-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HezsX1FRtP8VFOEvdyabQmzEXZOyvH1vmlZzBGtZ7Lay7nsaDWQuz8pcJGpTQNU2 xWgJhdG4C+OnXtCkH2xowg== 0000058091-98-000011.txt : 19981116 0000058091-98-000011.hdr.sgml : 19981116 ACCESSION NUMBER: 0000058091-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAWTER INTERNATIONAL INC CENTRAL INDEX KEY: 0000058091 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 361370818 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07558 FILM NUMBER: 98746231 BUSINESS ADDRESS: STREET 1: ONE TERRA WAY STREET 2: 8601 95TH STREET CITY: KENOSHA STATE: WI ZIP: 53412-7716 BUSINESS PHONE: 4149477300 MAIL ADDRESS: STREET 1: ONE TERRA WAY STREET 2: 8601 95TH STREET CITY: KENOSHA STATE: WI ZIP: 53412-7716 FORMER COMPANY: FORMER CONFORMED NAME: LAWTER CHEMICALS INC DATE OF NAME CHANGE: 19810602 FORMER COMPANY: FORMER CONFORMED NAME: KRUMBHAAR CHEMICALS INC DATE OF NAME CHANGE: 19701117 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 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: 1-7558 LAWTER INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 36-1370818 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8601 95th Street; Pleasant Prairie, Wisconsin 53158 (Address of principal executive offices) (414) 947-7300 (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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock $1.00 par value per share - 32,781,570 shares outstanding as of October 30, 1998. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. In the opinion of the Company, all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position of Lawter International, Inc. and Subsidiaries as of September 30, 1998 and December 31, 1997 and the results of their operations for the three months and nine months ended September 30, 1998 and 1997, and the statements of cash flows for the nine months ended September 30, 1998 and 1997, have been included. It should be noted that these interim statements are based on certain annual estimates such as the final level of LIFO inventories and the provision for income taxes. These and other similar items may be subject to year end adjustments. The results of operations for such interim periods are not necessarily indicative of the results for the full year.
Lawter International, Inc. and Subsidiaries Condensed Statements of Earnings (Shown in thousands) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Net Sales $ 53,024 $ 50,411 $157,376 $151,208 Cost of Products Sold 36,876 34,397 109,478 103,544 -------- -------- -------- -------- Gross Margin $ 16,148 $ 16,014 $ 47,898 $ 47,664 Selling, Administrative, Research and Distribution Expenses 6,999 6,818 21,230 20,172 Subsidiary Closure Costs (Note 3) --- 9,535 --- 9,535 -------- -------- -------- -------- Income from Operations $ 9,149 $ (339) $ 26,668 $ 17,957 Investment Income 496 1,255 2,106 4,477 Interest Expense (2,437) ( 709) (5,614) (2,607) Sale of Affiliate (Note 4) --- 32,030 --- 32,030 -------- -------- -------- -------- Earnings before Income Taxes $ 7,208 $ 32,237 $ 23,160 $ 51,857 Provision for Income Taxes 2,162 15,138 6,948 21,254 -------- -------- -------- -------- Net Earnings $ 5,046 $ 17,099 $ 16,212 $ 30,603 ======== ======== ======== ======== Earnings per Share of Common Stock (Note 2) $ .15 $ .37 $ .43 $ .67 Dividends per Share of Common Stock $ .10 $ .10 $ .30 $ .30 Weighted Average Shares Outstanding 33,777 45,467 37,752 45,401
The accompanying notes to the condensed financial statements are an integral part of these statements. -2-
Lawter International, Inc. and Subsidiaries Condensed Balance Sheets (Shown in thousands) Sept. 30 Dec. 31 -------- -------- Assets 1998 1997 - -------- -------- -------- Current Assets Cash $ 15,947 $ 8,052 Time Deposits 33,670 74,819 Accounts Receivable (net) 43,397 44,170 Inventories (Note 1) Raw Materials 29,917 21,132 Finished Goods 21,255 21,958 Prepaid Expenses 781 1,051 -------- -------- Total Current Assets $144,967 $171,182 -------- -------- Property, Plant and Equipment $133,999 $127,451 Less Accumulated Depreciation (41,992) (38,803) -------- -------- Net Property $ 92,007 $ 88,648 -------- -------- Intangibles and Other Assets $ 19,442 $ 16,354 -------- -------- Total Assets $256,416 $276,184 ======== ======== Liabilities and Stockholders' Equity - ------------------------------------ Current Liabilities Accounts Payable $ 12,964 $ 12,324 Short-Term Borrowings 28,594 22,993 Accrued Expenses 14,392 13,805 Income Taxes Payable 5,457 4,099 -------- -------- Total Current Liabilities $ 61,407 $ 53,221 -------- -------- Deferred Income Taxes $ 32,690 $ 32,556 -------- -------- Long-Term Obligations $129,050 $ 29,050 -------- -------- Total Liabilities $223,147 $114,827 -------- -------- Stockholders' Equity Preferred Stock (None Issued) $ --- $ --- Common Stock 45,533 45,533 Treasury Stock (136,520) --- Additional Paid-in Capital 16,747 16,747 Retained Earnings 113,919 109,070 Cumulative Translation Adjustments (5,933) (9,535) Other (477) (458) -------- -------- Net Stockholders' Equity $ 33,269 $161,357 -------- -------- Total Liabilities and Equity $256,416 $276,184 ======== ========
The accompanying notes to the condensed financial statements are an integral part of these balance sheets. -3-
Lawter International, Inc. and Subsidiaries Condensed Statements of Cash Flows (Shown in thousands) Nine Months Ended Sept. 30 --------------------------- 1998 1997 -------- -------- Cash Flow from Operating Activities: Net Earnings $ 16,212 $ 30,603 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities- Depreciation and Amortization 4,694 4,340 Deferred Income Taxes 91 --- Undistributed Equity Income --- (1,456) Deferred Exchange Gain (Loss) 225 3,206 Proceeds from Sales of Marketable Securities --- 2,502 Net (Gain) Loss from Marketable Securities --- (2) Gain on Sale of Business --- (738) Gain on Sale of Hach (33,730) (Increase) Decrease in Current Assets- Accounts Receivable 1,539 3,902 Inventories (6,268) 2,593 Prepaid Expenses 292 610 Increase (Decrease) in Current Liabilities- Accounts Payable 350 (3,570) Accrued Expenses 300 (3,625) Income Taxes Payable 1,145 1,114 -------- -------- Net Cash Provided by Operating Activities $ 18,580 $ 5,749 -------- -------- Cash Flow from Investing Activities: Expenditures for Property, Plant & Equipment - Net $ (4,768) $( 3,438) Purchase of Business-Net of Cash (3,200) ( 9,219) Sale of Business --- 4,856 Proceeds from sale of Hach 59,987 Loans to Officers (18) (18) Repayment of Officers' Loans --- 43 -------- -------- Net Cash Used for Investing Activities $ (7,986) $ 52,211 -------- -------- Cash Flow from Financing Activities: Exercise of Stock Options $ --- $ 2,209 Common Stock Repurchase (136,520) --- Payment of Long-Term Borrowings --- (50) Proceeds from Long-Term Borrowings 100,000 --- Payment of Short-Term Borrowings --- (8,685) Proceeds from Short-Term Borrowings 3,994 --- Cash Dividends Paid (11,358) (13,619) -------- -------- Net Cash (Used for) Provided by Financing Activities $(43,884) $(20,145) -------- -------- Effect of Exchange Rate Changes on Cash $ 36 $ (849) -------- -------- Increase (Decrease) in Cash and Equivalents $(33,254) $ 36,966 Cash and Equivalents, Beginning of Period 82,871 54,931 -------- -------- Cash and Equivalents, End of Period $ 49,617 $ 91,897 ======== ========
The accompanying notes to the condensed financial statements are an integral part of these statements. -4- Lawter International, Inc. and Subsidiaries Notes to the Condensed Financial Statements Note 1. Inventories At year end, the Company takes a complete physical inventory to determine inventory values. During interim periods, the Company uses a combination of perpetual inventory records, physical inventories and the gross profit method to determine inventory values. The Company values its domestic inventories at last-in, first-out (LIFO) cost which is not in excess of net realizable value. The Company's other inventories are valued at the lower of first-in, first-out (FIFO) cost or market. Because the inventory determination under the LIFO method can only be made at the end of each fiscal year based on the inventory levels and costs at that point, interim LIFO determinations, including that at September 30, 1998, must necessarily be based on management's estimates of expected year end inventory levels and costs. Such future estimates of inventory levels and prices are subject to many forces beyond the control of management. Note 2. Earnings per Share Earnings per share of common stock are computed on the weighted average shares outstanding during the respective periods. Net earnings per share would not be materially different from reported earnings per share if all outstanding stock options were exercised. Note 3. Subsidiary Closure Costs In 1997, the Subsidiary Closure Costs represent costs associated with closing several facilities, mainly in Europe. The after tax effect of these costs was $.20 per share. Note 4. Sale of Affiliate During the third quarter of 1997, the Company sold its 28% stake in Hach Company common stock for $59,987,000. This resulted in an after tax gain of $19,570,000 or $.43 per share. Note 5. New Accounting Pronouncements Effective January 1, 1998, Lawter adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This Statement also requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and paid-in capital in the equity section of a statement of financial position. Unrealized translation adjustments is currently the only type of other comprehensive income that the Company has. -5- Lawter's comprehensive earnings were as follows: (In 000's) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------- 1998 1997 1998 1997 ------- ------- ------- ------- Net Earnings $ 5,046 $17,099 $16,212 $30,603 Unrealized Translation Adj. 4,553 1,980 3,602 (4,384) ------- ------- ------- ------- Total Comprehensive Income $ 9,599 $19,079 $19,814 $26,219 ======= ======= ======= ======= The Company will be adopting SFAS No. 131 "Segment Reporting" in 1998. SFAS No. 131 does not impact the Company's financial statements. The Company will be adopting SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" in 1998. Additional disclosure will be required in annual financial statements. SFAS No. 132 does not impact the Company's interim reporting in 1998. The Company will be adopting SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" in 1999. SFAS No. 133 will have no significant impact since no derivatives are in use at this time. In 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5 "Start-up, Pre-Operating and Organization Costs." This statement requires start-up costs to be expensed as incurred versus the current practice of capitalizing these costs. This statement will not have a material impact on the Company and will be adopted in 1999. Note 6. Repurchase of Lawter Stock On March 19, 1998, Lawter entered into an agreement with the Estate of Daniel J. Terra for the repurchase by Lawter of the Estate's entire holdings of Lawter Common Stock. The 11,503,130 shares, representing approximately 25.4% of Lawter's outstanding Common Stock, were purchased for $11.375 per share, for a total purchase price of $130,848,000 plus related costs on April 1, 1998. These shares were placed in Treasury Stock at cost. This repurchase was financed through a $100,000,000 note issued to Prudential Insurance Company of America at an interest rate of 6.91%, with the principal to be repaid in five annual installments of $20,000,000 each beginning April 1, 2006 with a final maturity date of April 1, 2010. The remaining amount was funded with cash on hand. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Liquidity and Capital Resources Lawter's cash and equivalents, net of short-term borrowings, decreased $38,900,000 from $59,900,000 at December 31, 1997 to $21,000,000 at September 30, 1998. The decrease in net cash and equivalents was due primarily to the repurchase of Lawter stock and the build-up of certain strategic raw materials due to favorable pricing. On April 1, 1998, Lawter repurchased approximately 25.4% of the Company's outstanding stock for a purchase price of approximately $132 million by utilizing $32 million in cash on hand and incurring a $100 million note payable to the Prudential Insurance Company of America. The note payable is due in five -6- annual principal installments of $20 million each beginning April 1, 2006 with a final maturity date of April 1, 2010. This changes the complexion of the Company to one that is more leveraged. Management believes that the Company's cash reserves will be adequate for its currently foreseeable working capital needs and future capital expenditures. Capital expenditures in the near future will include additions and improvements to existing facilities. The Company currently anticipates using internally generated funds for the majority of these capital expenditures. Results of Operations SALES. The Company's consolidated net sales increased 5% in the third quarter of 1998 when compared to the third quarter of 1997. Sales volume increased by 6%. Regionally, sales volume increased 13% in North America and 5% in the Pacrim, while European sales volume was down by 3%. European sales were affected by competitive pressures and management's decision to discontinue some low margin business. Consolidated net sales for the nine months ended September 30, 1998 increased 4% over sales for the nine months ended September 30, 1997. Sales gains as a result of a 7% volume increase were adversely affected by a stronger dollar. GROSS MARGINS. Gross margins as a percent of net sales were 30.5% and 31.8% for the quarters ended September 30, 1998 and 1997, respectively and 30.4% and 31.5% for the nine months ended September 30, 1998 and 1997, respectively. Included in the 1997 gross margins were business interruption proceeds and a gain on the sale of a previously decommissioned manufacturing facility. Excluding these items the gross margins in 1997 were 29.2% for both the three and nine months ended September 30, 1997. The higher gross margin percentages in 1998 excluding these items were due to lower raw material costs in both Europe and the U.S. SELLING, ADMINISTRATIVE, RESEARCH AND DISTRIBUTION EXPENSES. Selling, administrative, research and distribution expenses increased to $6,999,000 in the quarter ended September 30, 1998 versus $6,818,000 in the quarter ended September 30, 1997. Selling, administrative, research and distribution expenses increased from $20,172,000 in the first nine months of 1997 to $21,230,000 in the first nine months of 1998. The increase in 1998 selling, administrative, research and distribution expenses was due to higher freight costs associated with the higher sales volume. SUBSIDIARY CLOSURE COSTS. In 1997, the Subsidiary Closure Costs represent costs associated with closing several facilities, mainly in Europe. The after tax effect of these costs was $.20 per share. INVESTMENT INCOME. Investment income in both the quarter and nine months ended September 30, 1998 decreased from the same periods in 1997 due primarily to decreased funds available for investments in 1998 as funds were used for the repurchase of Lawter stock. INTEREST EXPENSE. Interest expense in both the quarter and nine months ended September 30, 1998 increased from the same periods in 1997 due to interest expense incurred as a result of the long-term borrowing used to finance the stock repurchase in 1998. SALE OF AFFILIATE. During the third quarter of 1997, the Company sold its 28% stake in Hach Company common stock for $59,987,000. This resulted in an after tax gain of $19,570,000 or $.43 per share. INCOME TAXES. The effective tax rate was 30.0% for the three months and nine months ended September 30, 1998, respectively versus 47.0% and 41.0% for the -7- three months and nine months ended September 30, 1997. The higher rates in 1997 were due to the higher tax rate on the sale of Hach Company common stock along with the lack of tax benefit on the subsidiary closure costs. Other Matters STOCK REPURCHASE. On March 19, 1998, Lawter entered into an agreement with the Estate of Daniel J. Terra for the repurchase by Lawter of the Estate's entire holdings of Lawter Common Stock. The 11,503,130 shares, representing approximately 25.4% of Lawter's outstanding Common Stock, were purchased for $11.375 per share, for a total purchase price of $130,848,000 plus related costs on April 1, 1998. These shares were placed in Treasury Stock at cost. This repurchase was financed through a $100,000,000 note issued to Prudential Insurance Company of America at an interest rate of 6.91%, with the principal to be repaid in five annual installments of $20,000,000 each beginning April 1, 2006 with a final maturity date of April 1, 2010. The remaining amount was funded with cash on hand. YEAR 2000. The Company is taking the actions described below to evaluate and address its exposure to year 2000 ("Y2K") issues, which may result from the inability of some computer programs to identify the Year 2000 properly, potentially leading to errors or system failure. The Company is conducting Y2K reviews of each of the following areas: (i) internal information systems, (ii) embedded systems, (iii) research and development equipment, and (iv) suppliers providing products and services to the Company. The Company's internal information systems have been inventoried and assessed. The Company believes its financial and manufacturing software in North America is fully Y2K compliant. Its North American hardware and operating system software are scheduled to be upgraded by the first quarter of 1999. In Europe, all of the Company's internal information systems software and hardware is scheduled to be fully compliant by the end of 1998. In the Pacrim, where the Company has smaller operations, Y2K issues are being evaluated and addressed, but a target completion date for such evaluation has not yet been established. Embedded systems, specifically the Foxboro production system, which is used in the Company's resin facilities in Wisconsin and Kallo, Belgium, is currently in the process of being evaluated in Belgium, and is scheduled for assessment starting November 16, 1998 in Wisconsin. The Company expects to complete these assessments and upgrades by March 31, 1999. The Company is in the process of testing its research and development equipment. The Company expects to complete this testing by March 31, 1999 and to complete any necessary upgrades by June 30, 1999. Key suppliers were surveyed as to their Y2K compliance. Sixty-four percent of these suppliers in North America and seventy percent in Europe have responded that they are addressing the issue, and plan to be compliant. Meaningful responses from suppliers in the Pacrim have not yet been received. The Company will continue to seek responses from suppliers. While the Company does not yet have contingency plans, it expects to develop such plans for each of the areas identified above and will continue to develop and update those plans throughout 1999. In a worst case scenario, any failure by the Company or any key supplier or customer to become Y2K compliant could result in disruption of the Company's normal operations and the inability or unwillingness of its customers to purchase the Company's products. Any such failure or disruption could have a material adverse affect on the Company's business, financial condition or results of operations. -8- The Company expects costs associated with Y2K remediation to be approximately $200,000, which will be expensed as incurred and will not have a material impact on the financial position, results of operations or cash flow of the Company. To date, approximately $100,000 of such costs have been incurred. LOOKING FORWARD. This Form 10-Q contains forward-looking statements which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially, including, but not limited to, foreign currency rate fluctuations, competitive factors, raw material costs and certain global and regional economic conditions and factors which are beyond the Company's control. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)(27) Financial Data Schedule. 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. LAWTER INTERNATIONAL, INC. -------------------------- (Registrant) November 13, 1998 /s/ John P. O'Mahoney - ----------------- -------------------------- John P. O'Mahoney Chairman and Chief Executive Officer November 13, 1998 /s/ Mark W. Joslin - ----------------- -------------------------- Mark W. Joslin Chief Financial Officer and Treasurer -9- EX-27 2
5 1,000 9-MOS DEC-31-1998 SEP-30-1998 49,617 0 43,397 0 51,172 144,967 133,999 41,992 256,416 61,407 129,050 0 0 45,533 (12,264) 256,416 157,376 157,376 112,225 112,225 0 0 5,614 23,160 6,948 16,212 0 0 0 16,212 .43 .43
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