-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, U0FEkO9q3aJR6DvtWxxzPI283OdeOzizxa0cTEClNHTQfYna5LvQQ3Fwp4tXDgZq 14ClpNQ7VTkCzNhmwjtwPw== 0000912057-94-001039.txt : 19940328 0000912057-94-001039.hdr.sgml : 19940328 ACCESSION NUMBER: 0000912057-94-001039 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAWTER INTERNATIONAL INC CENTRAL INDEX KEY: 0000058091 STANDARD INDUSTRIAL CLASSIFICATION: 2890 IRS NUMBER: 361370818 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-07558 FILM NUMBER: 94517828 BUSINESS ADDRESS: STREET 1: 990 SKOKIE BLVD CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 7084984700 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-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES 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, 1993 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 1-7558 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.) 990 SKOKIE BOULEVARD, NORTHBROOK, ILLINOIS 60062 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (708) 498-4700 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - ----------------------------- ----------------------------- COMMON STOCK, $1.00 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None (TITLE OF CLASS) 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. / / AS OF FEBRUARY 14, 1994, 44,815,251 COMMON SHARES WERE OUTSTANDING. THE AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE FEBRUARY 14, 1994 CLOSING PRICE OF THESE SHARES ON THE NEW YORK STOCK EXCHANGE) OF LAWTER INTERNATIONAL, INC. HELD BY NON-AFFILIATES WAS APPROXIMATELY $345 MILLION. DOCUMENTS INCORPORATED BY REFERENCE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1993 -- PARTS I, II AND IV. PROXY STATEMENT TO STOCKHOLDERS FOR THE 1994 ANNUAL MEETING -- PART III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
FORM 10-K ITEM NO. NAME OF ITEM PAGE - ---------- -------------------------------------------------------------------------------------------- ----- Part I Item 1. Business.................................................................................... 2 Item 2. Properties.................................................................................. 4 Item 3. Legal Proceedings........................................................................... 5 Item 4. Submission of Matters to a Vote of Security Holders......................................... 5 Item 4A. Executive Officers of the Registrant........................................................ 5 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................... 5 Item 6. Selected Financial Data..................................................................... 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 5 Item 8. Financial Statements and Supplementary Data................................................. 5 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 6 Part III Item 10. Directors and Executive Officers of the Registrant.......................................... 6 Item 11. Executive Compensation...................................................................... 6 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 6 Item 13. Certain Relationships and Related Transactions.............................................. 6 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 6 Report of Independent Public Accountants on Schedules and Consent of Independent Public Accountants........................................................................ 9 Signatures.............................................................................................. 12
PART I ITEM 1. BUSINESS. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS-- INDUSTRY SEGMENTS. The Company is engaged predominantly in a single industry--specialty chemicals. Reference is made to Note 8 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for information on the amounts of revenue, operating profit and identifiable assets for the industry segment. NARRATIVE DESCRIPTION OF BUSINESS-- PRINCIPAL PRODUCTS. Reference is made to the General Nature and Scope of Business on page 4 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for information on the description of the principal products. The Company manufactures and warehouses its products in seven plants in the United States and in ten plants in foreign countries, i.e. Belgium, Canada, China, Denmark, England, France, Germany, Ireland, Singapore and Spain. Products are sold primarily by Company employed salesmen. Reference is made to the Sales by Product Group on page 4 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for information with respect to the approximate percentages of total sales of the Company during the three fiscal years ended December 31, 1993, attributable to each principal product category. RAW MATERIALS. The basic ingredients of the Company's products are purchased from others, including larger chemical firms. Such ingredients are in adequate supply and are expected to remain so. A portion of the Company's resin production is used by it in the manufacture of ink vehicles. PATENTS. The Company owns certain patents on its products, but no single patent is considered to be materially important to its business. SEASONAL INFLUENCES. The business of the Company is not in any material respect subject to seasonal influences. BACKLOG. Since the Company generally fills orders for its products out of current inventories, there is no significant backlog of orders at any time. CUSTOMERS. The Company sells its products to both large and small ink companies. Lawter is a major supplier of printing ink vehicles and resins for printing inks and, therefore, sells substantial quantities to the larger ink companies around the world. The Company believes the five largest ink companies are, in alphabetical order, BASF, Coates/Lorilleux, Dianippon Ink and Chemicals, Sicpa and Toyo. Lawter sells a variety of specialized products to each of their numerous companies, subsidiaries or branches in various countries, where the purchasing decisions normally are made. Dianippon Ink and Chemicals is Lawter's largest multilocation customer with eighteen percent of consolidated net sales for the most recently completed fiscal year. 2 COMPETITION. The Company encounters keen competition in the conduct of its business. Industry data indicating the relative ranking of competitive companies is not available. The Company competes with several other independent producers of printing ink vehicles and slip additives. The larger printing ink manufacturers produce some of the vehicles required in their own operations, although generally they do not sell vehicles in competition with the Company. The Company is considered to be one of the medium sized to smaller producers of synthetic and hydrocarbon resins. Several other producers of synthetic and hydrocarbon resins are large chemical companies with much greater total sales and resources than those of the Company. The Company is one of several manufacturers of fluorescent pigments and one of numerous manufacturers of fluorescent coatings which compete in the world market with numerous large and small producers of organic pigments and coatings. In the sale of thermographic products and rota-matic machines, the Company encounters competition from producers of all types of printing equipment, from engravers and from other producers of thermographic and rota-matic equipment and printing supplies. In the sale of its principal products, printing ink vehicles, slip additives, and synthetic and hydrocarbon resins, the Company's principal methods of meeting competition are in the areas of product performance and service. The Company specializes in products prepared primarily for specific end uses such as vehicles used in printing inks having particular characteristics, including fast setting and mar resistant inks, and ink systems designed to reduce air pollution and resins used in the production of specialty inks, plastics and protective coatings. The Company is capable of fulfilling the requirements of customers either from inventories or from production runs on relatively short notice. The Company has approximately 150 competitors in the sale of its line of printing ink vehicles and slip additives, and approximately 70 competitors in the sale of its synthetic and hydrocarbon resins. RESEARCH. During the fiscal years ended December 31, 1993, 1992 and 1991, the Company spent approximately $4,423,000, $4,093,000 and $3,883,000, respectively, on research activities relating to the development of new products and the improvement of existing products. ENVIRONMENTAL MATTERS. Environmental laws regulate the discharge of materials into the environment and may require the Company to remove or minimize the environmental effects of the disposal of waste. Environmental expenditures are expensed or capitalized depending upon their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated. During 1993, the Company expensed $3,405,000 for voluntary waste disposal and $3,145,000 for refurbishing and cleaning waste water treatment facilities. Expenditures for environmental matters during the fiscal years ended December 31, 1992 and 1991 were not material to the consolidated financial statements of the Company. It has been and is the Company's policy voluntarily to install equipment deemed necessary to control the discharge of pollutants into the environment. The Company has recently voluntarily installed or is in the process of installing numerous in-line incinerators/after-burners at its major manufacturing facilities in order to minimize the generation of vapor, liquid or solid waste. The Company believes that its facilities and products comply in all material respects with applicable environmental regulations and standards. The Company believes that compliance with the environmental, Federal, state and local laws has had no material effect upon the capital expenditures or competitive position of the Company. Environmental capital expenditures in 1994 are not anticipated to be material. The Company does not believe, based on information available at this time, that the level of future expenditures for environmental matters will have a material effect on its consolidated financial position. 3 EMPLOYEES. At December 31, 1993, the Company had 537 employees. FOREIGN SALES-- Reference is made to Note 8 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for this information. ITEM 2. PROPERTIES. Information with respect to the principal properties, all of which are of masonry and metal clad construction, in which the Company's operations are conducted is as follows:
APPROXIMATE FLOOR AREA (SQUARE PRINCIPAL PRODUCTS OWNED OR LOCATION FEET) OR ACTIVITIES LEASED - --------------------------------------- ------------ ----------------------------------------------- --------- Northbrook, Illinois 16,000 Corporate headquarters Owned Bell, California 15,000 Printing ink vehicles Leased Warehouse La Vergne, Tennessee 27,000 Printing ink vehicles Owned Warehouse South Kearny, New Jersey 42,000 Printing ink vehicles Owned Warehouse Pleasant Prairie, Wisconsin (2) 232,000 Printing ink vehicles and slip additives Owned Synthetic resins Research facilities Warehouse Moundville, Alabama 250,000 Synthetic and hydrocarbon resins (1) Warehouse Skokie, Illinois 66,000 Fluorescent pigments and coatings Owned Slip additives Thermographic compounds Research facilities Warehouse Plainfield, New Jersey 30,000 Thermographic and rota-matic equipment Owned Warehouse Lokeren, Belgium 109,000 Printing ink vehicles and slip additives Owned Synthetic resins Research facilities Warehouse Rexdale, Ontario, Canada 66,000 Printing ink vehicles and slip additives Owned Synthetic resins Warehouse Tanggu, Peoples Republic of China 40,000 Printing ink vehicles Owned Synthetic resins Warehouse Koge, Denmark 14,000 Printing ink vehicles Owned Warehouse Bicester, Oxon, England 38,000 Printing ink vehicles Owned Fluorescent pigments Warehouse Orly, France 16,000 Printing ink vehicles Leased Warehouse Frechen, Germany 17,000 Printing ink vehicles Leased Warehouse Waterford, Ireland 97,000 Synthetic resins Owned Jurong Town, Singapore 10,000 Printing ink vehicles Owned Warehouse Barcelona, Spain 12,000 Printing ink vehicles Leased Warehouse - ------------------------ (1) The Moundville, Alabama plant is leased as described in Note 7 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference). (2) The Pleasant Prairie, Wisconsin plant includes 116,000 square feet for the new resin facility expected to be operational in the second quarter of 1994.
4 ITEM 3. LEGAL PROCEEDINGS. Reference is made to Note 9 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for this information. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders in the fourth quarter of the year ended December 31, 1993. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT. Information with respect to the executive officers of the Company, all of whose terms will expire at the annual meeting of the Board of Directors in April 1994, is as follows:
YEAR NAME POSITION AGE ELECTED - ------------------------------------------------ ------------------------------- --- ------- Daniel J. Terra................................. Chairman of the Board and Chief Executive Officer 82 1958 Richard D. Nordman.............................. President and Chief Operating Officer 47 1986 Richard A. Hacker............................... Vice President 58 1974 Ludwig P. Horn.................................. Vice President 64 1980 John P. Jilek................................... Vice President 42 1989 Hermann Mueller................................. Vice President 52 1980 John P. O'Mahoney............................... Vice President 37 1993 William S. Russell.............................. Vice President, 1987 Treasurer and 1982 Secretary 45 1986
Mr. Jilek served as European General Manager with the Company from 1985-1989. Mr. O'Mahoney served as European General Manager from 1990-1993 and European Controller prior to 1990. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Reference is made to the Market Price and Quarterly Dividend Statistics for Common Stock on page 1 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for this information. ITEM 6. SELECTED FINANCIAL DATA. Reference is made to the Ten Year Financial Summary (1984-1993) on pages 8 and 9 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for information on selected financial data. This referenced section should be read in conjunction with the Consolidated Financial Statements and Notes (hereby incorporated by reference) in the Company's 1993 Annual Report to Stockholders, pages 10 to 19. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Reference is made to the Management's Discussion and Analysis on pages 6 and 7 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for this information. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial statements and supplementary data are included in this Form 10-K Annual Report as indicated in Item 14 on pages 6 and 7. Those portions of the Lawter International, Inc. and Subsidiaries' 1993 Annual Report to Stockholders listed under the caption "Consolidated Financial Statements" in 5 Item 14 are hereby incorporated by reference. Reference is also made to the Operating Results by Quarters on page 7 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for this information. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in or disagreements with independent auditors on accounting and financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Reference is made to the Company's 1994 Proxy Statement under the heading "ELECTION OF DIRECTORS" (hereby incorporated by reference) and Item 4A "Executive Officers of the Registrant" in Part I of this Form 10-K for this information. ITEM 11. EXECUTIVE COMPENSATION. Reference is made to the Company's 1994 Proxy Statement under the heading "Executive Compensation" (hereby incorporated by reference) for this information. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Reference is made to the Company's 1994 Proxy Statement under the headings "Principal Holders of Common Stock" and "Security Ownership of Management" (hereby incorporated by reference) for this information. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Reference is made to the Company's 1994 Proxy Statement under the heading "Indebtedness of Management" (hereby incorporated by reference) for this information. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)1. Consolidated Financial Statements--
PAGE NUMBER --------- Balance Sheets as of December 31, 1993 and 1992.................................................. * Statements of Earnings for the years ended December 31, 1993, 1992 and 1991...................... * Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991.................... * Statements of Stockholders' Equity for the years ended December 31, 1993, 1992 and 1991.......... * Notes to the Consolidated Financial Statements--December 31, 1993, 1992 and 1991................. * Report of Independent Public Accountants......................................................... * - ------------------------ * These Consolidated Financial Statements, related Notes and Report of Independent Public Accountants appearing in the Company's 1993 Annual Report to Stockholders, pages 10 to 20, which is filed as an exhibit to this Form 10-K, are incorporated herein by reference.
6 (a)2. Financial Statement Schedules--
PAGE NUMBER ------------- Report of Independent Public Accountants on Schedules............................................... 9 I. Marketable Securities.................................................................... 10 II. Amounts Receivable from Related Parties.................................................. 10 VIII. Valuation and Qualifying Accounts........................................................ 11 IX. Short-Term Borrowings.................................................................... 11 X. Supplementary Income Statement Information............................................... 11
All other schedules are not submitted because they are not applicable, not required or the required information is included in the consolidated financial statements or notes thereto. (a)3. Exhibits-- (3)(a) Certificate of Incorporation, as amended through April 27, 1993 (incorporated by reference to Exhibit I of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993) (File No. 1-7558). (b) Bylaws of the Company, as amended through April 28, 1988 (incorporated by reference to Exhibit II of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988) (File No. 1-7558). (10)(a) Lawter International, Inc. Growth Sharing Plan for Salaried and Office Clerical Hourly Employees, as amended through January 1, 1989 (incorporated by reference to Exhibit (10)(a) of the Company's Annual Report on Form 10-K for the year ended December 31, 1989) (File No. 1-7558).* (b) 1983 Incentive Stock Option Plan (incorporated by reference to Exhibit 2 of Registration Statement No. 2-84421).* (c) Amended and restated Non-Qualified Stock Option Plan (incorporated by reference to Exhibit A of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1987) (File No. 1-7558).* (d) 1992 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit (10)(d) of the Company's Annual Report on Form 10-K for the year ended December 31, 1992) (File No. 1-7558).* (e) Employment Agreement, dated February 1, 1992, between the Company and Ludwig P. Horn (incorporated by reference to Exhibit (10)(e) of the Company's Annual Report on Form 10-K for the year ended December 31, 1992) (File No. 1-7558).* (f) Employment Agreement, dated September 26, 1987, between the Company and Richard D. Nordman (incorporated by reference to Exhibit (10)(g) of the Company's Annual Report on Form 10-K for the year ended December 31, 1987) (File No. 1-7558).* (g) Form of Employment Agreements, dated September 26, 1987, between the Company and Richard A. Hacker, John P. Jilek, Hermann Mueller and William S. Russell (incorporated by reference to Exhibit (10)(h) of the Company's Annual Report on Form 10-K for the year ended December 31, 1987) (File No. 1-7558).* (13) Lawter International, Inc. and Subsidiaries' 1993 Annual Report to Stockholders (which, except for those portions thereof incorporated by reference in this Form 10-K Annual Report, is furnished for the information of the Commission, but is not deemed to be "filed" as part of this report).
* These documents constitute all of the management contracts, compensatory plans or arrangements in which any director or executive officer participates. 7 (21) Subsidiaries of the Company. Reference is made to the Directory on the inside back cover of the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for a listing of significant subsidiaries. (23) Consent of Independent Public Accountants (included in this Form 10-K on page 9).
(b) On November 15, 1993, the Company filed an 8-K to report the termination of the Agreement and Plan of Merger between Lawter International, Inc., Hach Company and LHM Corporation, a wholly owned subsidiary of Lawter International, Inc., dated as of August 3, 1993. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The foregoing undertaking is made in compliance with Form S-8, as amended as of July 13, 1990, and shall be incorporated by this reference into each Form S-8 of the registrant, including Registration Statements Nos. 33-24859, 33-61506 and 2-84421. 8 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To Lawter International, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Lawter International, Inc. and Subsidiaries' 1993 Annual Report to Stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 10, 1994. Our audit was made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. The schedules listed in the index on page 7 are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audit of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen & Co. ARTHUR ANDERSEN & CO. Chicago, Illinois, February 10, 1994 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 10, 1994, included (or incorporated by reference) in this Annual Report of Lawter International, Inc. and Subsidiaries on Form 10-K for the year ended December 31, 1993, into the Company's previously filed Registration Statements on Forms S-3 (File No. 33-24165), S-8 (File No. 33-24859), S-8 (File No. 33-61506) and S-8 (File No. 2-84421). /s/ Arthur Andersen & Co. ARTHUR ANDERSEN & CO. Chicago, Illinois, March 25, 1994 9 LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE I--MARKETABLE SECURITIES AS OF DECEMBER 31, 1993 (in thousands)
AMOUNT CARRIED NAME OF ISSUER AND NUMBER OF IN THE TITLE OF ISSUE SHARES COST MARKET VALUE BALANCE SHEET - -------------------------------------------------------------- ----------- --------- ------------ --------------- Hach Company Common Stock(2).................................. 2,526 $ 7,999 $ 53,041(1) $ 18,077 Other Marketable Securities................................... 155 6,104 5,591 5,591 ------- $ 23,668 ------- ------- - ------------------------ (1) Based on the closing market price per share as quoted by NASDAQ on December 31, 1993. (2) Reference is made to Note 6 in the Company's 1993 Annual Report to Stockholders (hereby incorporated by reference) for additional information on the investment in Hach Company Common Stock.
LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (in thousands)
DEDUCTIONS BALANCE AT -------------------------- BALANCE AT END OF YEAR BEGINNING OF AMOUNTS AMOUNTS -------------------------- NAME OF DEBTOR YEAR ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT - ---------------------------------------- ------------- ----------- ----------- ------------- ----------- ------------- December 31, 1993: Richard D. Nordman(1)................... $ 2,903 $ 436 $ -- $ -- $ 3,339 $ -- December 31, 1992: Richard D. Nordman(1)................... $ 242 $ 2,922 $ 261 $ -- $ 2,903 $ -- December 31, 1991: Richard D. Nordman(1)................... $ 169 $ 73 $ -- $ -- $ 242 $ -- Daniel J. Terra(2)...................... -- 353 353 -- -- -- - ------------------------ (1) These amounts represent notes receivable (including interest at the Company's effective rate to borrow funds) reflected in stockholders' equity which are due within eighteen months after issuance. The Company holds Common Stock of the Company purchased by Mr. Nordman through the exercise of stock options as collateral for these notes. (2) Mr. Terra was authorized to receive, but waived cash compensation of $450,000. On January 7, 1991, the Board of Directors authorized a loan of $350,000, at the prime rate of interest, to Mr. Terra which was subsequently repaid on February 13, 1991.
10 LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (in thousands)
ALLOWANCES FOR DOUBTFUL ACCOUNTS 1993 1992 1991 - ------------------------------------------------------------------------------------------ --------- --------- --------- Balance at beginning of year.............................................................. $ 632 $ 237 $ 162 Additions (credited)/charged to earnings................................................ 66 436 (29) Additions/(deductions) for accounts written off, net of recoveries...................... (379) (41) 104 --------- --------- --------- Balance at end of year.................................................................... $ 319 $ 632 $ 237 --------- --------- --------- --------- --------- ---------
LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE IX--SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (in thousands)
MAXIMUM AVERAGE WEIGHTED WEIGHTED AMOUNT AMOUNT AVERAGE BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD (1) PERIOD (2) - -------------------------------------------------- ----------- ----------- ----------- ----------- --------------- December 31, 1993: Bank Borrowings................................... $ 20,044 3.82% $ 20,513 $ 5,442 3.78% December 31, 1992: Bank Borrowings................................... $ 8,011 3.92% $ 13,681 $ 5,355 4.96% December 31, 1991: Bank Borrowings................................... $ 10,457 5.65% $ 10,457 $ 3,171 5.81% The Company borrows against a $25,000,000 open line of credit. - ------------------------ (1) Based on the daily average outstanding principal during the period. (2) Computed by dividing total interest expensed for the period by the average principal outstanding for the period.
LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (in thousands)
CHARGED TO COSTS AND EXPENSES ------------------------------- ITEM 1993 1992 1991 - ------------------------------------------------------------------------------------- --------- --------- --------- Maintenance and repairs.............................................................. $ 2,770 $ 2,707 $ 2,829 --------- --------- --------- --------- --------- --------- - ------------------------ NOTE: Amortization of intangible assets, taxes other than payroll and income taxes, royalties and advertising costs charged to costs and expenses during the years 1993, 1992 and 1991 did not exceed one percent of total sales.
11 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. ______LAWTER INTERNATIONAL, INC.______ (Registrant) /s/ Daniel J. Terra -------------------------------------- Daniel J. Terra Chairman of the Board and Chief Executive Officer (Principal Executive Officer) /s/ William S. Russell -------------------------------------- William S. Russell Vice President, Treasurer and Secretary (Principal Financial and Accounting Officer) Date: March 25, 1994 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: /s/ Leonard P. Judy -------------------------------------- Leonard P. Judy, March 25, 1994 Director /s/ Richard D. Nordman -------------------------------------- Richard D. Nordman, March 25, 1994 Director /s/ Fred G. Steingraber -------------------------------------- Fred G. Steingraber, March 25, 1994 Director /s/ Daniel J. Terra -------------------------------------- Daniel J. Terra, March 25, 1994 Director Registrant's 1993 Annual Report to Stockholders, some portions of which have been incorporated by reference in this Form 10-K, has been previously sent to each stockholder and was included with this report to the Securities and Exchange Commission. 12 EX-13 2 EXHIBIT 13 Exhibit 13 Lawter International, Inc. and Subsidiaries' 1993 Annual Report to Stockholders Market Price and Quarterly Dividend Statistics for Common Stock MARKET PRICE DIVIDENDS (per share) 1993 1992 1993 1992 High Low High Low First Quarter $14 1/8 $12 1/8 $14 $12 1/4 $.10 $.10 Second Quarter 15 1/2 12 5/8 14 7/8 12 1/2 .10 .10 Third Quarter 14 5/8 12 7/8 13 3/8 11 7/8 .10 .10 Fourth Quarter 14 1/2 12 5/8 14 3/8 12 3/4 .10 .10 Total Year $.40 $.40 The common stock of Lawter International, Inc. is traded on the New York Stock Exchange (symbol, LAW). The continuation of dividend payments is expected. The approximate number of holders of record of Lawter's common stock as of March 4, 1994 was 3,600. -1- General Nature and Scope of Business Lawter is engaged predominantly in a single industry - specialty chemicals. The primary products produced and marketed by the Company within this industry consist of:(1) printing ink vehicles and slip additives; (2) synthetic and hydrocarbon resins; and (3) fluorescent pigments and coatings, and thermographic compounds. In addition, the Company produces thermographic and rota-matic machines. Printing ink vehicles are fluid and gelled compositions which provide to lithographic and letterpress printing inks the ability to carry color onto a variety of printing surfaces. They influence printing quality, gloss, drying speed, adhesion, rub resistance and press speed. Slip additives are used in printing inks to provide additional surface slip and rub resistance to the ink film. These products are sold to printing ink manufacturers. Synthetic and hydrocarbon resins are used in the production of adhesives, liquid printing inks and printing ink vehicles, rubber compounds, paints and various coatings to improve durability, chemical resistance, appearance, adhesion and speed of drying. Fluorescent pigments and coatings are used in the manufacture of paints, printing inks, paper coatings, plastic products, rubber compounds, textile inks and other products where striking color properties are desired. Such fluorescent products are used for greater visibility in safety marking applications. They are also used in display advertising and in the plastic industry in toys and bottles. Thermographic machines and compounds are used in the production of thermographic printing, a process which produces raised printing. Rota-matic machines are used to cut, score or perforate paper products. The thermographic printing process and rota-matic machines are used in the manufacture of greeting cards, specialty printing, business cards, stationery and advertising material. No material part of the business of the Company is dependent upon a single product for any customer or a small group of customers. Sales by Product Group (percent of net sales) 1993 1992 1991 Printing Ink Vehicles and Slip Additives 47.0 49.4 45.7 Synthetic and Hydrocarbon Resins 46.7 44.1 45.0 Other 6.3 6.5 9.3 -2- Management's Discussion and Analysis Liquidity and Capital Resources Lawter's cash and equivalents, net of short-term borrowings, decreased $7,500,000 from $64,900,000 at December 31, 1992 to $57,400,000 at December 31, 1993. The decrease was due primarily to expenditures for the new U.S. resin facility and the purchase of marketable securities. The Company generally relies upon internally generated funds from operations to satisfy working capital requirements and to fund capital expenditures. However, in certain circumstances, the Company finds it is more advantageous to borrow funds on a short-term basis to satisfy U.S. working capital requirements. Lawter anticipates maintaining a strong liquid position. In 1993 and 1991, Lawter used external short-term bank financing in connection with the new U.S. manufacturing and research and development facilities. In 1992, the majority of the Company's capital expansion program was financed with internally generated funds. Capital expenditures for 1993 were originally budgeted at $11,000,000. Actual expenditures were approximately seventeen percent higher than budgeted due primarily to various equipment additions and replacements made which were not included in the original budget. Lawter's capital expenditures for 1994 are estimated at $10,000,000. These expenditures include the beginning of a two year project for a new synthetic resin and printing ink vehicle facility in Europe, and completion of the new U.S. resin facility, as well as additions to and modernization of existing facilities elsewhere. The Company currently anticipates using internally generated funds for the majority of these capital expenditures. Results of Operations Net Sales. The Company's consolidated net sales increased 3% in 1993 when compared to 1992. Domestic sales volume increased 3% while average selling prices decreased 1%, due primarily to product mix, resulting in a 2% increase in domestic net sales. While European sales volume increased 14%, net reportable European net sales increased 1% as a result of an 11% decrease caused by adverse exchange rate fluctuations and a 1% decrease in average selling prices. Consolidated net sales increased 10% in 1992 when compared to 1991. Sales volume domestically increased 13% of which 4% was attributable to the acquisition of the business of Ampac, Inc. that was effective September 6, 1991. Partially offsetting this increase was a 5% decrease in average selling prices caused primarily by lower sales volume of fluorescent products which have a higher unit selling price. This resulted in a 7% increase in domestic net sales. European net sales increased 17% due to a 14% increase in sales volume and a 4 % increase in average exchange rates, partially offset by a 1% decrease in average selling prices. Gross Margins. Gross margins as a percent of sales were 25.4%, 30.7% and 31.7% for 1993, 1992 and 1991, respectively. The 1993 gross margin was lower than 1992 due mainly to charges associated with: 1) voluntary waste disposal--$3,405,000; 2) refurbishing and cleaning waste water treatment facilities--$3,145,000; 3) inventory obsolescence--$1,000,000; 4) disputed utility charges--$865,000; and 5) other smaller items--$350,000. There should be no material beneficial or adverse effect on future operations as a result of these charges. The 1992 gross margin was lower than 1991 due mainly to costs associated with closing three manufacturing facilities in the Midwest and integrating these operations into the new U.S. manufacturing facility in Pleasant Prairie, Wisconsin, lower fluorescent sales which have a higher gross margin and slightly higher raw material costs for certain products, offset somewhat by the improved manufacturing efficiencies of the new U.S. facility. -3- Selling, General and Administrative Expenses. Selling, general and administrative expenses include foreign transaction exchange gains/(losses) of $411,000 in 1993, $(839,000) in 1992 and $(371,000) in 1991. These transaction gains and losses result mainly from the effect of the foreign exchange rate fluctuations on transactions of the foreign subsidiaries that are denominated in currencies other than the subsidiaries' functional currencies. Excluding these transaction gains and losses, selling, general and administrative expenses as a percent of sales were 11.1%, 11.5% and 11.7% in 1993, 1992 and 1991, respectively. The decreased percentage in 1993 when compared to 1992 and 1991 was due primarily to an $840,000 gain on the sale of two properties due to the consolidation of U.S. manufacturing facilities and lower selling and administrative costs, offset somewhat by $400,000 of expenses incurred with the terminated Hach merger and other smaller charges. Investment Income. Investment income decreased in 1993 when compared to 1992 due primarily to $929,000 in realized gains on the sales of marketable securities offset by a $513,000 write down of marketable securities to market in 1993 versus $775,000 in realized gains on the sales of marketable securities in 1992 along with lower interest rates and decreased funds available for investment in 1993. The decrease in 1992 when compared to 1991 was due primarily to $775,000 in realized gains on the sales of marketable securities in 1992 versus $1,238,000 in realized gains on the sales of marketable securities and a $159,000 write up of marketable securities to cost in 1991 along with lower interest rates, offset somewhat by increased funds available for investment and increased equity earnings from the investment in Hach Company in 1992. Income Taxes. The effective tax rates for 1993, 1992 and 1991 were 96.6%, 26.1% and 27.2%, respectively. The 1993 tax provision includes an additional U.S. tax provision of $21,600,000 for future repatriation of foreign earnings as more fully described in Note 4 to the consolidated financial statements. Excluding this additional provision, the 1993 effective tax rate would have been 23.3%. This rate was lower than the 1992 rate primarily as a result of lower domestic earnings (caused by the charges mentioned above) which have a higher tax rate and higher foreign earnings with a lower tax rate, partially offset by an increase in the U.S. statutory tax rate. The lower rate in 1992 when compared to 1991 was primarily the result of the lower taxes due to foreign operations. Cumulative Effect of Change in Accounting for Income Taxes. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS No. 109 changes the Company's method of accounting for income taxes from the deferred method to the asset and liability method. Under the deferred method, deferred income taxes were recorded at the rate in effect when the deferred income taxes arose, whereas, with the asset and liability method deferred income taxes are required to be recorded at the rate that will be in effect when the deferred income taxes are expected to be paid. Prior years' financial statements have not been restated. Effects of Inflation. The Company attempts to minimize the effects of inflation on sales and earnings by appropriately increasing selling prices and pursuing ongoing cost control programs and productivity improvements. The effects of inflation were minimized through increased manufacturing efficiencies and cost controls in 1993 and 1992. -4- Operating Results By Quarters (Unaudited) (in thousands, except per share figures) Earnings/(Loss) Before Cumulative Effect of Accounting Change Net Earnings/(Loss) Gross -------------------- ------------------ 1992 Net Sales Profit Amount Per Share Amount Per Share March 31 $ 41,315 $12,966 $ 7,065 $0.16 $ 7,065 $0.16 June 30 40,757 12,399 6,925 0.16 6,925 0.16 September 30 42,988 13,251 6,442 0.15 6,442 0.15 December 31 42,508 12,779 6,583 0.15 6,583 0.15 $167,568 $51,395 $27,015 $0.62 $27,015 $0.62 1993 March 31 $42,070 $13,299 $ 7,600 $0.17 $11,625(1) $0.26 June 30 42,080 12,839 7,665 0.17 7,665 0.17 September 30 43,625 13,482 7,415 0.17 7,415 0.17 December 31(2) 44,474 4,213 (21,678) (0.49) (21,678) (0.49) $172,249 $43,833 $ 1,002 $0.02 $5,027(1) $0.11 (1) Includes $4,025,000 or $.09 per share for cumulative effect of change in accounting for income taxes. See Note 4 to the consolidated financial statements. (2) Fourth quarter 1993 earnings were reduced primarily by a tax provision for repatriation of foreign earnings - $21,600,000 (See Note 4 to the consolidated financial statements) and other charges as follows: voluntary waste disposal, refurbishing and cleaning waste water treatment facilities, write down of marketable securities to market, inventory obsolescence, certain disputed utility charges, costs incurred with the terminated Hach merger, and other smaller items. The after tax effect of these other charges was $6,400,000. -5-
Ten Year Financial Summary (in thousands, except per share figures) Years Ended December 31 1993(1) 1992(1) 1991(1) 1990 1989 Net Sales $172,249 $167,568 $152,893 $150,005 $136,006 Gross Profit 43,833 51,395 48,396 46,362 38,624 Selling, General and Administrative Expenses 18,700 20,103 18,254 18,682 16,122 Operating Income 25,133 31,292 30,142 27,680 22,502 Investment Income 4,318 5,271 6,221 4,963 3,929 Earnings Before Income Taxes and Cumulative Effect of Accounting Change 29,451 36,563 36,363 32,643 26,431 Provision for Income Taxes 28,449(6) 9,548 9,893 9,223 6,963 Earnings (Loss) Before Cumulative Effect of Accounting Change 1,002 27,015 26,470 23,420 19,468 Cumulative Effect of Change in Accounting for Income Taxes 4,025(5) --- --- --- --- Net Earnings (Loss) $ 5,027 $ 27,015 $ 26,470 $ 23,420 $ 19,468 Depreciation and Amortization $ 4,291 $ 4,179 $ 3,900 $ 3,521 $ 3,550 Cash Provided by Operating Activities 23,811 34,440 23,192 34,240 20,388 Cash Dividends 17,909 17,556 14,947 12,582 12,561 Capital Expenditures, net 12,940 7,548 8,902 6,198 3,073 Gross Property, Plant and Equipment 87,856 78,491 74,022 66,271 57,421 Net Working Capital 84,249 93,079 86,448 82,560 70,200 Total Assets 209,477 187,334 178,218 153,500 133,988 Long-Term Obligations 4,206 4,858 5,238 5,137 5,083 Stockholders' Equity 110,751 126,656 116,688 105,090 87,752 Average Shares Outstanding(2) 44,772 43,913 43,318 43,011 42,940 Earnings (Loss) per Share(2): Earnings (Loss) Before Cumulative Effect of Accounting Change $ .02 $ .62 $ .61 $ .54 $ .45 Cumulative Effect of Change in Accounting for Income Taxes .09(5) --- --- --- --- Net Earnings (Loss) .11 .62 .61 .54 .45 Cash Dividends per Share(2) .40 .40 .35 .29 .29 Stockholders' Equity per Share(2) 2.47 2.88 2.69 2.44 2.04 Cash Dividends to Net Earnings 356.3% 65.0% 56.5% 53.7% 64.5% Net Earnings to Year End Equity 4.5% 21.3% 22.7% 22.3% 22.2% * Not applicable due to net loss. (1) See Management's Discussion and Analysis for analysis of changes between years. (2) Average shares outstanding and per share amounts are adjusted to reflect the four-for-three stock splits in 1991, 1990 and 1988. (3) Includes additional tax provision of $14 million for future repatriation of foreign earnings. (4) Restated to reflect the effects of SFAS No. 95 which was adopted in 1988. (5) Represents cumulative effect on prior years' earnings of adopting SFAS No. 109 which was adopted January 1, 1993. See Note 4 to the consolidated financial statements. (6) Includes additional tax provision of $21.6 million for future repatriation of foreign earnings. See Note 4 to the consolidated financial statements.
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Ten Year Financial Summary (in thousands, except per share figures) Years Ended December 31 1988 1987 1986 1985 1984 Net Sales $125,818 $112,018 $103,515 $96,769 $98,404 Gross Profit 38,949 34,556 30,332 24,221 30,697 Selling, General and Administrative Expenses 14,751 11,960 10,631 11,000 9,351 Operating Income 24,198 22,596 19,701 13,221 21,346 Investment Income 3,173 1,952 1,175 1,547 1,978 Earnings Before Income Taxes and Cumulative Effect of Accounting Change 27,371 24,548 20,876 14,768 23,324 Provision for Income Taxes 6,520 7,847 7,931 20,181(3) 8,462 Earnings (Loss) Before Cumulative Effect of Accounting Change 20,851 16,701 12,945 (5,413) 14,862 Cumulative Effect of Change in Accounting for Income Taxes --- --- --- --- --- Net Earnings (Loss) $ 20,851 $ 16,701 $ 12,945 $(5,413) $14,862 Depreciation and Amortization $ 3,410 $ 3,193 $ 2,908 $ 2,763 $ 2,603 Cash Provided by Operating Activities 15,796 22,726(4) 19,701(4) 10,411 17,877 Cash Dividends 12,403 9,820 9,791 9,758 9,621 Capital Expenditures, net 4,524 1,405(4) 1,581(4) 3,179 3,339 Gross Property, Plant and Equipment 54,282 49,503 45,560 42,534 37,582 Net Working Capital 62,807 59,719 45,087 37,687 44,168 Total Assets 125,210 109,917 93,392 84,039 77,877 Long-Term Obligations 4,810 4,682 4,738 4,794 4,848 Stockholders' Equity 79,521 69,458 55,191 47,588 58,370 Average Shares Outstanding(2) 42,267 41,673 41,444 41,301 41,195 Earnings (Loss) per Share(2): Earnings (Loss) Before Cumulative Effect of Accounting Change $ .49 $ .40 $ .31 $ (.13) $ .36 Cumulative Effect of Change in Accounting for Income Taxes --- --- --- --- --- Net Earnings (Loss) .49 .40 .31 (.13) .36 Cash Dividends per Share(2) .29 .24 .24 .24 .23 Stockholders' Equity per Share(2) 1.88 1.67 1.33 1.15 1.42 Cash Dividends to Net Earnings 59.5% 58.8% 75.6% * 64.7% Net Earnings to Year End Equity 26.2% 24.0% 23.5% * 25.5% * Not applicable due to net loss. (1) See Management's Discussion and Analysis of changes between years. (2) Average shares outstanding and per share amounts are adjusted to reflect the four-for-three stock splits in 1991, 1990 and 1988. (3) Includes additional tax provision of $14 million for future repatriation of foreign earnings. (4) Restated to reflect the effects of SFAS No. 95 which was adopted in 1988. (5) Represents cumulative effect on prior years' earnings of adopting SFAS No. 109 which was adopted January 1, 1993. See Note 4 to the consolidated financial statements. (6) Includes additional tax provision of $21.6 million for future repatriation of foreign earnings. See Note 4 to the consolidated financial statements.
-7- Consolidated Balance Sheets Assets (in thousands, except share and per share figures) December 31 1993 1992 Current Assets: Cash $ 6,701 $ 4,811 Time Deposits, Interest Bearing 70,787 68,092 Marketable Securities (Note 1) 5,591 430 Accounts Receivable - less allowance for possible losses of $319 in 1993 and $632 in 1992 31,317 27,645 Inventories (Note 1) 26,253 27,404 Prepaid Expenses 1,662 1,161 Total Current Assets 142,311 129,543 Property, Plant and Equipment (Notes 1 and 7): Land 2,060 2,230 Buildings 19,449 19,831 Machinery and Equipment 56,159 53,247 Construction in Progress 10,188 3,183 87,856 78,491 Less Accumulated Depreciation 43,661 41,904 Net Property, Plant and Equipment 44,195 36,587 Equity Investment (Note 6) 18,077 16,079 Other Assets (Note 1) 4,894 5,125 Total $209,477 $187,334 Liabilities and Stockholders' Equity (in thousands, except share and per share figures) December 31 1993 1992 Current Liabilities: Accounts Payable and Accrued Expenses (Note 5) $ 29,822 $ 18,660 Short-Term Borrowings (Note 9) 20,044 8,011 Income Taxes Payable 8,196 8,262 Deferred Income Taxes (Note 4) --- 1,531 Total Current Liabilities 58,062 36,464 Long-Term Obligations (Note 7) 4,206 4,858 Deferred Income Taxes (Note 4) 36,458 19,356 Total Liabilities 98,726 60,678 Stockholders' Equity (Note 3): Preferred Stock - no par value, authorized 500,000 shares; none issued --- --- Common Stock - $1.00 par value, authorized 120,000,000 shares; issued 44,811,180 shares 44,811 44,682 Additional Paid-in Capital 6,260 5,394 Retained Earnings (Note 1) 69,475 82,357 Cumulative Translation Adjustments (Note 1) (6,456) (2,837) Other (3,339) (2,940) Total Stockholders' Equity 110,751 126,656 Total $209,477 $187,334 The accompanying notes to the consolidated financial statements are an integral part of these balance sheets. -8-
Consolidated Statements of Earnings (in thousands, except per share figures) Years Ended December 31 1993 1992 1991 Net Sales $172,249 $167,568 $152,893 Cost of Products Sold 128,416 116,173 104,497 Gross Profit 43,833 51,395 48,396 Selling, General and Administrative Expenses 18,700 20,103 18,254 Operating Income 25,133 31,292 30,142 Investment Income 4,318 5,271 6,221 Earnings Before Income Taxes and Cumulative Effect of Accounting Change 29,451 36,563 36,363 Provision for Income Taxes (Notes 1 and 4) 28,449 9,548 9,893 Earnings Before Cumulative Effect of Accounting Change 1,002 27,015 26,470 Cumulative Effect of Change in Accounting for Income Taxes (Note 4) 4,025 --- --- Net Earnings $ 5,027 $ 27,015 $ 26,470 Earnings per Share(Note 1): Earnings Before Cumulative Effect of Accounting Change $ 0.02 $ 0.62 $ 0.61 Cumulative Effect of Change in Accounting for Income Taxes (Note 4) 0.09 --- --- Net Earnings $ 0.11 $ 0.62 $ 0.61 The accompanying notes to the consolidated financial statements are an integral part of these statements.
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Consolidated Statements of Cash Flows (in thousands) Years Ended December 31 1993 1992 1991 Cash Flow from Operating Activities: Net Earnings $ 5,027 $27,015 $26,470 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities- Depreciation and Amortization 4,291 4,179 3,900 Deferred Income Taxes 17,118 1,153 497 Undistributed Equity Income (1,998) (2,031) (1,615) Deferred Exchange Gain (Loss) (524) 675 (1,488) Purchase of Marketable Securities (14,214) (8,434) (3,156) Proceeds from Sales of Marketable Securities 9,469 11,136 4,530 Net Gain from Marketable Securities (416) (775) (1,397) (Increase) Decrease in Current Assets- Accounts Receivable (5,145) (1,527) (802) Inventories 184 1,230 (4,926) Prepaid Expenses (616) 186 17 Increase (Decrease) in Current Liabilities- Accounts Payable and Accrued Expenses 11,795 (1,943) 1,875 Income Taxes Payable 371 3,564 (677) Deferred Income Taxes (1,531) 12 (36) Net Cash Provided by Operating Activities 23,811 34,440 23,192 Cash Flow from Investing Activities: Expenditures for Property, Plant and Equipment, net (12,940) (7,548) (8,902) Purchase of Business, net of cash --- --- (4,278) Loans to Officers (436) (3,038) (91) Repayment of Officers' Loans 37 400 114 Net Cash Used for Investing Activities (13,339) (10,186) (13,157) Cash Flow from Financing Activities: Exercise of Stock Options 995 7,264 2,801 Principal Payments on Long-Term Obligations (4,656) (323) (51) Proceeds from Long-Term Borrowings 4,000 --- 51 Payment of Short-Term Borrowings --- (2,446) --- Proceeds from Short-Term Borrowings 12,033 --- 10,457 Cash Dividends Paid (17,909) (17,556) (14,947) Purchase of Treasury Stock --- --- (17) Net Cash Used for Financing Activities (5,537) (13,061) (1,706) Effect of Exchange Rate Changes on Cash (350) (616) (821) Increase in Cash and Equivalents 4,585 10,577 7,508 Cash and Equivalents, Beginning of Year 72,903 62,326 54,818 Cash and Equivalents, End of Year $77,488 $72,903 $62,326 The accompanying notes to the consolidated financial statements are an integral part of these statements.
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Consolidated Statements of Stockholders' Equity (in thousands, except per share figures) Common Additional Retained Cumulative Treasury Other Years Ended December 31, Stock Paid-in Earnings Translation Stock 1991, 1992 and 1993 $1 Par Value Capital Adjustments Balance, January 1, 1991 $33,098 $ 44 $71,247 $4,011 $(2,985) $ (325) Add (deduct): Net Earnings --- --- 26,470 --- --- --- Cash Dividends Declared $0.35 per share --- --- (14,947) --- --- --- Exercise of Stock Options --- 1,502 --- --- 1,299 --- Loans to Officers (Note 3) --- --- --- --- --- 23 Foreign Currency Translation Adjustments --- --- --- (2,731) --- --- Four-for-Three Stock Split in 1991 11,032 (1,161) (9,872) --- (17) --- Balance, December 31, 1991 44,130 385 72,898 1,280 (1,703) (302) Add (deduct): Net Earnings --- --- 27,015 --- --- --- Cash Dividends Declared $0.40 per share --- --- (17,556) --- --- --- Exercise of Stock Options 552 5,009 --- --- 1,703 --- Loans to Officers (Note 3) --- --- --- --- --- (2,638) Foreign Currency Translation Adjustments --- --- --- (4,117) --- --- Balance, December 31, 1992 44,682 5,394 82,357 (2,837) --- (2,940) Add (deduct): Net Earnings --- --- 5,027 --- --- --- Cash Dividends Declared $0.40 per share --- --- (17,909) --- --- --- Exercise of Stock Options 129 866 --- --- --- --- Loans to Officers (Note 3) --- --- --- --- --- (399) Foreign Currency Translation Adjustments --- --- --- (3,619) --- --- Balance, December 31, 1993 $44,811 $6,260 $69,475 $(6,456) $ --- $(3,339) The accompanying notes to the consolidated financial statements are an integral part of these statements.
-11- Notes to the Consolidated Financial Statements Note 1 - Statement of Accounting Policies Principles of Consolidation The consolidated financial statements of the Company include all of its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The equity method is used for any investment where ownership is from 20% to 50%. Foreign Currency Translation All assets and liabilities of operations denominated in foreign currencies are translated at the rates of exchange in effect at the close of the year. Revenue and expense accounts are translated at the average exchange rates which were in effect during the year. Translation gains and losses are reported as a separate component of stockholders' equity and are not included in net earnings. Foreign currency transaction gains and losses continue to be an element in determining net earnings for the period. Foreign currency transaction gains (losses), included in selling, general and administrative expenses, were $411,000 in 1993, $(839,000) in 1992 and $(371,000) in 1991. Revenues and expenses are also affected by fluctuations of currency rates from year to year. The effect of these rate fluctuations in 1993 when compared to 1992 resulted in an unfavorable impact on operating results in addition to the transaction gains or losses reflected in net earnings. For 1992, the effect of rate changes when compared to 1991 resulted in a favorable impact. Property Property, plant and equipment is stated at cost. Depreciation, computed using the straight-line method for financial statement purposes, is provided over the useful lives of the various classes of property, plant and equipment. Research and Development Research and development costs ($4,423,000 in 1993, $4,093,000 in 1992 and $3,883,000 in 1991) are charged to expense as incurred. Earnings per Share Earnings per share of common stock are computed on the weighted average shares outstanding during the respective years (44,772,000 shares in 1993, 43,913,000 shares in 1992 and 43,318,000 shares in 1991). Net earnings per share would not be materially different from reported earnings per share if all outstanding stock options were exercised. -12- Inventories The majority of the Company's domestic inventories are valued at last-in, first- out (LIFO) cost which is not in excess of net realizable value. The Company believes the LIFO method more fairly presents its results of operations by reducing the effect of inflationary cost increases in inventory and thus matches current costs with current revenues. The Company's other inventories aggregating $14,324,000 and $14,448,000 at December 31, 1993 and 1992, respectively, are valued at the lower of first-in, first-out (FIFO) cost or market. The finished goods inventories include the cost of raw materials and manufacturing labor and overhead. Inventories are summarized as follows: (in thousands) 1993 1992 Finished Goods $15,102 $16,993 Raw Materials 11,151 10,411 $26,253 $27,404 If the first-in, first-out (FIFO) inventory valuation method had been used for all inventories, they would have been $3,369,000 and $3,166,000 higher than reported at December 31, 1993 and 1992, respectively. Income Taxes The Company provides U.S. income taxes on earnings of those foreign subsidiaries which are intended to be remitted to the parent company. In the fourth quarter of 1993, U.S. income taxes were provided on all undistributed earnings of foreign subsidiaries (See Note 4). At December 31, 1992, $58,889,000 of undistributed earnings were considered reinvested indefinitely in foreign subsidiaries. Investments Marketable securities are adjusted to fair market value. Intangible Assets The excess of cost over equity in net assets of acquisitions is being amortized over periods not exceeding 40 years. Consolidated Statement of Cash Flows The Company considers time deposits, which are highly liquid with an original maturity of three months or less, to be cash equivalents for purposes of the consolidated statements of cash flows. The Company paid interest of $925,000 in 1993, $903,000 in 1992 and $750,000 in 1991. Note 2 - Retirement Plans The Company has contributory profit sharing plans and a non-contributory money purchase pension plan. The majority of domestic and Canadian employees are covered by one of these plans. Company contributions to these plans charged to operations were $514,000 in 1993, $516,000 in 1992 and $545,000 in 1991 and are funded on a current basis. There is no past service liability under these plans. The Company has no material postretirement or postemployment benefit obligations. -13- Note 3 - Common Stock Currently, the Company issues common stock when stock options are exercised. At the time of exercise, officers may borrow funds from the Company in order to exercise their stock options. These loans bear interest at the Company's effective rate to borrow and are repayable within eighteen months. The unpaid portion of the options exercised, evidenced by a note, has been deducted from Stockholders' Equity in the accompanying Consolidated Balance Sheets. The par value of the shares issued is credited to the common stock account and the excess of the purchase price over the par value is credited to additional paid- in capital. Options may be granted at prices not less than the fair market value at the date of grant. Options expire five or ten years from the date of grant and are exercisable one or two years after the date of grant. A summary of changes in the stock options is shown below: Shares ------------------------------------------ Reserved Granted Available Balance, January 1, 1992 1,812,997 1,807,697 5,300 Authorized 2,500,000 --- 2,500,000 Granted --- 64,250 (64,250) Exercised (1,111,682) (1,111,682) --- Cancelled or expired (9,491) (27,178) 17,687 Balance, December 31, 1992 3,191,824 733,087 2,458,737 Granted --- 342,050 (342,050) Exercised (129,642) (129,642) --- Cancelled or expired (7,316) (46,829) 39,513 Balance, December 31, 1993 3,054,866 898,666 2,156,200 Exercisable, December 31, 1993 545,366 Additional information under the stock option plans is shown below: Option Price -------------------------- Number of Per Shares Share Total Options outstanding 898,666 $ 6.62 to $9,545,663 December 31, 1993 14.38 Exercised 1992 1,111,682 6.18 to 7,262,981 10.41 Exercised 1993 129,642 6.18 to 994,931 10.69 Became exercisable 1992 416,997 9.29 to 4,337,402 10.69 Became exercisable 1993 12,250 12.38 to 156,719 13.25 -14- Note 4 - Provision for Income Tax Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," as required by the Financial Accounting Standards Board which resulted in a benefit of $4,025,000. The adoption of SFAS No. 109 changes the Company's method of accounting for income taxes from the deferred method to the asset and liability method. Prior years' financial statements have not been restated. The effect of adopting SFAS No. 109 on "Earnings Before Cumulative Effect of Accounting Change" in 1993, was a $419,000 charge, which resulted from the increase in the U.S. Federal statutory tax rate from 34% to 35%. The Company also provided taxes for past undistributed earnings of foreign subsidiaries. The Company had, through the end of 1993, accumulated $70,500,000 of foreign earnings which were deemed permanently reinvested abroad. These earnings have been exempt from local taxes or taxed at rates lower than the U.S. tax rate and no additional tax provision had been required. At a meeting held on January 7, 1994, the Board of Directors discussed this issue at length and determined that it was now in the best interest of the Company to make these funds available to the U.S. parent for working capital, capital expenditures and potential U.S. acquisitions. As a result, the Company reported an additional charge of $21.6 million for U.S. taxes in 1993. This charge was equivalent to 48 cents per share. The Company is not required to pay these taxes until the funds are actually remitted to the U.S. parent. The Company's earnings from the manufacturing operation in Waterford, Ireland were tax exempt until 1990 and will have a 10% tax rate through 2010. The provisions (benefits) for income taxes were as follows: (in thousands) 1993 1992 1991 Currently payable: United States: Federal $ 4,976 $5,064 $6,537 State 344 1,189 784 Foreign 2,103 2,129 2,114 Total Current 7,423 8,382 9,435 Deferred (principally U.S.): Excess of tax over book depreciation 300 459 (90) Undistributed earnings of the equity investment 721 712 589 Undistributed earnings of foreign subsidiaries 21,600 --- --- Environmental expenditures (1,330) --- --- Other (265) (5) (41) Total Deferred 21,026 1,166 458 $28,449 $9,548 $9,893 Temporary differences that gave rise to the deferred tax liability at December 31, 1993 were as follows: (in thousands) Undistributed earnings of foreign subsidiaries $33,062 Undistributed earnings of the equity investment 3,718 Excess of tax over book depreciation 2,912 Environmental expenditures (1,728) Other (1,506) $36,458 -15- Pre-tax earnings were as follows: (in thousands) 1993 1992 1991 United States $12,629 $20,809 $20,450 Foreign 16,822 15,754 15,913 $29,451 $36,563 $36,363 Income taxes paid during 1993, 1992 and 1991 amounted to $8,497,000, $4,927,000 and $9,418,000, respectively. The total "Provision for Income Taxes" represents an effective tax rate of 96.6% for 1993, 26.1% for 1992 and 27.2% for 1991. The differences from the U.S. statutory rate for 1993, 1992 and 1991 were as follows: (in thousands) 1993 1992 1991 Computed tax provision at 35% in 1993 and 34% in 1992 and 1991 $10,308 $12,431 $12,364 Increase (decrease) in tax provision resulting from: Waterford, Ireland operation (2,627) (2,314) (2,357) Inclusion of state & local income taxes (net of Federal income taxes) 193 714 532 Other foreign operations (533) (605) (356) Undistributed earnings of foreign subsidiaries 21,600 --- --- Other (492) (678) (290) Provision for Income Taxes $28,449 $ 9,548 $ 9,893 Note 5 - Accounts Payable and Accrued Expenses Accounts payable and accrued expenses were as follows: (in thousands) 1993 1992 Trade Accounts Payable $19,976 $14,808 Accrued Environmental Expenditures* 5,405 937 Accrued Compensation and Benefits 1,317 1,156 Accrued Taxes, Other 1,353 910 Other Accrued Liabilities 1,771 849 $29,822 $18,660 *Accrued environmental expenditures are primarily for refurbishing and cleaning waste water treatment facilities. Note 6 - Equity Investment At December 31, 1993, the Company owned 2,525,779 shares, representing approximately 27% of the outstanding shares, of the Common Stock of Hach Company (Hach). The closing price on NASDAQ at December 31, 1993 was $21.00 per share. The investment in Hach is accounted for under the equity method. Income and other transactions in this investment were not material to the consolidated financial statements of the Company. Hach is a leading international manufacturer of instruments and test kits that analyze the chemical content and other properties of water and other aqueous solutions. In addition, Hach sells analytical reagents which are used in connection with the instruments and test kits. -16- Note 7 - Long-Term Obligations Long-term obligations were as follows: (in thousands) 1993 1992 Series 1993-LI IDB Bond $4,000 $ --- Series 1983-LI IDB Bond --- 4,000 Series 1978-A IDB Bond 250 300 Less - Current portion in accounts payable (50) (50) Net long-term bonds payable 4,200 4,250 Other long-term obligations 6 608 Total long-term obligations $4,206 $4,858 During 1993, the Industrial Development Board of the Town of Moundville (IDB) issued a $4,000,000, 6 3/4% Industrial Revenue Bond, Series 1993-LI. Interest is payable semi-annually. Principal is due in six annual installments of various amounts beginning December 1, 2006 with the final payment due December 1, 2011. As required, the proceeds from this bond were used to prepay a $4,000,000, 10 5/8% Industrial Revenue Bond, Series 1983-LI that was issued in 1983 by the IDB. The Series 1978-A Industrial Revenue Bond was originally issued in 1978 by the IDB for $1,000,000. Interest is payable semi-annually at 7 1/4%. Principal of $50,000 is payable annually through 1997 with the final payment due September 1, 2003. In connection with the issuance of these Industrial Revenue Bonds by the IDB, the Company entered into capital lease agreements with the IDB with future minimum lease payments sufficient to amortize the principal and interest on each series of the Industrial Revenue Bonds. Costs capitalized under these leases were $8,500,000 as of December 31, 1993 and 1992. The capitalized costs are being depreciated over the estimated useful lives of the individual assets. At December 31, 1993, the future lease payments under the capitalized leases relating to the Industrial Revenue Bonds are as follows: (in thousands) 1994 $ 361 1995 334 1996 331 1997 327 1998 270 Later years 6,940 Total minimum lease payments 8,563 Less interest (4,313) Present value of minimum lease payments $4,250 Operating leases are not significant. -17- Note 8 - Segment Information A dominant portion of Lawter's operations is in a single industry--specialty chemicals. Within this industry, Lawter is principally engaged in the production and marketing of printing ink vehicles, slip additives, synthetic and hydrocarbon resins, thermographic compounds, and fluorescent pigments and coatings. Lawter's total business is broken down into three geographical areas: Domestic, Europe and Other Foreign. Other Foreign includes the Company's operations in Australia, Canada, China, Japan, Singapore and Taiwan which, individually, are not considered to be significant as defined by FASB Statement No. 14. The Company sells its products to both large and small ink companies. Lawter is a major supplier of printing ink vehicles and resins for printing inks and, therefore, sells substantial quantities to larger ink companies around the world. One customer approximated eighteen percent of sales in 1993 and fifteen percent of sales in 1992, whose purchases are made for a wide variety of specialized products at multiple locations through numerous companies in various countries. Transfers between geographic areas are not material. Corporate earnings before tax is the net of investment income and corporate expenses. Identifiable assets are those assets used exclusively in the operations of each geographic area. Corporate assets are principally comprised of time deposits, the equity investment and other assets. The contribution of European operations to net earnings is greater than their contribution to earnings before tax principally due to the Waterford, Ireland operation discussed in Note 4. Information about the Company's operations for the years ended December 31, 1993, 1992 and 1991 is shown in the table below. (in thousands) 1993 1992 1991 Net Sales: Domestic $ 93,649 $ 92,078 $ 86,725 Europe 64,008 63,501 54,406 Other Foreign 14,592 11,989 11,762 Total 172,249 167,568 152,893 Earnings Before Tax: Domestic 12,142 20,046 19,513 Europe 12,460 11,478 10,686 Other Foreign 2,260 1,749 1,855 Corporate 2,589 3,290 4,309 Total 29,451 36,563 36,363 Identifiable Assets: Domestic 53,782 46,490 45,954 Europe 40,078 39,243 41,564 Other Foreign 15,833 12,295 11,825 Corporate 99,784 89,306 78,875 Total $209,477 $187,334 $178,218 -18- Note 9 - Commitments and Contingencies The Company has an unsecured line of credit for bank borrowings of $25,000,000 at December 31, 1993. During 1993, average borrowings were $5,442,000 against this line of credit and the weighted average interest rate was 3.78%. In 1992, average borrowings were $5,355,000 and the weighted average interest rate was 4.96%. In 1991, average borrowings were $3,171,000 and the weighted average interest rate was 5.81%. There are no commitment fees or compensating balance requirements relating to this line of credit. Lawter has made a review of product liability insurance and, due to the excessive premium cost in the U.S. in relation to coverage provided, management, with the Board of Directors' concurrence, has elected to handle U.S. product liability claims on a self-insured basis. The Company from time to time is subject to claims brought on behalf of both private persons and governmental agencies. Management and the Company's general counsel are not aware of any claim where the disposition of such claim will have a material adverse effect upon the Company's consolidated financial position. Report of Independent Public Accountants To the Board of Directors and Shareholders of Lawter International, Inc.: We have audited the accompanying consolidated balance sheets of Lawter International, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lawter International, Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As explained in Note 4 to the consolidated financial statements, the Company changed its method of accounting for income taxes. /s/ Arthur Andersen & Co. Arthur Andersen & Co. Chicago, Illinois, February 10, 1994. -19- Directory International Headquarters Lawter International, Inc. 990 Skokie Boulevard, Northbrook, Illinois 60062 (708) 498-4700, Telex RCA 210013 (LAWT UR), Facsimile (708) 498-0066 Principal Companies and Locations (Incorporated In) Lawter International, Inc. (Delaware) Bell, California Norcross, Georgia Northbrook, Illinois Skokie, Illinois South Kearny, New Jersey Cincinnati, Ohio La Vergne, Tennessee Pleasant Prairie, Wisconsin Ampac Products and Dyall Products Division Skokie, Illinois Pleasant Prairie, Wisconsin Krumbhaar Division and Southern Resins Division Moundville, Alabama Japanese Branch Tokyo, Japan Taiwanese Branch Taipei, Taiwan, R.O.C. Ecovar, Inc. (Delaware) La Vergne, Tennessee Virkotype Corporation (Delaware) Skokie, Illinois Plainfield, New Jersey Lawter International FSC, Limited (Jamaica) Kingston, Jamaica Lawter International (Australasia) Pty. Limited (Australia) Melbourne, Australia Lawter International, N.V. (Belgium) Lokeren, Belgium Lawter International (Canada) Inc. (Canada) Rexdale, Ontario, Canada -20- Directory (Continued) Lawter International, Ltd. (Tianjin) P.R.C. (Peoples Republic of China) Tanggu, Peoples Republic of China Lawter International, A.p.S. (Denmark) Koge, Denmark Lawter International, Sarl (France) Orly, France Lawter International, GmbH (Germany) Frechen, Germany Lawter International, Limited (Great Britain) Bicester, Oxon, England Lawter International (Italia), Srl (Italy) Milan, Italy Lawter International, B.V. (Netherlands) Waterford, Ireland Lawter Antilles, N.V. (Netherlands Antilles) Curacao, Netherlands Antilles Lawter International Products Pte. Ltd. (Singapore) Jurong Town, Singapore Lawter International (Proprietary) Limited (South Africa) Cape Town, South Africa Lawter International, S.A. (Spain) Barcelona, Spain -21- -----END PRIVACY-ENHANCED MESSAGE-----