10-K405 1 10-K405 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _______________________ TO ______________________ COMMISSION FILE NUMBER 1-7558 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. /X/ AS OF FEBRUARY 15, 1995, 44,941,903 COMMON SHARES WERE OUTSTANDING. THE AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE FEBRUARY 15, 1995 CLOSING PRICE OF THESE SHARES ON THE NEW YORK STOCK EXCHANGE) OF LAWTER INTERNATIONAL, INC. HELD BY NON-AFFILIATES WAS APPROXIMATELY $371 MILLION. DOCUMENTS INCORPORATED BY REFERENCE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1994 -- PARTS I, II AND IV. PROXY STATEMENT TO STOCKHOLDERS FOR THE 1995 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................................................. 6 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 Schedule and Consent of Independent Public Accountants........................................................................ 8 Signatures.............................................................................................. 10
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 1994 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 1994 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, Germany, Ireland, Italy, Singapore and Spain. Products are sold primarily by Company employed salesmen. Reference is made to the Sales by Product Group on page 5 in the Company's 1994 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, 1994, 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 normally in adequate supply. During 1994, certain ingredients were in tighter supply than normal, thus causing their prices to rise. The Company was able to purchase these or alternative ingredients in sufficient quantities and expects to be able to continue to do 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 nineteen 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 100 competitors in the sale of its synthetic and hydrocarbon resins. RESEARCH. During the fiscal years ended December 31, 1994, 1993 and 1992, the Company spent approximately $4,821,000, $4,423,000 and $4,093,000, 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. Expenditures for environmental matters during the fiscal years ended December 31, 1994 and 1992 were not material to the consolidated financial statements of the Company. During 1993, the Company expensed $3,405,000 for voluntary waste disposal and $3,145,000 for refurbishing and cleaning waste water treatment facilities. Reference is made to the Gross Margin section in the Results of Operation of Management's Discussion and Analysis on Page 6 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference). 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 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 1995 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, 1994, the Company had 577 employees. FOREIGN SALES-- Reference is made to Note 8 in the Company's 1994 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 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 Frechen, Germany 17,000 Printing ink vehicles Leased Warehouse Waterford, Ireland 97,000 Synthetic resins Owned Cremona, Italy 72,000 Printing ink vehicles Owned Synthetic resins Warehouse 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 1994 Annual Report to Stockholders (hereby incorporated by reference).
4 ITEM 3. LEGAL PROCEEDINGS. Reference is made to Note 9 in the Company's 1994 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, 1994. 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 1995, is as follows:
YEAR NAME POSITION AGE ELECTED ------------------------------------------------ ------------------------------- --- ------- Daniel J. Terra................................. Chairman of the Board and Chief Executive Officer 83 1958 Richard D. Nordman.............................. President and Chief Operating Officer 48 1986 Richard A. Hacker............................... Vice President 59 1974 Ludwig P. Horn.................................. Vice President 65 1980 John P. Jilek................................... Vice President 43 1989 Hermann Mueller................................. Vice President 53 1980 John P. O'Mahoney............................... Vice President 38 1993 William S. Russell.............................. Vice President, 1987 Treasurer and 1982 Secretary 46 1986
Mr. O'Mahoney served as European General Manager with the Company from 1990-1993. 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 1994 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 (1985-1994) on pages 8 and 9 in the Company's 1994 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 1994 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 1994 Annual Report to Stockholders (hereby incorporated by reference) for this information. 5 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' 1994 Annual Report to Stockholders listed under the caption "Consolidated Financial Statements" in Item 14 are hereby incorporated by reference. Reference is also made to the Operating Results by Quarters on page 4 in the Company's 1994 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 1995 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 1995 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 1995 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 1995 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, 1994 and 1993.................................................. * Statements of Earnings for the years ended December 31, 1994, 1993 and 1992...................... * Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992.................... * Statements of Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992.......... * Notes to the Consolidated Financial Statements--December 31, 1994, 1993 and 1992................. * Report of Independent Public Accountants......................................................... * ------------------------ * These Consolidated Financial Statements, related Notes and Report of Independent Public Accountants appearing in the Company's 1994 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 Schedule................................................ 8 II. Valuation and Qualifying Accounts........................................................ 9
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) The 1994 Amendment to the 1992 Non-Qualified Stock Option Plan (incorporated by reference to Appendix A of the Company's Definitive Proxy Statement dated April 28, 1994) (File No. 1-7558).* (f) 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).* (g) 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).* (h) 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' 1994 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). (21) Subsidiaries of the Company. Reference is made to the Directory on the inside back cover of the Company's 1994 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). * These documents constitute all of the management contracts, compensatory plans or arrangements in which any director or executive officer participates.
7 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. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE 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' 1994 Annual Report to Stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 8, 1995. Our audit was made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. The schedule listed in the index on page 7 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic consolidated financial statements and, in our opinion, fairly states 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 LLP ARTHUR ANDERSEN LLP Chicago, Illinois, February 8, 1995 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 8, 1995, 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, 1994, 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 LLP ARTHUR ANDERSEN LLP Chicago, Illinois, March 27, 1995 8 LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (in thousands)
ALLOWANCES FOR DOUBTFUL ACCOUNTS 1994 1993 1992 ------------------------------------------------------------------------------------ --------- --------- --------- Balance at beginning of year........................................................ $ 319 $ 632 $ 237 Additions (credited)/charged to earnings.......................................... (30) 66 436 Additions/(deductions) for accounts written off, net of recoveries................ 126(1) (379) (41) --------- --------- --------- Balance at end of year.............................................................. $ 415 $ 319 $ 632 --------- --------- --------- --------- --------- --------- ------------------------ (1) Includes approximately $179,000 of Cremona Resine allowance for doubtful accounts which was acquired June 30, 1994.
9 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 27, 1995 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 27, 1995 Director /s/ RICHARD D. NORDMAN -------------------------------------- Richard D. Nordman, March 27, 1995 Director /s/ FRED G. STEINGRABER -------------------------------------- Fred G. Steingraber, March 27, 1995 Director /s/ DANIEL J. TERRA -------------------------------------- Daniel J. Terra, March 27, 1995 Director Registrant's 1994 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. 10 EX-13 2 EXHIBIT 13 Exhibit 13 Lawter International, Inc. and Subsidiaries' 1994 Annual Report to Stockholders Market Price and Quarterly Dividend Statistics for Common Stock MARKET PRICE DIVIDENDS (per share) 1994 1993 1994 1993 High Low High Low First Quarter $13 3/4 $11 1/4 $14 1/8 $12 1/8 $.10 $.10 Second Quarter 12 1/4 10 3/4 15 1/2 12 5/8 .10 .10 Third Quarter 13 1/4 10 7/8 14 5/8 12 7/8 .10 .10 Fourth Quarter 13 1/4 11 14 1/2 12 5/8 .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 3, 1995 was 3,400. -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. Operating Results By Quarters (Unaudited) (in thousands, except per share figures)
Earnings/(Loss) Before Cumulative Effect of Accounting Change Net Earnings/(Loss) Gross ----------------- ------------------- 1993 Net Sales Profit Amount Per Share Amount Per Share March 31 $ 42,070 $13,299 $7,600 $0.17 $11,625(1) $0.26(1) 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) 1994 March 31 $ 42,614 $12,873 $6,725 $0.15 $6,725 $0.15 June 30 44,415 13,671 7,025 0.16 7,025 0.16 September 30 48,844 14,522 7,655 0.17 7,655 0.17 December 31 55,183 15,096 8,000 0.18 8,000 0.18 $191,056 $56,162 $29,405 $0.66 $29,405 $0.66 (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.
-4- Sales by Product Group (percent of net sales) 1994 1993 1992 Printing Ink Vehicles and Slip Additives 47.5 47.0 49.4 Synthetic and Hydrocarbon Resins 46.7 46.7 44.1 Other 5.8 6.3 6.5 -5- Management's Discussion and Analysis Liquidity and Capital Resources Lawter's cash and equivalents, net of short-term borrowing, decreased $9,100,000 from $57,400,000 at December 31, 1993 to $48,300,000 at December 31, 1994. The decrease was due primarily to expenditures for the purchase of Cremona Resine and completion of the new U.S. resin facility. 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 1994 and 1992, the majority of the Company's capital expansion program was financed with internally generated funds. In 1993, Lawter used external financing in connection with the new U.S. manufacturing facility. Capital expenditures for 1994 were budgeted at $10,000,000, which approximated actual expenditures. Lawter's capital expenditures for 1995 are estimated at $17,000,000. These expenditures include the continuation of a multi-year project for the new European synthetic resin and printing ink vehicle 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. Consolidated net sales increased 11% in 1994 when compared to 1993. Domestic net sales increased 6% due entirely to higher sales volume. Reportable European net sales, which included the sales of Cremona Resine since the date of its acquisition on June 30, 1994, increased 16% as a result of a 20% increase in sales volume and a 2% increase in average exchange rates, partially offset by a 5% decrease in average selling prices due to product mix. Excluding Cremona Resine sales, the European sales volume would have shown an increase of 13% and average selling prices a decrease of 3% due to product mix. 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%, 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. Gross Margins. Gross margins as a percent of sales were 29.4%, 25.4% and 30.7% for 1994, 1993 and 1992, respectively. The 1993 gross margin was lower than 1994 and 1992 due mainly to the following charges. 1) Voluntary waste disposal - $3,405,000. These charges were due to the Company evaluating its current onsite incineration cost and efficiency versus the cost of offsite waste disposal. During the fourth quarter of 1993, a decision was made to transition waste disposal to an approved offsite landfill. 2) Refurbishing and cleaning waste water treatment facilities - $3,145,000. These charges were due to a detailed review made of these facilities during the fourth quarter of 1993 which disclosed that they were not as effective as desired. At that time, a decision was made to refurbish and clean these facilities. 3) Inventory obsolescence - $1,000,000. These charges were due to a review made during the fourth quarter of 1993 which disclosed that certain inventory was not reworkable and would have to be disposed. 4) Disputed utility charges - $865,000. This was due to a dispute on utility meter readings at one location. 5) Other smaller items - $350,000. There should be no material beneficial or adverse effect to future operations as a result of these charges. Excluding the above charges, the gross margin for 1993 would have been 30.5%. The lower gross margin in 1994 when compared to 1993, excluding the above charges, and 1992 was caused primarily by higher raw material costs not fully offset by selling price increases. Selling, General and Administrative Expenses. Selling, general and administrative expenses include foreign transaction exchange gains/(losses) of $(85,000) in 1994, $411,000 in 1993 and $(839,000) in 1992. 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 10.9%, 11.1% and 11.5% in 1994, 1993 and 1992, respectively. The lower percentage in 1994 when compared to 1993 was due to sales volume increasing at a higher rate than general and administrative expenses. The decreased percentage in 1993 when compared to 1992 was due primarily to the $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. -6- Investment Income. Investment income in 1994 increased slightly when compared to 1993 principally as a result of higher interest rates and increased equity earnings from the investment in Hach Company offset by $356,000 in realized losses on the sales of marketable securities in 1994 versus $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. The decrease in 1993 when compared to 1992 was 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. Income Taxes. The effective tax rates for 1994, 1993 and 1992 were 25.9%, 96.6% and 26.1%, 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 1994 and 1992 rates primarily as a result of lower domestic earnings, caused by the charges mentioned above, which have a higher tax rate and also higher foreign earnings which have a lower tax rate. The 1994 and 1992 rates were comparable. 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 changed the Company's method of accounting for income taxes from the deferred method to the asset and liability method. Other Matters. In July 1994, there was an explosion/fire in the warehouse at the new U.S. resin facility. This new resin plant was designed to include the production of a group of new synthetic resins. The accident delayed the introduction of these new products. The Company is adequately insured and, therefore, no significant costs related to the accident were reflected in earnings. 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. During 1994, there was a tightening of supply of some important raw materials and their prices increased. These increases have been difficult to fully pass on, in a timely fashion, to Lawter customers. It is felt by management that, as in the past, the Company's new concepts and new products should help stabilize the conditions that have been experienced in 1994. Lawter has satisfactorily coped with these changes and challenges of 1994. Looking Forward. Lawter management believes that prospects for the Company's growth with respect to both sales and earnings are most encouraging. More advanced new product development results and the highly sophisticated lower cost manufacturing facilities place Lawter in a most effective competitive position for both the near and longer term. -7-
Ten Year Financial Summary (in thousands, except per share figures) Years Ended December 31 1994(1) 1993(1) 1992(1) 1991 1990 Net Sales $191,056 $172,249 $167,568 $152,893 $150,005 Gross Profit 56,162 43,833 51,395 48,396 46,362 Selling, General and Administrative Expenses 20,970 18,700 20,103 18,254 18,682 Operating Income 35,192 25,133 31,292 30,142 27,680 Investment Income 4,470 4,318 5,271 6,221 4,963 Earnings Before Income Taxes and Cumulative Effect of Accounting Change 39,662 29,451 36,563 36,363 32,643 Provision for Income Taxes 10,257 28,449(6) 9,548 9,893 9,223 Earnings (Loss) Before Cumulative Effect of Accounting Change 29,405 1,002 27,015 26,470 23,420 Cumulative Effect of Change in Accounting for Income Taxes --- 4,025(5) --- --- --- Net Earnings (Loss) $ 29,405 $ 5,027 $ 27,015 $ 26,470 $ 23,420 Depreciation and Amortization $ 4,344 $ 4,291 $ 4,179 $ 3,900 $ 3,521 Cash Provided by Operating Activities 23,047 23,811 34,440 23,192 34,240 Cash Dividends 17,951 17,909 17,556 14,947 12,582 Capital Expenditures, net 10,613 12,940 7,548 8,902 6,198 Gross Property, Plant and Equipment 102,788 87,856 78,491 74,022 66,271 Net Working Capital 85,601 84,249 93,079 86,448 82,560 Total Assets 231,827 209,477 187,334 178,218 153,500 Long-Term Obligations 4,152 4,206 4,858 5,238 5,137 Stockholders' Equity 127,793 110,751 126,656 116,688 105,090 Average Shares Outstanding(2) 44,874 44,772 43,913 43,318 43,011 Earnings (Loss) per Share(2): Earnings (Loss) Before Cumulative Effect of Accounting Change $ .66 $ .02 $ .62 $ .61 $ .54 Cumulative Effect of Change in Accounting for Income Taxes --- .09(5) --- --- --- Net Earnings (Loss) .66 .11 .62 .61 .54 Cash Dividends per Share(2) .40 .40 .40 .35 .29 Stockholders' Equity per Share(2) 2.85 2.47 2.88 2.69 2.44 Cash Dividends to Net Earnings 61.0% 356.3% 65.0% 56.5% 53.7% Net Earnings to Year End Equity 23.0% 4.5% 21.3% 22.7% 22.3% * 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.
-8-
Ten Year Financial Summary (in thousands, except per share figures) Years Ended December 31 1989 1988 1987 1986 1985 Net Sales $136,006 $125,818 $112,018 $103,515 $96,769 Gross Profit 38,624 38,949 34,556 30,332 24,221 Selling, General and Administrative Expenses 16,122 14,751 11,960 10,631 11,000 Operating Income 22,502 24,198 22,596 19,701 13,221 Investment Income 3,929 3,173 1,952 1,175 1,547 Earnings Before Income Taxes and Cumulative Effect of Accounting Change 26,431 27,371 24,548 20,876 14,768 Provision for Income Taxes 6,963 6,520 7,847 7,931 20,181(3) Earnings (Loss) Before Cumulative Effect of Accounting Change 19,468 20,851 16,701 12,945 (5,413) Cumulative Effect of Change in Accounting for Income Taxes --- --- --- --- --- Net Earnings (Loss) $ 19,468 $ 20,851 $ 16,701 $ 12,945 $(5,413) Depreciation and Amortization $ 3,550 $ 3,410 $ 3,193 $ 2,908 $ 2,763 Cash Provided by Operating Activities 20,388 15,796 22,726(4) 19,701(4) 10,411 Cash Dividends 12,561 12,403 9,820 9,791 9,758 Capital Expenditures, net 3,073 4,524 1,405(4) 1,581(4) 3,179 Gross Property, Plant and Equipment 57,421 54,282 49,503 45,560 42,534 Net Working Capital 70,200 62,807 59,719 45,087 37,687 Total Assets 133,988 125,210 109,917 93,392 84,039 Long-Term Obligations 5,083 4,810 4,682 4,738 4,794 Stockholders' Equity 87,752 79,521 69,458 55,191 47,588 Average Shares Outstanding(2) 42,940 42,267 41,673 41,444 41,301 Earnings (Loss) per Share(2): Earnings (Loss) Before Cumulative Effect of Accounting Change $ .45 $ .49 $ .40 $ .31 $ (.13) Cumulative Effect of Change in Accounting for Income Taxes --- --- --- --- --- Net Earnings (Loss) .45 .49 .40 .31 (.13) Cash Dividends per Share(2) .29 .29 .24 .24 .24 Stockholders' Equity per Share(2) 2.04 1.88 1.67 1.33 1.15 Cash Dividends to Net Earnings 64.5% 59.5% 58.8% 75.6% * Net Earnings to Year End Equity 22.2% 26.2% 24.0% 23.5% * * 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.
-9-
Consolidated Balance Sheets Assets (in thousands, except share and per share figures) December 31 1994 1993 Current Assets: Cash (Note 1) $ 8,063 $ 6,701 Time Deposits, Interest Bearing (Note 1) 58,724 70,787 Marketable Securities (Note 1) 4,473 5,591 Accounts Receivable - less allowance for possible losses of $415 in 1994 and $319 in 1993 43,327 31,317 Inventories (Note 1) 32,803 26,253 Prepaid Expenses 2,739 1,662 Total Current Assets 150,129 142,311 Property, Plant and Equipment (Notes 1 and 7): Land 2,943 2,060 Buildings 20,466 19,449 Machinery and Equipment 66,159 56,159 Construction in Progress 13,220 10,188 102,788 87,856 Less Accumulated Depreciation 50,323 43,661 Net Property, Plant and Equipment 52,465 44,195 Equity Investment (Note 6) 20,139 18,077 Other Assets (Note 1) 9,094 4,894 Total $231,827 $209,477
The accompanying notes to the consolidated financial statements are an integral part of these balance sheets. -10-
Liabilities and Stockholders' Equity (in thousands, except share and per share figures) December 31 1994 1993 Current Liabilities: Accounts Payable and Accrued Expenses (Note 5) $ 33,217 $ 29,822 Short-Term Borrowings (Note 9) 18,504 20,044 Income Taxes Payable 12,807 8,196 Total Current Liabilities 64,528 58,062 Long-Term Obligations (Note 7) 4,152 4,206 Deferred Income Taxes (Note 4) 35,354 36,458 Total Liabilities 104,034 98,726 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 44,923,729 shares 44,924 44,811 Additional Paid-in Capital 6,955 6,260 Retained Earnings (Note 1) 80,929 69,475 Cumulative Translation Adjustments (Note 1) (5,015) (6,456) Other --- (3,339) Total Stockholders' Equity 127,793 110,751 Total $231,827 $209,477
The accompanying notes to the consolidated financial statements are an integral part of these balance sheets. -11-
Consolidated Statements of Earnings (in thousands, except per share figures) Years Ended December 31 1994 1993 1992 Net Sales $191,056 $172,249 $167,568 Cost of Products Sold 134,894 128,416 116,173 Gross Profit 56,162 43,833 51,395 Selling, General and Administrative Expenses 20,970 18,700 20,103 Operating Income 35,192 25,133 31,292 Investment Income 4,470 4,318 5,271 Earnings Before Income Taxes and Cumulative Effect of Accounting Change 39,662 29,451 36,563 Provision for Income Taxes (Notes 1 and 4) 10,257 28,449 9,548 Earnings Before Cumulative Effect of Accounting Change 29,405 1,002 27,015 Cumulative Effect of Change in Accounting for Income Taxes (Note 4) --- 4,025 --- Net Earnings $ 29,405 $ 5,027 $ 27,015 Earnings per Share (Note 1): Earnings Before Cumulative Effect of Accounting Change $ 0.66 $ 0.02 $ 0.62 Cumulative Effect of Change in Accounting for Income Taxes (Note 4) --- 0.09 --- Net Earnings $ 0.66 $ 0.11 $ 0.62
The accompanying notes to the consolidated financial statements are an integral part of these statements. -12-
Consolidated Statements of Cash Flows (in thousands) Years Ended December 31 1994 1993 1992 Cash Flow from Operating Activities: Net Earnings $29,405 $ 5,027 $27,015 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities- Depreciation and Amortization 4,344 4,291 4,179 Deferred Income Taxes (1,130) 17,118 1,153 Undistributed Equity Income (2,125) (1,998) (2,031) Deferred Exchange Gain (Loss) (145) (524) 675 Purchase of Marketable Securities (2,299) (14,214) (8,434) Proceeds from Sales of Marketable Securities 3,069 9,469 11,136 Net (Gain) Loss from Marketable Securities 349 (416) (775) (Increase) Decrease in Current Assets- Accounts Receivable (7,658) (5,145) (1,527) Inventories (4,345) 184 1,230 Prepaid Expenses (1,112) (616) 186 Increase (Decrease) in Current Liabilities- Accounts Payable and Accrued Expenses 257 11,795 (1,943) Income Taxes Payable 4,437 371 3,564 Deferred Income Taxes --- (1,531) 12 Net Cash Provided by Operating Activities 23,047 23,811 34,440 Cash Flow from Investing Activities: Expenditures for Property, Plant and Equipment, net (10,613) (12,940) (7,548) Purchase of Business, net of cash (6,344) --- --- Loans to Officers (83) (436) (3,038) Repayment of Officers' Loans 3,422 37 400 Net Cash Used for Investing Activities (13,618) (13,339) (10,186) Cash Flow from Financing Activities: Exercise of Stock Options 808 995 7,264 Principal Payments on Long-Term Obligations (54) (4,656) (323) Proceeds from Long-Term Borrowings --- 4,000 --- Payment of Short-Term Borrowings (3,328) --- (2,446) Proceeds from Short-Term Borrowings --- 12,033 --- Cash Dividends Paid (17,951) (17,909) (17,556) Net Cash Used for Financing Activities (20,525) (5,537) (13,061) Effect of Exchange Rate Changes on Cash 395 (350) (616) Increase (Decrease) in Cash and Equivalents (10,701) 4,585 10,577 Cash and Equivalents, Beginning of Year 77,488 72,903 62,326 Cash and Equivalents, End of Year $66,787 $77,488 $72,903
The accompanying notes to the consolidated financial statements are an integral part of these statements. -13-
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 1992, 1993 and 1994 $1 Par Value Capital Adjustments Balance, January 1, 1992 $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) Add (deduct): Net Earnings --- --- 29,405 --- --- --- Cash Dividends Declared $0.40 per share --- --- (17,951) --- --- --- Exercise of Stock Options 113 695 --- --- --- --- Loans to Officers (Note 3) --- --- --- --- --- 3,339 Foreign Currency Translation Adjustments --- --- --- 1,441 --- --- Balance, December 31, 1994 $44,924 $6,955 $80,929 $(5,015) $ --- $ ---
The accompanying notes to the consolidated financial statements are an integral part of these statements. -14- 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 $(85,000) in 1994, $411,000 in 1993 and $(839,000) in 1992. Revenues and expenses are also affected by fluctuations of currency rates from year to year. The effect of these rate fluctuations in 1994 when compared to 1993 resulted in no significant impact on operating results in addition to the transaction gains or losses reflected in net earnings. For 1993, the effect of rate changes when compared to 1992 resulted in an unfavorable impact. 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 carrying amount of cash and time deposits approximates fair market value. The Company paid interest of $990,000 in 1994, $925,000 in 1993 and $903,000 in 1992. Research and Development Research and development costs ($4,821,000 in 1994, $4,423,000 in 1993 and $4,093,000 in 1992) 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 (44,874,000 shares in 1994, 44,772,000 shares in 1993 and 43,913,000 shares in 1992). Net earnings per share would not be materially different from reported earnings per share if all outstanding stock options were exercised. 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 $19,658,000 and $14,324,000 at December 31, 1994 and 1993, 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) 1994 1993 Finished Goods $18,437 $15,102 Raw Materials 14,366 11,151 $32,803 $26,253
If the FIFO inventory valuation method had been used for all inventories, they would have been $4,191,000 and $3,369,000 higher than reported at December 31, 1994 and 1993, 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). Undistributed earnings reinvested indefinitely in foreign subsidiaries totaled $11,698,000 at December 31, 1994. Investments Effective January 1, 1994, Lawter adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At December 31, 1994, all of Lawter's marketable securities were classified as trading securities. Trading securities are reported at fair value, with changes in fair value included in earnings. For the purpose of determining realized gains and losses, the cost of securities sold is based upon specific identification. The change in net unrealized holding gain or loss during 1994 was not material. -15- Notes to the Consolidated Financial Statements Continued Intangible Assets The excess of cost over equity in net assets of acquisitions is being amortized on a straight line basis over periods not exceeding 40 years. Subsequent to its acquisition, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the related business segment's undiscounted net income over the remaining life of the goodwill in measuring whether the goodwill is recoverable. 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. 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 $545,000 in 1994, $514,000 in 1993 and $516,000 in 1992 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. 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 in the table to the above right.
Shares ---------------------------------------- Reserved Granted Available Balance, January 1, 1993 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 Granted --- 1,101,500 (1,101,500) Exercised (112,549) (112,549) --- Cancelled or expired (1,286) (17,286) 16,000 Balance, December 31, 1994 2,941,031 1,870,331 1,070,700 Exercisable, December 31, 1994 463,031
Additional information under the stock option plans is shown below:
Option Price --------------------------- Number of Per Shares Share Total Options outstanding 1,870,331 $ 6.62 to $21,903,780 December 31, 1994 14.38 Exercised 1993 129,642 6.18 to 994,931 10.69 Exercised 1994 112,549 6.62 to 857,533 10.41 Became exercisable 1993 12,250 12.38 to 156,719 13.25 Became exercisable 1994 31,500 12.38 to 414,750 13.75
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 changed the Company's method of accounting for income taxes from the deferred method to the asset and liability method. In 1993, the Company 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. -16- 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 provisions (benefits) for income taxes were as follows:
(in thousands) 1994 1993 1992 Currently payable: United States: Federal $ 7,655 $4,976 $5,064 State 1,083 344 1,189 Foreign 2,622 2,103 2,129 Total Current 11,360 7,423 8,382 Deferred (principally U.S.): Excess of tax over book depreciation 220 300 459 Undistributed earnings of the equity investment 744 721 712 Undistributed earnings of foreign subsidiaries (2,917) 21,600 --- Environmental expenditures 486 (1,330) --- Other 364 (265) (5) Total Deferred (1,103) 21,026 1,166 $10,257 $28,449 $9,548
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. Pre-tax earnings were as follows:
(in thousands) 1994 1993 1992 United States $20,188 $12,629 $20,809 Foreign 19,474 16,822 15,754 $39,662 $29,451 $36,563
Temporary differences that gave rise to the deferred tax liability at December 31, 1994 were as follows:
(in thousands) Undistributed earnings of foreign subsidiaries $30,145 Undistributed earnings of the equity investment 4,462 Excess of tax over book depreciation 3,132 Environmental expenditures (1,242) Other (1,143) $35,354
Income taxes paid during 1994, 1993 and 1992 amounted to $7,220,000, $8,497,000 and $4,927,000, respectively. The total "Provision for Income Taxes" represents an effective tax rate of 25.9% for 1994, 96.6% for 1993 and 26.1% for 1992. The differences from the U.S. statutory rate for 1994, 1993 and 1992 were as follows:
(in thousands) 1994 1993 1992 Computed tax provision at 35% in 1994 and 1993 and 34% in 1992 $13,882 $10,308 $12,431 Increase (decrease) in tax provision resulting from: Waterford, Ireland operation (2,604) (2,627) (2,314) Inclusion of state & local income taxes (net of Federal income taxes) 679 193 714 Other foreign operations (581) (533) (605) Undistributed earnings of foreign subsidiaries --- 21,600 --- Other (1,119) (492) (678) Provision for Income Taxes $10,257 $28,449 $ 9,548
-17- Notes to the Consolidated Financial Statements Continued Note 5-Accounts Payable and Accrued Expenses Accounts payable and accrued expenses were as follows:
(in thousands) 1994 1993 Trade Accounts Payable $19,972 $19,976 Accrued Environmental Expenditures 4,838 5,405 Accrued Compensation and Benefits 2,867 1,317 Accrued Taxes, Other 1,920 1,353 Other Accrued Liabilities 3,620 1,771 $33,217 $29,822
Note 6-Equity Investment At December 31, 1994, the Company owned 3,157,223 shares, representing approximately 27% of the outstanding shares, of the Common Stock of Hach Company (Hach). The closing price on NASDAQ at December 31, 1994 was $14.50 per share. The share and per share amounts reported have been adjusted to reflect the five- for-four stock split of Hach Company Common Stock of April 1994. 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. Note 7-Long-Term Obligations Long-term obligations were as follows:
(in thousands) 1994 1993 Series 1993-LIIDB Bond $4,000 $4,000 Series 1978-A IDB Bond 200 250 Less - Current portion in accounts payable (50) (50) Net long-term bonds payable 4,150 4,200 Other long-term obligations 2 6 Total long-term obligations $4,152 $4,206
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about the Fair Value of Financial Instruments." SFAS No. 107 requires disclosure of the fair value of significant financial instruments, including long-term obligations. At December 31, 1994, the fair value of Lawter's long-term obligations was not materially different than cost. 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. 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, 1994 and 1993. The capitalized costs are being depreciated over the estimated useful lives of the individual assets. At December 31, 1994, the future lease payments under the capitalized leases relating to the Industrial Revenue Bonds are as follows:
(in thousands) 1995 $ 334 1996 331 1997 327 1998 270 1999 270 Later years 6,670 Total minimum lease payments 8,202 Less interest (4,002) Present value of minimum lease payments $4,200
Operating leases are not significant. -18- 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 SFAS 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 nineteen percent of sales in 1994 and eighteen percent of sales in 1993, 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, marketable securities, 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, 1994, 1993 and 1992 is shown in the table to the above right.
(in thousands) 1994 1993 1992 Net Sales: Domestic $ 98,628 $93,649 $ 92,078 Europe 74,974 64,008 63,501 Other Foreign 17,454 14,592 11,989 Total 191,056 172,249 167,568 Earnings Before Tax: Domestic 20,263 12,142 20,046 Europe 13,887 12,460 11,478 Other Foreign 2,746 2,260 1,749 Corporate 2,766 2,589 3,290 Total 39,662 29,451 36,563 Identifiable Assets: Domestic 62,724 53,782 46,490 Europe 58,514 40,078 39,243 Other Foreign 17,675 15,833 12,295 Corporate 92,914 99,784 89,306 Total $231,827 $209,477 $187,334
Note 9-Commitments and Contingencies The Company has an unsecured line of credit for bank borrowings of $40,000,000 at December 31, 1994. During 1994, average borrowings were $20,536,000 against this line of credit and the weighted average interest rate was 4.77%. In 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%. There are no commitment fees or compensating balance requirements relating to this line of credit. 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. -19- Report of Independent Public Accountants To the Board of Directors and Stockholders 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, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As explained in Note 4 to the consolidated financial statements, the Company changed its method of accounting for income taxes. /s/ Arthur Andersen LLP Arthur Andersen LLP Chicago, Illinois, February 8, 1995. -20- Directory International Headquarters Lawter International, Inc. 990 Skokie Boulevard, Northbrook, Illinois 60062 (708) 498-4700, 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 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) Charenton-le-Pont, France Lawter International, GmbH (Germany) Frechen, Germany Lawter International, Limited (Great Britain) Bicester, Oxon, England Lawter International (Italia), Srl (Italy) Cremona Resine Division Cremona, 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) Ndabeni, South Africa Lawter International, S.A. (Spain) Barcelona, Spain -21- EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1994 DEC-31-1994 66,787 4,473 43,327 0 32,803 150,129 102,788 50,323 231,827 64,528 4,152 44,924 0 0 82,869 231,827 191,056 191,056 134,894 134,894 0 0 0 39,662 10,257 29,405 0 0 0 29,405 .66 .66