
inflationary environments, where interest rates obtained on borrowings
reflect the underlying levels of local inflation. The exception to this is
Brazil, where, because of the potential for significant distortion, the
inflation components of interest expense have been reported in the
translation component of foreign exchange loss. In 1994, this amount was
not material as there were negligible outstanding local borrowings in
Brazil. In 1993, however, this amount was $4.4 million. Substantially
offsetting this 1993 amount were exchange gains arising from the
translation of the short-term bank debt as the Brazilian currency devalued
against the U.S. dollar, at a pace generally in line with the pace of
local inflation.
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
cancelled 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,
1994.
NOTE 4 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" (SFAS No. 109).
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The Company's consolidated effective tax rates have been less than the
United States Federal statutory tax rates for the following reasons:
YEAR ENDED
DECEMBER 31,
----------------------
1994 1993 1992
---- ---- ----
U.S. Federal statutory rate...................................... 35.0% 35.0% 34.0%
Decrease resulting from operations of Irish subsidiaries......... (8.7%) (9.3%) (11.0%)
Decrease resulting from operations of Puerto Rican subsidiary.... (4.1%) (5.2%) (4.9%)
Decrease resulting from utilization of foreign operating loss
carryovers..................................................... (1.3%) (.5%) --
Increase resulting from higher taxed foreign earnings and foreign
operating losses with no current or deferred tax benefit....... 0.7% 2.3% 3.0%
Net Federal and foreign taxes on repatriated foreign earnings.... 0.7% 0.9% 1.8%
All other (individual items less than 5% of U.S. Federal
statutory rate)................................................ 2.7% 1.8% 1.3%
---- ---- ----
Effective tax rate............................................... 25.0% 25.0% 24.2%
==== ==== ====
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.
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 $32.7 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, 1994, applicable U.S. income and foreign withholding taxes
have not been provided on $212.4 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.
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31
The components of earnings before income taxes and the provision for income
taxes are as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
(dollars in thousands)
Earnings before income taxes:
United States...................................... $ 9,721 $12,870 $(1,512)*
Foreign............................................ 100,146 78,134 96,657
-------- ------- -------
$109,867 $91,004 $95,145
======== ======= =======
Current provision:
United States...................................... $ 10,223 $ 5,726 $ 5,763
Foreign............................................ 24,827 17,015 21,713
-------- ------- -------
35,050 22,741 27,476
-------- ------- -------
Deferred provision:
United States...................................... (5,913) 599 (4,779)
Foreign............................................ (1,670) (589) 367
-------- ------- -------
(7,583) 10 (4,412)
-------- ------- -------
Total provision for income taxes..................... $ 27,467 $22,751 $23,064
======== ======= =======
* Includes pre-tax charge of $12,740 for restructuring North American
operations.
Earnings before income taxes presented above is 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.
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, 1994 and December 31, 1993:
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(dollars in thousands)
Deferred tax assets:
Adjust inventory to tax basis............................ $ 2,449 $ 1,780
Accrued self-insurance................................... 2,508 2,318
Allowance for doubtful accounts.......................... 1,467 1,087
Accrued FAS 87 pension................................... 1,626 830
Postretirement/employment benefits....................... 1,925 868
Restructuring/reorganization costs....................... 1,802 3,000
Restricted compensation.................................. 917 1,083
Profit in inventory...................................... 3,034 2,350
Foreign tax credit carryforwards......................... 6,051 2,497
Net operating losses..................................... 5,390 6,575
Unremitted foreign dividends............................. (4,904) (5,864)
Interest income/expense.................................. (1,159) (1,118)
Other.................................................... 5,954 4,031
Valuation allowance...................................... (6,619) (6,535)
-------- --------
Total assets............................................... $ 20,441 $ 12,902
======== ========
Deferred tax liabilities:
Depreciation............................................. $ 1,149 $ 1,240
Other.................................................... 1,242 551
-------- --------
Total liabilities.......................................... $ 2,391 $ 1,791
======== ========
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32
As of December 31, 1994, the Company has net operating loss (NOL)
carryforwards and U.S. tax credit carryforwards which will expire, if unused, as
follows:
(dollars in thousands)
FOREIGN U.S. STATE FOREIGN TAX R&D
YEAR OF EXPIRATION NOL NOL CREDIT CREDIT
------------------------------------------------- ------- ---------- ----------- ------
1995-1999........................................ $12,951 $1,250 $ 6,051 --
After 1999....................................... 2,309 48 -- $283
Indefinite....................................... 1,091 -- -- --
------- ------ ------- ----
Total............................................ $16,351 $1,298 $ 6,051 $283
======= ====== ======= ====
The net operating losses shown above may generate future tax benefits of
$5.4 million, none of which have been recognized in the Company's financial
statements to date. The total potential benefit has been offset by a valuation
allowance because of the uncertainty of ultimate realization.
During 1994, no 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.
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
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, 1994, 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 the rise in U.S. interest rates in 1994, the estimated fair market
value of these agreements was approximately $3.2 million at December 31, 1994.
This unrecognized benefit represented the estimated amount that the Company
would have receive 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.
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33
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.
At December 31, 1994 these contracts totalled $66.4 million and the fair value
of the contracts approximated carrying value. Additionally, forward foreign
exchange contracts may be used to hedge firm foreign currency commitments. At
December 31, 1994 contracts for this purpose totalled approximately $5.5
million. 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 receivable were $125.5 million and
$105.4 million at December 31, 1994 and 1993, respectively. Notes receivable
were $19.4 million and $18.6 million at December 31, 1994 and 1993,
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 number of customers comprising the Company's customer base and their
dispersion across different businesses and geographic areas.
As of December 31, 1994, 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 noncancellable operating leases in effect at December
31, 1994:
(dollars in thousands)
1995........................................................................ $5,292
1996........................................................................ $3,753
1997........................................................................ $2,100
1998........................................................................ $1,209
1999........................................................................ $ 276
2000 and thereafter......................................................... $ 530
Rental expense was $10.8 million in 1994, $11.0 million in 1993, and $8.8
million in 1992.
NOTE 7 LONG-TERM DEBT
Long-term debt at December 31, 1994 consisted of secured domestic ($1.4
million) and foreign ($1.8 million) industrial development loans related to
facilities financing. The unsecured domestic promissory notes outstanding at
December 31, 1993 ($11.0 million) were retired in July and August of 1994.
Under the terms of the secured domestic loan, the Company must, among other
things, maintain a specified level of net worth and limit debt as a function of
equity. At December 31, 1994, there was no material difference between the fair
value of long-term debt and the carrying value.
31
34
Long-term debt at December 31, 1994 matures during the following years:
(dollars in thousands)
1995........................................................................ $ 530
1996........................................................................ $ 415
1997........................................................................ $ 414
1998........................................................................ $ 419
1999........................................................................ $ 422
2000 and thereafter......................................................... $1,024
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, 1994, 1,000,000 shares were reserved for
the program. Information regarding transactions under these plans is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
------- ------- --------
Option shares:
Outstanding at beginning of period................... 514,950 542,880 647,268
Granted.............................................. 184,000 56,000 64,000
Exercised............................................ (85,030) (77,570) (164,788)
Cancelled............................................ (8,800) (6,360) (3,600)
------- ------- --------
Outstanding at end of period......................... 605,120 514,950 542,880
======= ======= ========
Exercisable at end of period......................... 339,280 351,590 347,960
Shares reserved for future grants.................... 706,400 882,000 936,000
Price range of outstanding options at end of period:
Low................................................ $ 7.00 $ 7.00 $ 7.00
Average............................................ $26.21 $28.98 $25.59
High............................................... $47.75 $47.75 $47.75
Average price of exercised options during the
period............................................. $21.12 $13.47 $10.82
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 $1.2 million for 1994, $1.2 million for 1993 and $1.6
million for 1992. Through December 31, 1994, 500,000 shares were reserved for
the program. Information regarding transactions under this plan is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
------- ------- --------
Outstanding at beginning of period................... 215,200 251,500 335,100
Awarded.............................................. 27,900 22,500 31,200
Vested............................................... (56,125) (41,000) (107,800)
Cancelled............................................ (4,425) (17,800) (7,000)
------- ------- --------
Outstanding at end of period......................... 182,550 215,200 251,500
======= ======= ========
Shares reserved for future awards.................... 320,400 348,300 370,800
32
35
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 cost of the Company match was $1.4 million in 1994, $1.4 million in 1993,
and $1.2 million in 1992. 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 44,203 in 1994,
53,965 in 1993, and 43,813 in 1992. The average issue price was $42.12, $42.48,
and $44.32, 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.
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.
33
36
It is the Company's policy to make contributions to these plans sufficient
to meet the minimum funding requirements of applicable laws and regulations.
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.
Amounts are summarized as follows:
DECEMBER 31, DECEMBER 31,
(dollars in thousands) 1994 1993
------------ ------------
Additional minimum liability............................... $5,287 $3,463
====== ======
Intangible assets.......................................... $1,146 $1,303
Reduction of stockholders' equity.......................... $2,515 $1,330
Tax benefits............................................... $1,626 $ 830
UNITED STATES PLANS
Net U.S. periodic pension cost is summarized as follows:
YEAR ENDED DECEMBER 31,
----------------------------
(dollars in thousands) 1994 1993 1992
------ ------ ------
Service cost for benefits earned during the year......... $3,359 $3,170 $3,303
Interest cost on projected benefit obligation............ 1,997 1,721 1,794
Actual return on assets.................................. (371) (3,690) (1,300)
Net amortization and deferral............................ (1,867) 1,758 (508)
------ ------ ------
Net periodic pension cost................................ $3,118 $2,959 $3,289
====== ====== ======
The following table sets forth the U.S. defined benefit plans' funded
status and amounts recognized in the Company's consolidated balance sheet:
DECEMBER 31, DECEMBER 31,
(dollars in thousands) 1994 1993
------------ ------------
Actuarial present value of benefit obligations:
Vested benefit obligation................................ $ 29,053 $ 28,189
Non-vested benefit obligation............................ 2,910 2,119
-------- --------
Accumulated benefit obligation........................... 31,963 30,308
Effect of proposed compensation increases................ 106 196
-------- --------
Projected benefit obligation............................... 32,069 30,504
Plan assets at fair value.................................. 26,951 27,108
-------- --------
Deficiency of plan assets over projected benefit
obligation............................................... (5,118) (3,396)
Unrecognized net loss...................................... 4,672 2,761
Unrecognized net transition asset.......................... (346) (261)
Adjustment to recognize minimum liability.................. (4,198) (2,304)
-------- --------
Accrued pension cost recognized in the consolidated balance
sheet.................................................... $ (4,990) $ (3,200)
======== ========
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The projected benefit obligation for the U.S. plans was determined using
the following assumptions:
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
Weighted average discount rate............................. 8.0% 7.0%
Rate of increase in compensation levels.................... 5.0% 5.0%
Expected long-term rate of return on assets................ 9.0% 9.0%
INTERNATIONAL PLANS
Net international periodic pension cost is summarized as follows:
YEAR ENDED DECEMBER 31,
----------------------------
(dollars in thousands) 1994 1993 1992
------ ------ ------
Service cost for benefits earned during the year......... $1,793 $1,639 $1,578
Interest cost on projected benefit obligation............ 1,985 1,905 1,880
Actual (return) loss on assets........................... (875) (4,893) 662
Net amortization and deferral............................ (682) 3,781 (2,017)
------ ------ ------
Net periodic pension cost................................ $2,221 $2,432 $2,103
====== ====== ======
The following table sets forth the international defined benefit plans'
funded status and amounts recognized in the Company's consolidated balance
sheet:
DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
(dollars in thousands) BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
Actuarial present value of benefit
obligations:
Vested benefit obligation.......... $4,026 $11,229 $3,660 $11,365
Non-vested benefit obligation...... 135 1,675 -- 2,280
------ ------- ------ -------
Accumulated benefit obligation..... 4,161 12,904 3,660 13,645
Effect of proposed compensation
increases....................... 887 8,350 529 7,405
------ ------- ------ -------
Projected benefit obligation......... 5,048 21,254 4,189 21,050
Plan assets at fair value............ 7,106 14,050 6,258 13,438
------ ------- ------ -------
Excess (deficiency) of plan assets
over projected benefit obligation.. 2,058 (7,204) 2,069 (7,612)
Unrecognized plan amendments......... 492 1,855 488 2,010
Unrecognized net gain................ (980) (2,035) (985) (884)
Unrecognized net transition (asset)
liability.......................... (1,294) 2,254 (1,402) 2,281
Adjustment to recognize minimum
liability.......................... -- (1,064) -- (1,165)
------ ------- ------ -------
Prepaid (accrued) pension cost
recognized in the consolidated
balance sheet...................... $ 276 $(6,194) $ 170 $(5,370)
====== ======= ====== =======
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38
The projected benefit obligation for the international plans was determined
using the following assumptions:
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
Weighted average discount rate............................. 5.0 - 16.5% 7.0 - 15.0%
Rate of increase in compensation levels.................... 3.0 - 13.0% 3.0 - 13.0%
Expected long-term rate of return on assets................ 4.75 - 15.0% 4.75 - 15.0%
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. Expenses are determined in accordance with
local law. Pension expense for these subsidiaries amounted to $2.2 million in
the year ended December 31, 1994, $1.6 million in the year ended December 31,
1993, and $2.5 million in the year ended December 31, 1992.
NOTE 11 POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE 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 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. In 1992,
prior to the adoption of SFAS No. 106, the Company expensed the cost of such
benefits when paid. In accordance with SFAS No. 106, the transition obligation,
representing the unfunded and unrecognized accumulated past service benefit
obligation for all plan participants, may be recognized as an expense in the
year of adoption or may be amortized on a straight-line basis over a period of
up to twenty years. The Company has adopted SFAS No. 106 by electing to amortize
the transition obligation of $13.3 million over twenty years.
Postretirement benefit cost was $2.4 million in 1994, $2.6 million in 1993,
and $0.1 million in 1992. Costs recorded in 1992 were on a pay-as-you-go basis.
The Company continues to fund medical and life insurance benefit costs on a
pay-as-you-go basis.
Net periodic postretirement benefit cost is summarized as follows:
DECEMBER 31, DECEMBER 31,
(dollars in thousands) 1994 1993
------------ ------------
Service cost for benefits earned during the year........... $ 720 $ 795
Interest cost on accumulated postretirement obligation..... 1,138 1,127
Amortization of transition obligation...................... 666 666
Settlement of VSI liability*............................... (173) --
------ ------
Net periodic postretirement benefit cost................... $2,351 $2,588
====== ======
* The liabilities related to the VSI division sold in December 1994 were
reversed and recorded as a reduction of expense.
36
39
The following table sets forth the funded status and amounts recognized in
the Company's consolidated balance sheet:
DECEMBER 31, DECEMBER 31,
(dollars in thousands) 1994 1993
------------ ------------
Accumulated postretirement benefit obligation:
Retirees................................................. $ (4,645) $ (4,302)
Employees fully eligible................................. (3,094) (4,042)
Other active participants................................ (7,004) (7,119)
-------- --------
Total accumulated postretirement benefit obligation........ (14,743) (15,463)
Unrecognized transition obligation......................... 11,971 12,637
Unrecognized (gain)loss.................................... (1,768) 341
-------- --------
Accrued postretirement benefit cost recognized in the
consolidated balance sheet............................... $ (4,540) $ (2,485)
======== ========
The accumulated postretirement obligation was determined using the
following assumptions:
DECEMBER 31, DECEMBER 31,
(dollars in thousands) 1994 1993
------------ ------------
Weighted average discount rate............................. 8.5% 7.5%
Rate of increase in compensation levels.................... 5.0% 5.0%
Health care cost trend rate for next year.................. 11.0% 12.0%
Health care trend rate decreases 1% per year until ultimate
rate achieved in year.................................... 2001 2001
Ultimate health care cost trend rate....................... 5.5% 5.5%
Effect of a 1% increase in the assumed health care cost
trend rate on the accumulated postretirement benefit
obligation at year end................................... $2,200 $2,300
Effect of a 1% increase in the assumed health care cost
trend rate on the aggregate of service and interest cost
components of the net periodic postretirement benefit
cost during the year..................................... $ 284 $ 288
NOTE 12 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 employers to
accrue the cost of benefits to former or inactive employees, their beneficiaries
and covered dependents, after employment, but before retirement. In prior years,
the Company expensed the costs of such benefits when paid. In 1994,
postemployment benefit expense under SFAS No. 112 was $0.8 million.
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NOTE 13 QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------- -------- -------- --------
(dollars in thousands, except per share amounts)
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
YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------- -------- -------- --------
Net sales....................................... $149,101 $158,125 $153,385 $152,001
Gross margin.................................... $ 90,985 $ 94,512 $ 92,787 $ 92,510
Gross margin %.................................. 61% 60% 60% 61%
Net earnings.................................... $ 19,664 $ 17,444 $ 16,314 $ 14,831
Net earnings per share.......................... $ .54 $ .50 $ .46 $ .42
YEAR ENDED DECEMBER 31, 1992
-----------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------- -------- -------- --------
Net sales....................................... $147,464 $154,152 $159,643 $146,708
Gross margin.................................... $ 93,073 $ 95,714 $ 99,105 $ 90,900
Gross margin %.................................. 63% 62% 62% 62%
Net earnings.................................... $ 19,651 $ 11,605 $ 21,604 $ 19,221
Net earnings per share.......................... $ .54 $ .32 $ .59 $ .53
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, 1994.
38
41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Executive Officers of the Registrant*
POSITION OR OFFICE WITH
THE COMPANY AND BUSINESS
SERVED AS EXPERIENCE DURING PAST
NAME AGE OFFICER SINCE FIVE (5) YEAR PERIOD
- - ------------------------------ --- -------------- --------------------------------------------
David Freeman................. 50 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............... 60 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;
Vice President, Research and Development,
Bausch and Lomb, Inc., Rochester, New
York, 1985 to 1990.
Gerardus B.E.M. Briels........ 58 December 1988 Vice President and President -- North
American Region, 1991; Vice President and
President -- North American Automotive &
Consumer Group, 1989.
Robert M. Kimball............. 39 July 1993 Treasurer, 1993; Assistant Treasurer, 1986.
Eugene F. Miller.............. 52 October 1986 Vice President, Secretary and General
Counsel, 1986.
* 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 1995 Proxy Statement on pages
2-4, under the heading "ELECTION OF DIRECTORS -- Nominees for Election as
Directors" and on page 19 under the heading "ELECTION OF DIRECTORS -- Executive
Compensation and Other Information -- Section 16 Reports" is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Company's 1995 Proxy Statement under the
heading "ELECTION OF DIRECTORS -- Board of Directors, Committee Meetings and
Director Compensation" on pages 6-8, "ELECTION OF DIRECTORS -- Executive
Compensation and Other Information -- Summary Compensation Table" and
" -- Options" on pages 9-11 and "ELECTION OF DIRECTORS -- Executive Compensation
and Other Information -- Pension Benefits" and " -- Executive and Consulting
Agreements" on pages 17-18, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Company's 1995 Proxy Statement, on pages 5
and 19, 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 1995 Proxy Statement, on pages
19-20, under the heading "ELECTION OF DIRECTORS -- CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" is incorporated herein by reference.
39
42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
PAGE NO. IN
FORM 10-K
-----------
(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..................................... 44
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Registrant during the fourth quarter
ended December 31, 1994.
(c) Exhibits
(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* Deferred Compensation Plan and form of Deferred Compensation Agreement (filed as
Exhibit 5.1 to Loctite Corporation's Annual Report on Form 10-K for the fiscal
year ended June 30, 1979, and incorporated herein by reference).
(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).
40
43
(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.
(21) Subsidiaries of Registrant.
(27) Financial Data Schedule.
(99.1) Annual Report on Form 11-K of the Retirement and Savings Plan of Loctite Puerto
Rico, Inc. for the fiscal year ended June 30, 1994, and incorporated by reference
to Exhibit 99.1 to the Company's Form 10-K/A for the fiscal year ended December
31, 1993, as filed with the Securities and Exchange Commission on December 14,
1994.
*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.
41
44
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 21, 1995
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.
SIGNATURES TITLE DATE
- - --------------------------------------------- ------------------------------------------------
/s/ DAVID FREEMAN Director, President and February 21, 1995
- - --------------------------------------------- Chief Executive Officer
DAVID FREEMAN (Principal Executive
Officer)
/s/ KENNETH W. BUTTERWORTH Director, Chairman February 21, 1995
- - ---------------------------------------------
KENNETH W. BUTTERWORTH
- - --------------------------------------------- Director
JOHN K. ARMSTRONG
/s/ ROBERT E. IX Director February 21, 1995
- - ---------------------------------------------
ROBERT E. IX
/s/ FREDERICK B. KRIEBLE Director February 21, 1995
- - ---------------------------------------------
FREDERICK B. KRIEBLE
/s/ DR. ROMAN DOHR Director February 21, 1995
- - ---------------------------------------------
DR. ROMAN DOHR
/s/ DR. JURGEN MANCHOT Director February 21, 1995
- - ---------------------------------------------
DR. JURGEN MANCHOT
42
45
SIGNATURES TITLE DATE
- - --------------------------------------------- ------------------------------------------------
/s/ STEPHEN J. TRACHTENBERG Director February 21, 1995
- - ---------------------------------------------
STEPHEN J. TRACHTENBERG
/s/ WALLACE BARNES Director February 21, 1995
- - ---------------------------------------------
WALLACE BARNES
/s/ PETER C. BROWNING Director February 21, 1995
- - ---------------------------------------------
PETER C. BROWNING
/s/ STEPHEN F. PAGE Director February 21, 1995
- - ---------------------------------------------
STEPHEN F. PAGE
/s/ CHRISTOPH HENKEL Director February 21, 1995
- - ---------------------------------------------
CHRISTOPH HENKEL
/s/ ROBERT L. ALLER Senior Vice President and February 21, 1995
- - ---------------------------------------------- Chief Financial Officer
ROBERT L. ALLER (Principal Financial and
Accounting Officer)
43
46
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, 1995 appearing on page 16 of Loctite Corporation's Annual
Report on Form 10-K for the year ended December 31, 1994. We also consent to the
reference to us under the heading "Experts" in such Prospectuses.
PRICE WATERHOUSE LLP
One Financial Plaza
Hartford, Connecticut
March 14, 1995
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47
SCHEDULE VIII
LOCTITE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCES FOR DOUBTFUL ACCOUNTS
BALANCE AT ACCOUNTS
BEGINNING CHARGED TO WRITTEN OFF BALANCE AT
PERIOD OF PERIOD EXPENSES AND OTHER END OF PERIOD
- - -------------------------------------------------- ------------ ---------- ----------- -------------
(dollars in thousands)
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
Year Ended December 31, 1992...................... $5,190 $1,274 $ 1,724 $ 4,740
45