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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7608
LOCTITE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 06-0701067
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10 COLUMBUS BOULEVARD, HARTFORD, CONNECTICUT 06106
(Address of principal executive offices, including zip code)
(860) 520-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock outstanding as of March 31, 1996, was
32,170,179, $.01 par value.
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INDEX
PAGE NO.
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PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings and Retained Earnings for
the three-month periods ended March 31, 1996 and 1995........ 2
Consolidated Statement of Cash Flows for the three-month
periods ended March 31, 1996 and 1995........................ 3
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995............................................ 4
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Changes in Financial Condition........................... 7
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 11
Signatures ............................................................... 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
(Unaudited)
(amounts in thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
1996 1995
-----------------------
Net sales............................................................ $200,214 $196,797
Cost of sales........................................................ 76,482 73,932
-------- --------
Gross margin......................................................... 123,732 122,865
-------- --------
Research & development expense....................................... 7,237 7,183
Selling, general and administrative expenses......................... 83,856 81,474
-------- --------
91,093 88,657
-------- --------
Earnings from operations............................................. 32,639 34,208
Investment income.................................................... 1,640 1,271
Interest expense..................................................... (2,585) (1,744)
Other income......................................................... 80 174
Foreign exchange gain (loss)......................................... 171 (612)
-------- --------
Earnings before income taxes......................................... 31,945 33,297
Provisions for income taxes.......................................... 8,306 8,657
-------- --------
Net earnings......................................................... 23,639 24,640
Retained earnings, beginning of period............................... 351,487 389,514
Less:
Cash dividends declared (1996 -- $.25 and
1995 -- $.21)...................................................... 8,049 7,528
Stock repurchases.................................................... 76,452 2,522
-------- --------
Retained earnings, end of period..................................... $290,625 $404,104
======== ========
Earnings per share................................................... $ 0.72 $ 0.70
======== ========
Average number of shares outstanding................................. 32,821 35,368
======== ========
The accompanying notes are an integral part of these statements.
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LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(dollars in thousands)
THREE MONTHS ENDED
MARCH 31,
1996 1995
---------------------
Cash flows from operating activities:
Net earnings......................................................... $ 23,639 $ 24,640
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization..................................... 8,293 8,114
Deferred income taxes............................................. (2,044) (374)
Provision for losses -- accounts receivable....................... 721 831
Change in:
Trade and other receivables....................................... (16,570) (15,819)
Inventory......................................................... (3,124) (5,428)
Prepaid and other current assets.................................. (3,922) (4,585)
Accounts payable and accrued expenses............................. 1,313 (12,861)
Interest payable.................................................. 1,677 363
Taxes payable..................................................... 3,624 5,950
Other................................................................ (312) 2,491
------- -------
Cash provided by operating activities.................................. 13,295 3,322
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment........................... (4,137) (6,030)
Dispositions of property, plant and equipment........................ 140 176
Goodwill & intangible portion of acquisitions........................ (1,051) (4,898)
Change in short-term investments..................................... 7,102 (4,754)
Increase in long-term investments.................................... (115) (199)
------- -------
Cash provided by (used in) investing activities........................ 1,939 (15,705)
------- -------
Cash flows from financing activities:
Stock repurchases.................................................... (78,186) (1,909)
Issuances of common stock............................................ 1,984 1,067
Dividends paid....................................................... (8,510) (7,525)
Increase in short-term debt.......................................... 32,914 11,400
Payments of long-term debt........................................... (100) (106)
Payments under capital lease obligations............................. (269) (510)
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Cash (used in) provided by financing activities........................ (52,167) 2,417
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Effect of exchange rate changes on cash................................ (304) 514
------- -------
Decrease in cash and cash equivalents.................................. (37,237) (9,452)
Cash and cash equivalents:
Beginning of period.................................................. 60,333 33,264
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End of period........................................................ $ 23,096 $ 23,812
======= =======
Interest paid.......................................................... $ 1,008 $ 1,317
Taxes paid (net of refunds)............................................ $ 6,881 $ 3,087
The accompanying notes are an integral part of these statements.
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LOCTITE CORPORATION
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts)
MARCH 31, DECEMBER 31,
1996 1995
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 23,096 $ 60,333
Time and certificates of deposit.................................. 12,922 20,344
Marketable securities............................................. 122 126
Accounts and notes receivable (less allowances of $7,172 and
$6,651)........................................................ 158,863 147,743
Other receivables................................................. 19,582 17,068
Inventories:
Finished goods................................................. 56,355 54,686
Work in process................................................ 21,099 20,063
Raw materials.................................................. 22,702 23,028
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100,156 97,777
Deferred income tax benefit....................................... 17,074 15,149
Prepaid expenses and other current assets......................... 23,213 19,395
------- -------
Total current assets................................................ 355,028 377,935
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Venture capital and other long-term investments..................... 4,264 4,149
Property, plant and equipment:
Land and land improvements........................................ 22,534 22,359
Buildings......................................................... 122,724 124,443
Machinery and equipment........................................... 211,753 210,538
Construction in progress.......................................... 5,978 5,357
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362,989 362,697
Less -- accumulated depreciation.................................. 158,613 153,613
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204,376 209,084
Deferred income tax benefit......................................... 9,174 8,863
Goodwill (net of amortization of $22,035 and $21,190)............... 97,325 97,840
Other intangibles (net of amortization of $10,428 and $10,128)...... 12,183 12,256
Other assets........................................................ 5,199 5,501
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Total assets........................................................ $ 687,549 $715,628
======= =======
The accompanying notes are an integral part of these statements.
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MARCH 31, DECEMBER 31,
1996 1995
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(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................... $ 117,998 $ 85,356
Long-term debt -- current maturities.............................. 536 406
Accounts payable.................................................. 39,393 36,003
Accrued salaries, wages and other compensation.................... 18,086 22,164
Accrued taxes, other than income taxes............................ 7,641 7,059
Accrued income taxes.............................................. 24,119 21,242
Dividends payable................................................. 8,049 8,510
Accrued pension and retirement benefits........................... 2,438 1,819
Accrued insurance................................................. 7,232 7,457
Accrued liabilities -- other...................................... 22,886 21,670
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Total current liabilities........................................... 248,378 211,686
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Long-term liabilities:
Long-term debt.................................................... 77,099 77,238
Capital lease obligations......................................... 1,943 2,161
Retirement and postretirement obligations......................... 17,731 17,262
Other............................................................. 9,968 10,483
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106,741 107,144
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Stockholders' equity:
Common stock, $.01 par value:..................................... 47,130 47,489
Authorized 300,000,000 shares; issued 32,170,179 shares at
March 31, 1996 and 33,603,019 shares at December 31, 1995
Retained earnings................................................. 290,625 351,487
Foreign currency translation adjustment........................... (4,899) (1,752)
Adjustment for minimum pension liability.......................... (426) (426)
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Total stockholders' equity.......................................... 332,430 396,798
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Total liabilities and stockholders' equity.......................... $ 687,549 $715,628
========= ============
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LOCTITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, certain information and footnotes required by
generally accepted accounting principles for complete financial statements are
not included herein. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included in the accompanying
unaudited financial statements and are of a normal recurring nature.
The notes to the consolidated financial statements contained in Loctite
Corporation's December 31, 1995 Annual Report on Form 10-K should be read in
conjunction with the consolidated financial statements and notes to consolidated
financial statements contained herein.
Certain reclassifications have been made to the 1995 amounts to conform to
the 1996 presentation.
NOTE 2 -- ACQUISITIONS
During the first quarter of 1996, the Company acquired the remaining
forty-nine percent interest in its Loctite Taiwan Co., Ltd. subsidiary, which
brought the Company's percent of voting stock owned to 100%. The cost of this
acquisition is not material to the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
CHANGES IN FINANCIAL CONDITION
OPERATIONS
QUARTER ENDED MARCH 31, 1996 VERSUS QUARTER ENDED MARCH 31, 1995
For the quarter ended March 31, 1996, net sales were $200.2 million, an
increase of $3.4 million or 2% over the prior year. Management measures the
results of the Company based on businesses and regions. Trade sales between
regions are reflected as sales of the region servicing the customer. A summary
(in millions) is as follows:
QUARTER QUARTER LOCAL
ENDED ENDED DOLLAR CURRENCY
3/31/96 3/31/95 % GROWTH % GROWTH
------- ------- -------- --------
SALES:
European Region.................................... $ 86.6 $ 83.4 4% 2%
North American Region.............................. 68.3 67.8 1 1
Latin American Region.............................. 24.6 22.9 8 10
Asian/Pacific Region............................... 20.7 19.6 6 10
------ ------ ---- ----
Total Sales from Ongoing Operations............. 200.2 193.7 3 3
Luminescent Systems................................ -- 3.1 -- --
------ ------ ---- ----
TOTAL SALES..................................... $ 200.2 $ 196.8 2% 2%
====== ====== ==== ====
Industrial Business:
European Region.................................... $ 49.3 $ 46.4 6% 5%
North American Region.............................. 41.0 41.7 (2) (1)
Latin American Region.............................. 5.6 6.5 (13) (11)
Asian/Pacific Region............................... 17.6 17.4 1 6
------ ------ ---- ----
Total Sales from Ongoing Operations............. 113.5 112.0 1 2
Luminescent Systems................................ -- 3.1 -- --
------ ------ ---- ----
Total Industrial Business Sales................. $ 113.5 $ 115.1 (1)% (1)%
====== ====== ==== ====
Automotive Aftermarket Business:
European Region.................................... $ 12.4 $ 11.7 5% 4%
North American Region.............................. 17.8 15.5 15 16
Latin American Region.............................. 3.2 2.9 9 14
Asian/Pacific Region............................... 2.3 1.8 26 26
------ ------ ---- ----
Total Automotive Aftermarket Business Sales..... $ 35.7 $ 31.9 12% 12%
====== ====== ==== ====
Retail Business:
European Region.................................... $ 24.9 $ 25.3 (1)% (4)%
North American Region.............................. 9.5 10.6 (11) (11)
Latin American Region.............................. 15.8 13.5 17 19
Asian/Pacific Region............................... 0.8 0.4 n/m n/m
------ ------ ---- ----
Total Retail Business Sales..................... $ 51.0 $ 49.8 2% 1%
====== ====== ==== ====
n/m = not meaningful
Certain prior period amounts were reclassified between businesses to conform to
the 1996 presentation.
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Average net prices changed as a result of changes in list price, changes in
product mix, changes in customers, and changes in foreign exchange rates. Such
factors are not quantifiable individually due to the diversity of markets,
product formulations, and product packages.
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Sales in the European region grew 4% in U.S. dollars and 2% in local
currency as exchange rate movements were favorable during the first quarter of
1996. The average sales growth of the five major countries (France, Italy, U.K.,
Germany, and Spain) was 2% in U.S. dollars and 1% in local currency. This growth
was limited due to the impact of a slowing European economy and the continuing
impact of a nationwide strike in France during December 1995. The average sales
growth in the major European countries, excluding France, was 6% in U.S. dollars
and 5% in local currency. Sales in the Nordic countries grew by 12% in U.S.
dollars and 6% in local currency and contributed one percentage point to the
U.S. dollar growth in Europe. Central and Eastern Europe sales increased 33% in
U.S. dollars and in local currency and also contributed one percentage point to
the European sales growth in U.S. dollars. Sales in the industrial business in
Europe improved by 6% in U.S. dollars and 5% in local currency. Automotive
aftermarket business sales increased 5% in U.S. dollars and 4% in local
currency. The slower European economy had its most significant impact on the
retail business which reported a sales decrease of 1% in U.S. dollars and 4% in
local currency.
Sales in the North American region increased 1% in both U.S. dollars and
local currency when compared to the corresponding period of 1995. The industrial
business decreased 2% in U.S. dollars and 1% in local currency. Automotive
aftermarket business sales grew by 15% in U.S. dollars and 16% in local
currency. This growth is attributable in part to the introduction of a new
heavy-duty gasketing product and volume growth in existing products. Retail
business sales decreased 11% in both U.S. dollars and local currency as the
Company was impacted by a highly competitive domestic market and temporarily
reduced purchasing activity of some customers in an effort to lower their
inventory levels.
Latin American sales increased 8% in U.S. dollars and 10% in local currency
compared to the first quarter of 1995. Average U.S. dollar sales growth in the
five major countries (Brazil, Colombia, Venezuela, Costa Rica, and Chile) was
6%. Sales in the industrial business decreased by 13% in U.S. dollars and 11% in
local currency compared to the first quarter of 1995. This decline is the result
of the poor industrial climate in Brazil and the related closure of two
automobile plants in the country during 1995. The retail business in the Latin
American region continued its strong growth with a sales increase of 17% in U.S.
dollars and 19% in local currency. Brazil, which accounts for 84% of the Latin
American region's retail sales, reported retail sales growth of 19% in U.S.
dollars attributable to substantial advertising and marketing campaigns.
The Asian/Pacific region's local currency sales gains of 10% were decreased
to 6% in U.S. dollars primarily due to the weakness of the Japanese yen in
relation to the U.S. dollar. Greater diversity within the region resulted in the
sales growth despite Japan recording no local currency sales growth in a
recessed economy. The other Asian/Pacific countries now account for 65% of the
region's total U.S. dollar sales. Hong Kong, China, and Malaysia made the
largest contributions with each country contributing two percentage points to
the region's local currency sales growth. Acquisition of a distribution business
in Hong Kong in April of 1995 contributed to the growth in this country.
The Luminescent Systems business, which consisted of aviation lighting and
electrical component sales, was not considered a strategic fit with the Company
and was sold in November 1995. Luminescent Systems sales for the first quarter
of 1995 were $3.1 million.
Gross margin declined from 62.4% of sales in the first quarter of 1995 to
61.8% in the first quarter of 1996. This decline is due to a lower North
American gross margin resulting from higher manufacturing costs without
corresponding price increases. The lower North American margin was partially
offset by a change in sales mix between regions. A greater percentage of the
Company's total sales were recorded in the European, Latin American, and
Asian/Pacific regions where higher margins are realized.
Operating expenses as a percentage to sales were 45.5% in the first quarter
of 1996, compared to 45.0% for the first quarter of 1995. Operating expenses
increased $2.4 million due primarily to higher marketing expenses to support
advertising campaigns principally in Italy and Brazil and an increase in the
sales and marketing headcount.
Interest expense for the quarter ended March 31, 1996 was $0.8 million
higher than the respective prior year quarter due in large part to average
higher debt levels in the U.S.
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Foreign exchange gain (loss) improved by $0.8 million during the quarter
ended March 31, 1996 versus the corresponding prior year quarter due primarily
to reduced transaction exposures in Central and Eastern Europe and a stable
economy and low inflation in Brazil.
Income taxes, as a percentage of earnings before taxes, were 26% for the
three month periods ended March 31, 1996 and March 31, 1995.
FINANCIAL CONDITION
Management relies on cash provided from operations and the strength of the
Company's balance sheet, within prudent limits, to fund growth in operations and
provide an appropriate return to stockholders. The Company's liquidity is
assessed in terms of its overall ability to generate cash and to access the
credit markets on terms favorable to the Company. Of particular importance in
the management of liquidity are cash flows generated from operating activities,
capital expenditure levels, dividends paid, stock repurchases, acquisitions, and
adequate bank lines of credit.
As more fully discussed below, the following table highlights some of the
significant factors which affect consolidated cash flow along with their
correlated effect on the net debt position of the Company.
QUARTER ENDED MARCH 31,
--------------------------
1996 1995
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(dollars in thousands)
Net cash flows from operating activities..................... $ 13,295 $ 3,322
Capital expenditures......................................... $ 4,137 $ 6,030
Common stock repurchases..................................... $ 78,186 $ 1,909
Dividends paid............................................... $ 8,510 $ 7,525
MARCH 31, DECEMBER 31,
1996 1995
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(dollars in thousands)
Cash and short-term investments*............................. $ 36,140 $ 80,803
Total debt................................................... 198,819 166,338
------- -------
Net debt..................................................... $ 162,679 $ 85,535
======= =======
* Includes cash and cash equivalents, time and certificates of deposit, and
short-term marketable securities.
During the first quarter of 1996, the Company repurchased 1.45 million
shares of Company stock for $75.5 million pursuant to a 3.35 million share stock
repurchase program announced by the Company in August 1995. Through March 31,
1996 a total of 3.21 million shares had been purchased for $159.7 million
pursuant to the plan. Additional expenditures were made in connection with the
systematic repurchase of Company stock for certain of the Company's employee
benefit plans.
Dividends paid to stockholders were $8.5 million for the quarter compared
to $7.5 million for the first quarter of 1995. This increase reflects the net
impact of a 19% increase in dividends per share from $0.21 in the 1995 period to
$0.25 in the 1996 period, and the reduction in outstanding shares of Company
stock resulting from the above mentioned stock repurchase program.
Accounts and notes receivable increased by $11.1 million from December 31,
1995 to March 31, 1996. The largest increases were reported in Western Europe
(France, Italy, Germany, and the U.K.) and Brazil, and were a result of higher
sales during the first quarter of 1996 compared to the fourth quarter of 1995.
The unrealized foreign currency translation adjustment included in
stockholders' equity changed from a loss of $1.8 million at December 31, 1995 to
a loss of $4.9 million at March 31, 1996 due to the impact of a comparatively
stronger U.S. dollar on the Company's net asset position in its foreign
subsidiaries at March 31.
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ACQUISITIONS
During the first quarter of 1996, the Company acquired the remaining
forty-nine percent interest in its Loctite Taiwan Co., Ltd. subsidiary, which
brought the Company's percent of voting stock owned to 100%. The cost of this
acquisition is not material to the Company.
ENVIRONMENTAL MATTERS
Continuing compliance with existing federal, state, and local provisions
dealing with protection of the environment is not expected to have a material
effect upon the Company's capital expenditures, earnings, competitive position,
or liquidity. As previously reported in its 1995 Annual Report on Form 10-K, the
Company has been investigating a soil and groundwater contamination problem at
its Newington, Connecticut facility. The Company spent approximately $0.2
million in 1993 and approximately $0.5 million in 1994 in continuing subsurface
investigation and is nearing the completion of the investigative phase of the
work at this site. The Company spent approximately $0.9 million in 1995 to
implement a preliminary site remediation plan developed by the Company's
environmental consultants and for additional professional consulting services
related thereto, including additional investigative work, on-going operation and
maintenance of equipment, and initial monitoring costs. The site remediation
plan is currently under review by the Connecticut Department of Environmental
Protection (DEP). The Company expects that the DEP will approve the final site
remediation plan in the second quarter of 1996, which will allow the Company to
implement the plan.
The DEP, in consultation with the U.S. Environmental Protection Agency, has
determined that the Newington facility is not subject to federal jurisdiction as
a hazardous waste storage facility under the Resource Conservation and Recovery
Act. Therefore, the remediation program will be implemented with the oversight
of the DEP. The Company estimates that it will spend $400,000 in 1996 for
engineering fees and construction costs necessary to implement the DEP approved
site remediation plan. Thereafter, the Company expects to spend approximately
$60,000 to $80,000 annually to operate, maintain and monitor the remediation
equipment. The Company does not presently anticipate any further significant
expenditures in connection with site remediation.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter -- None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOCTITE CORPORATION
(Registrant)
Date: May 10, 1996 By: /s/ DAVID FREEMAN
--------------------------------------
David Freeman
Chairman, President and Chief
Executive Officer
Date: May 10, 1996 By: /s/ ROBERT L. ALLER
--------------------------------------
Robert L. Aller
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
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