-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PWPEopC6Rfq1H2FQZ8XpqmuF7W1tzbcC/U7r1AqvVVcwAGXs+f3K3xGlwojBE2E9 TyRQTzKXdlDCtQfayZFxtw== 0000912057-97-009964.txt : 19970326 0000912057-97-009964.hdr.sgml : 19970326 ACCESSION NUMBER: 0000912057-97-009964 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAWTER INTERNATIONAL INC CENTRAL INDEX KEY: 0000058091 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 361370818 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07558 FILM NUMBER: 97562006 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-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, 1996 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 (847) 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 14, 1997, 45,354,035 COMMON SHARES WERE OUTSTANDING. THE AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE FEBRUARY 14, 1997 CLOSING PRICE OF THESE SHARES ON THE NEW YORK STOCK EXCHANGE) OF LAWTER INTERNATIONAL, INC. HELD BY NON-AFFILIATES WAS APPROXIMATELY $368 MILLION. DOCUMENTS INCORPORATED BY REFERENCE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1996 -- PARTS I AND II. PROXY STATEMENT TO STOCKHOLDERS FOR THE 1997 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....... 8 Item 8. Financial Statements and Supplementary Data................................................. 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 11 Part III Item 10. Directors and Executive Officers of the Registrant.......................................... 11 Item 11. Executive Compensation...................................................................... 11 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 11 Item 13. Certain Relationships and Related Transactions.............................................. 11 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 12 Report of Independent Public Accountants on Schedule and Consent of Independent Public Accountants........................................................................ 26 Signatures.............................................................................................. 28
PART I ITEM 1. BUSINESS. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS-- INDUSTRY SEGMENTS. The Company is engaged predominantly in a single industry, specialty polymers. NARRATIVE DESCRIPTION OF BUSINESS-- PRINCIPAL PRODUCTS. Reference is made to the information set forth under the caption "About Lawter International, Inc." on the inside front cover of the Company's 1996 Annual Report to Stockholders (hereby incorporated by reference) for this information. Information with respect to sales by product group is as follows:
(PERCENT OF NET SALES) 1996 1995 1994 --------- --------- --------- Printing Ink Vehicles and Slip Additives................................ 43.3 44.7 47.5 Synthetic and Hydrocarbon Resins........................................ 52.2 50.2 46.7 Other................................................................... 4.5 5.1 5.8
No material part of the business of the Company is dependent upon a single product for any customer or a small group of customers. The Company manufactures and warehouses its products in four plants in the United States and in eight plants in foreign countries (Belgium, China, Denmark, England, Germany, Ireland, Singapore and Spain). Products are sold primarily by Company employed salesmen. 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. A portion of the Company's resin production is used by it in the manufacture of printing 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 the majority of 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, Coates/Lorilleux, Dianippon Ink and Chemicals, Flint Ink, Sakata 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 2 Chemicals is Lawter's largest multilocation customer with nineteen percent of consolidated net sales for the most recently completed fiscal year. 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 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, ink systems designed to produce less waste 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 25 competitors in the sale of its line of printing ink vehicles and slip additives, and approximately 50 competitors in the sale of its synthetic and hydrocarbon resins. RESEARCH. During the fiscal years ended December 31, 1996, 1995 and 1994, the Company spent approximately $5,049,000, $5,320,000 and $4,821,000, 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, 1996, 1995 and 1994 were not material to the consolidated financial statements of the Company. It has been and is the Company's policy to voluntarily install equipment deemed necessary to control the discharge of pollutants into the environment. The Company has voluntarily installed 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 Federal, state and local environmental laws has had no material effect upon the capital expenditures or competitive position of the Company. Environmental capital expenditures in 1997 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, 1996, the Company had 502 employees. FOREIGN SALES-- Reference is made to Note 9 in the Consolidated Financial Statements which are included in this Form 10-K Annual Report as indicated in Item 14. 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 Warehouse Leased La Vergne, Tennessee 27,000 Printing ink vehicles Owned Warehouse South Kearny, New Jersey 42,000 Warehouse Owned Pleasant Prairie, Wisconsin 232,000 Printing ink vehicles and slip additives Owned Synthetic and hydrocarbon resins Research facilities Warehouse Moundville, Alabama 250,000 Synthetic and hydrocarbon resins (1) Warehouse Skokie, Illinois 66,000 Fluorescent pigments and coatings Owned Research facilities Warehouse Kallo, Belgium 230,000 Printing ink vehicles and slip additives Owned Synthetic and hydrocarbon resins Research facilities Warehouse Rexdale, Ontario, Canada 66,000 Warehouse Owned Tanggu, Peoples Republic of China 40,000 Printing ink vehicles Owned Synthetic resins Warehouse Koge, Denmark 14,000 Warehouse Owned Printing ink vehicles 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 Warehouse 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 Consolidated Financial Statements which are included in this Form 10-K Annual Report as indicated in Item 14. 4 ITEM 3. LEGAL PROCEEDINGS. On September 25, 1995, the U.S. EPA filed an administrative complaint alleging record keeping violations under the Toxic Substance Control Act (TSCA). Simultaneously, Lawter and the U.S. EPA entered into a consent order fully settling the complaint. Pursuant to the consent order, and without admitting any liability, the Company has paid $280,000 to the U.S. EPA and is conducting a TSCA compliance audit. The Company decided to settle this matter in order to avoid protracted litigation and related costs. The outcome of this compliance audit has not been determined, however, any potential liability related to this matter has been fully accrued. Reference is made to Note 8 in the Consolidated Financial Statements which are included in this Form 10-K Annual Report as indicated in Item 14 for additional 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, 1996. 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 1997, is as follows:
YEAR NAME POSITION AGE ELECTED - ---------------------- ----------------------------------------------------------------- --- --------- John P. O'Mahoney..... Chairman of the Board and Chief Executive Officer 40 1996 John P. Jilek......... President and Chief Operating Officer 45 1996 Mark W. Joslin........ Chief Financial Officer, Treasurer and Secretary 37 1996 Ludwig P. Horn........ Vice President 67 1980
Mr. O'Mahoney served as Vice President, 1993-1995 and as European General Manager, 1990-1993 of the Company. Mr. Jilek served as Vice President of the Company, 1989-1995. Mr. Joslin served as the Corporate Controller for ANGUS Chemical Company, 1991-1996. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Reference is made to the information listed under "Common Stock Prices" and "Dividends Per Common Share" on the inside back cover of the Company's 1996 Annual Report to Stockholders (hereby incorporated by reference ) for this information. ITEM 6. SELECTED FINANCIAL DATA. Information with respect to selected financial data is as follows. This information should be read in conjunction with the Consolidated Financial Statements which are included in this Form 10-K Annual Report as indicated in Item 14. 5 TEN YEAR FINANCIAL SUMMARY (IN THOUSANDS, EXCEPT PER SHARE FIGURES)
YEARS ENDED DECEMBER 31 ---------------------------------------------------------- 1996(1) 1995(1) 1994(1) 1993 1992 ---------- ---------- ---------- ---------- ---------- Net Sales........................................... $ 193,814 $ 204,835 $ 191,056 $ 172,249 $ 167,568 ---------- ---------- ---------- ---------- ---------- Gross Profit........................................ 57,014 42,193 56,162 43,833 51,395 Selling, General and Administrative Expenses........ 21,374 25,154 20,970 18,700 20,103 ---------- ---------- ---------- ---------- ---------- Operating Income.................................... 35,640 17,039 35,192 25,133 31,292 Investment Income................................... 4,914 6,170 4,470 4,318 5,271 ---------- ---------- ---------- ---------- ---------- Earnings Before Income Taxes and Cumulative Effect of Accounting Change.............................. 40,554 23,209 39,662 29,451 36,563 Provision for Income Taxes.......................... 11,779 6,931 10,257 28,449(5) 9,548 ---------- ---------- ---------- ---------- ---------- Earnings Before Cumulative Effect of Accounting Change............................................ 28,775 16,278 29,405 1,002 27,015 Cumulative Effect of Change in Accounting for Income Taxes............................................. -- -- -- 4,025(4) -- ---------- ---------- ---------- ---------- ---------- Net Earnings........................................ $ 28,775 $ 16,278 $ 29,405 $ 5,027 $ 27,015 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Depreciation and Amortization....................... $ 5,499 $ 5,447 $ 4,344 $ 4,291 $ 4,179 Cash Provided by Operating Activities............... 25,253 13,766 23,047 23,811 34,440 Cash Dividends...................................... 18,077 17,989 17,951 17,909 17,556 Capital Expenditures, net........................... 25,925 21,928 10,613 12,940 7,548 Gross Property, Plant and Equipment................. 141,346 126,406 102,788 87,856 78,491 Net Working Capital................................. 74,410 71,722 88,993 87,523 96,082 Total Assets........................................ 293,123 261,474 231,827 209,477 187,334 Long-term Obligations............................... 29,050 4,100 4,152 4,206 4,858 Stockholders' Equity................................ 145,615 133,189 131,185 114,025 129,659 Average Shares Outstanding(2)....................... 45,175 45,018 44,874 44,772 43,913 Earnings per Share(2): Earnings Before Cumulative Effect of Accounting Change............................................ $ .64 $ .36 $ .66 $ .02 $ .62 Cumulative Effect of Change in Accounting for Income Taxes............................................. -- -- -- .09(4) -- ---------- ---------- ---------- ---------- ---------- Net Earnings........................................ $ .64 $ .36 $ .66 $ .11 $ .62 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash Dividends per Share(2)......................... .40 .40 .40 .40 .40 Stockholders' Equity per Share(2)................... 3.22 2.96 2.92 2.55 2.95 Cash Dividends to Net Earnings...................... 62.8% 110.5% 61.0% 356.3% 65.0% Net Earnings to Average Equity...................... 20.6% 12.3% 24.0% 4.1% 21.9%
- ------------ (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) Restated to reflect the effects of SFAS No. 95 which was adopted in 1988. (4) Represents cumulative effect on prior years' earnings of adopting SFAS No. 109 which was adopted January 1, 1993. (5) Includes additional tax provision of $21.6 million for future repatriation of foreign earnings. 6 TEN YEAR FINANCIAL SUMMARY (IN THOUSANDS, EXCEPT PER SHARE FIGURES)
YEARS ENDED DECEMBER 31 ---------------------------------------------------------- 1991 1990 1989 1988 1987 ---------- ---------- ---------- ---------- ---------- Net Sales............................................ $ 152,893 $ 150,005 $ 136,006 $ 125,818 $ 112,018 ---------- ---------- ---------- ---------- ---------- Gross Profit......................................... 48,396 46,362 38,624 38,949 34,556 Selling, General and Administrative Expenses......... 18,254 18,682 16,122 14,751 11,960 ---------- ---------- ---------- ---------- ---------- Operating Income..................................... 30,142 27,680 22,502 24,198 22,596 Investment Income.................................... 6,221 4,963 3,929 3,173 1,952 ---------- ---------- ---------- ---------- ---------- Earnings Before Income Taxes and Cumulative Effect of Accounting Change.................................. 36,363 32,643 26,431 27,371 24,548 Provision for Income Taxes........................... 9,893 9,223 6,963 6,520 7,847 ---------- ---------- ---------- ---------- ---------- Earnings Before Cumulative Effect of Accounting Change............................................. 26,470 23,420 19,468 20,851 16,701 Cumulative Effect of Change in Accounting for Income Taxes.............................................. -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net Earnings......................................... $ 26,470 $ 23,420 $ 19,468 $ 20,851 $ 16,701 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Depreciation and Amortization........................ $ 3,900 $ 3,521 $ 3,550 $ 3,410 $ 3,193 Cash Provided by Operating Activities................ 23,192 34,240 20,388 15,796 22,726(3) Cash Dividends....................................... 14,947 12,582 12,561 12,403 9,820 Capital Expenditures, net............................ 8,902 6,198 3,073 4,524 1,405(3) Gross Property, Plant and Equipment.................. 74,022 66,271 57,421 54,282 49,503 Net Working Capital.................................. 87,075 82,560 70,200 62,807 59,719 Total Assets......................................... 178,218 153,500 133,988 125,210 109,917 Long-term Obligations................................ 5,238 5,137 5,083 4,810 4,682 Stockholders' Equity................................. 117,315 105,090 87,752 79,521 69,458 Average Shares Outstanding(2)........................ 43,318 43,011 42,940 42,267 41,673 Earnings per Share(2): Earnings Before Cumulative Effect of Accounting Change............................................. $ .61 $ .54 $ .45 $ .49 $ .40 Cumulative Effect of Change in Accounting for Income Taxes.............................................. -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net Earnings......................................... $ .61 $ .54 $ .45 $ .49 $ .40 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash Dividends per Share(2).......................... .35 .29 .29 .29 .24 Stockholders' Equity per Share(2).................... 2.71 2.44 2.04 1.88 1.67 Cash Dividends to Net Earnings....................... 56.5% 53.7% 64.5% 59.5% 58.8% Net Earnings to Average Equity....................... 23.8% 24.3% 23.3% 28.0% 26.8%
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES Lawter's cash and equivalents, net of short-term borrowings, decreased $7,700,000 from $23,700,000 at December 31, 1995 to $16,000,000 at December 31, 1996. The decrease was due primarily to expenditures for the new resin and printing ink vehicle facility in Belgium, the purchase of a resin division from Hercules Inc. and the purchase of a resin division from Wolstenholme International Limited, partially offset by a $25,000,000 increase in long-term obligations. 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 to satisfy these requirements. In 1996 and 1995, the Company used external financing in connection with the new manufacturing facility in Belgium. In 1994, the majority of Lawter's capital expansion program was financed with internally generated funds. The revised capital expenditures budget for 1996 was $26,500,000. Actual expenditures were 9% higher than budgeted due primarily to additional expenditures at the new manufacturing facility which were not included in the budget. Lawter's capital expenditures for 1997 are estimated at $7,500,000. These expenditures include the construction of a new corporate headquarters in Pleasant Prairie, Wisconsin as well as additions to existing facilities elsewhere. The Company currently anticipates using internally generated funds for the majority of these capital expenditures. RESULTS OF OPERATIONS 1996 VERSUS 1995 NET SALES. The Company experienced softness in the major markets for its products in 1996. Consolidated net sales decreased by 5% when compared to 1995. Record high paper prices in the second half of 1995 brought about a tightening in certain markets for printed material. These markets are the principal outlets for the Company's products. Paper prices have since subsided. By region, net sales decreased 3% domestically, 10% in Europe and increased 5% in other regions when compared to 1995. In addition to paper prices, European sales were also impacted by a downturn in major European economies; a stronger U.S. dollar versus most European currencies; more intensive competition; a disruption in supply caused by an extended shutdown of the Company's production facility in Ireland during the year; and by the Company's decision not to renew participation in certain low margin business. GROSS PROFIT. Gross profit as a percent of sales was 29.4% and 20.6% for 1996 and 1995, respectively. Excluding the charges listed below, the gross profit for 1995 would have been 25.8%. The higher gross profit in 1996 when compared to 1995 excluding the charges listed below was the result of the accounting for business interruption insurance claims (see "Insurance" below), a favorable LIFO inventory adjustment, decreased operating costs as a result of the restructuring plan described in "Restructuring Charges" below and lower raw material costs domestically, partially offset by the startup costs of the new polymer facility in Belgium. The 1995 gross margin was decreased by $5,658,000 for restructuring charges (see "Restructuring Charges" below) and $4,904,000 for other charges. Other charges include: 1) Write down of inventory to net realizable value - $1,215,000. This charge was the result of a review made during the fourth quarter of 1995 which disclosed that certain inventory would have to be reprocessed or sold at a price below the recorded book value; 2) Write off of the book value of a previously decommissioned manufacturing facility - $1,235,000. During the fourth quarter of 1995, the Company determined it may not be able to sell this property and therefore its book value was written off; 3) Disputed charges on a raw material - $1,100,000. This represents disputed charges on a specific raw material which the Company determined, in the fourth quarter of 1995, it may be responsible for; 4) Disputed utility charges - $900,000. This was due to a dispute of utility charges at one location; 5) Other smaller items - $454,000. 8 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased from $25,154,000 in 1995 to $21,374,000 in 1996. The 1995 selling, general and administrative expenses included restructuring costs (see "Restructuring Charges" below) of $2,791,000. Excluding these charges, selling, general and administrative expenses decreased by $989,000 as a result of the implementation of the restructuring plan in 1996, lower 1996 sales and a favorable foreign exchange impact. INVESTMENT INCOME. Investment income decreased in 1996 when compared to 1995 as cash and marketable securities were used to finance capital expenditures and acquisitions and interest expense was incurred on borrowings to finance the new plant in Belgium. Also included in 1995, was the benefit of favorable market value adjustments on securities held. These favorable impacts were partially offset by increased equity earnings in the Hach Company investment. INCOME TAXES. The effective tax rates for 1996 and 1995 were 29.0% and 29.9%, respectively. The 1995 tax rate included the effect of the restructuring charges discussed below. Without this charge, the 1995 effective tax rate would have been 26.1%. The higher 1996 rate compared to the 1995 rate, excluding theses charges, was due to a shift in earnings from lower to higher taxed entities. 1995 VERSUS 1994 NET SALES. Consolidated net sales increased 7% in 1995 when compared to 1994. Domestic average selling prices increased 3%, while sales volume decreased 7%, resulting in a 4% decrease in domestic net sales. The decreased volume was brought about by record high paper prices causing a softness in demand in the printing ink market. Reportable European net sales increased 25% as a result of a 5% increase from the sales of Cremona Resine during the first six months of 1995 (the acquisition took place on June 30, 1994), a 5% increase in sales volume, an 8% increase caused by higher exchange rates and a 6% increase in average selling prices. GROSS PROFIT. Gross profit as a percent of sales was 20.6% and 29.4% for 1995 and 1994, respectively. Excluding the charges listed above, the gross profit for 1995 would have been 25.8%. The lower gross margin for 1995 when compared to 1994, excluding the restructuring and other charges listed above, was caused principally by higher raw material costs not fully offset by selling price increases, an unfavorable LIFO inventory adjustment and startup costs associated with the new U.S. resin plant. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased from $20,970,000 in 1994 to $25,154,000 in 1995. The 1995 selling, general and administrative expenses included restructuring costs (see "Restructuring Charges" below) of $2,791,000. Excluding these charges, selling, general and administrative expenses increased by $1,393,000 from 1994 to 1995. This was primarily a result of the 7% increase in sales in 1995 and $500,000 in certain personnel costs and other smaller items. INVESTMENT INCOME. Investment income in 1995 increased from 1994 due primarily to $2,002,000 in net gains on marketable securities in 1995 compared to $349,000 in net losses in 1994 along with increased equity earnings in Hach Company, partially offset by increased interest expense from borrowings to finance the new U.S. resin plant and to satisfy U.S. working capital requirements. The net gains in marketable securities in 1995 versus the net losses in 1994 was primarily the result of a market swing in the value of the marketable securities held by the Company during these periods. INCOME TAXES. The effective tax rates for 1995 and 1994 were 29.9% and 25.9%, respectively. The 1995 tax rate included the effect of the restructuring charges discussed below. Without this charge, the 1995 effective tax rate would have been 26.1%, which was comparable to the 1994 rate. OTHER MATTERS RESTRUCTURING CHARGES. In the fourth quarter of 1995, a new management team was formed. The new management, taking into account a change in market conditions, developed a new corporate strategy. Part of the decision making 9 process included an evaluation of the feasibility of continuing to utilize older manufacturing facilities. With the anticipated completion of construction of the new ink vehicle and resin facility in Belgium combined with the new ink vehicle and resin facility in the U. S., the Company decided to implement a restructuring plan. This plan included the decommissioning of older ink vehicle and resin plants. This resulted in a pretax charge in the fourth quarter of 1995 of $8,449,000, of which $2,791,000 was charged to selling, general and administrative expenses for personnel redundancy and $5,658,000 was charged to Cost of Products Sold for site decommissioning. These restructuring activities commenced in the fourth quarter of 1995 and will continue through the middle of 1997. The personnel redundancy costs relate to cash outlays for benefits to be paid to the manufacturing and office employees at the older plants in Europe and North America. The labor force will be reduced by approximately 100 positions when the restructuring plan is completed, of which 73 positions have already been eliminated. As of December 31, 1996, employee headcount was down to 502 employees from a high of 604 employees in 1995. Redundancy payments charged against the reserve through December 31, 1996 were $2,278,000 including $2,003,000 utilized in 1996. The site decommissioning costs represent demolition, cleanup and asset write down costs for older facilities, mainly in Europe and North America. Included in the $5,658,000, is $4,461,000 for non-cash items which relate to the write down of the net book value of the assets at these locations. As of December 31, 1996, three manufacturing facilities in North America were shut down and two manufacturing facilities in Europe were in the final stages of being shut down. The costs charged against the reserve related to these facilities were $3,652,000 comprised of $3,738,000 for the write down of net book value of the assets, $153,000 for cleanup costs and $191,000 for relocation costs partially offset by the proceeds of $430,000 from the sale of the assets of one of the North American facility. INSURANCE. In April 1996, there was an explosion and fire at the Company's resin facility in Ireland. The facility was shut down for several months. The Company was adequately insured and, therefore, recorded business interruption insurance proceeds of $4,000,000 for lost sales and additional expenses incurred. This was recorded as a reduction to Cost of Products Sold. This facility is now operating at full capacity. The Company also received proceeds of $1,864,000 for the final settlement of claims arising from an explosion and fire at its U.S. resin facility in 1994. This is in addition to the $1,675,000 and $1,300,000 recorded in 1995 and 1994, respectively, for these claims. These amounts were also recorded as a reduction to Cost of Products Sold. 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 1996. During 1995 and 1994, there was a tightening of supply of some important raw materials and their prices increased. These increases had been difficult to fully pass on, in a timely fashion, to Lawter customers. LOOKING FORWARD. Lawter management believes that the Company's prospects for growth of future sales and earnings are promising. While our markets continue to be highly competitive, development of new markets, selective acquisitions, continued emphasis on research and development, and cost effective utilization of our new production facilities, combined with the present program of streamlining operations, will position the Company for both medium and long-term gains in our strategic markets. 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. 10 OPERATING RESULTS BY QUARTERS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE FIGURES)
NET EARNINGS/(LOSS) GROSS ------------------------ 1995 NET SALES PROFIT AMOUNT PER SHARE - --------------------------------------------- ---------- ----------- --------- ------------- March 31..................................... $ 52,489 $ 14,997 $ 8,090 $ .18 June 30...................................... 50,009 13,319 7,050 .16 September 30................................. 50,971 13,172 7,155 .16 December 31 (1).............................. 51,366 705 (6,017) (.14) ---------- ----------- --------- --- $ 204,835 $ 42,193 $ 16,278 $ .36 ---------- ----------- --------- --- ---------- ----------- --------- --- 1996 - --------------------------------------------- March 31..................................... $ 49,366 $ 12,740 $ 6,165 $ .14 June 30...................................... 46,247 13,377 7,360 .16 September 30................................. 47,157 14,994 7,644 .17 December 31.................................. 51,044 15,903 7,606 .17 ---------- ----------- --------- --- $ 193,814 $ 57,014 $ 28,775 $ .64 ---------- ----------- --------- --- ---------- ----------- --------- ---
- ------------ (1) Fourth quarter 1995 earnings were reduced by restructuring and other charges. See Management's Discussion and Analysis and Note 5 to the Consolidated Financial Statements which are included in this Form 10-K Annual Report as indicated in Item 14. 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 1997 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 1997 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 1997 Proxy Statement under the headings "Security Ownership of Certain Beneficial Owners" 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 1997 Proxy Statement under the headings "Indebtedness of Management" and "Certain Relationships and Related Transactions" (hereby incorporated by reference) for this information. 11 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, 1996 and 1995.................................................. 14 Statements of Earnings for the years ended December 31, 1996, 1995 and 1994...................... 15 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.................... 16 Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994.......... 17 Notes to the Consolidated Financial Statements December 31, 1996, 1995 and 1994.................. 18 Report of Independent Public Accountants......................................................... 26
(a)2. Financial Statement Schedules--
PAGE NUMBER ------------- Report of Independent Public Accountants on Schedule................................................ 26 II. Valuation and Qualifying Accounts........................................................ 27
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 November 9, 1995 (incorporated by reference to Exhibit (3)(b) of the Company's Annual Report on Form 10-K for the year ended December 31, 1995) (File No. 1-7558). (4) Private Shelf Agreement between Lawter International, Inc. and The Prudential Insurance Company of America (incorporated by reference to Exhibit 99.2 of the Company's Form 8-K dated January 9, 1996) (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) 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).* (d) 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).* (e) The 1995 Amendment to the 1992 Non-Qualified Stock Option Plan (incorporated by reference to the Company's Definitive Proxy Statement dated April 24, 1995) (File No. 1-7558).* (f) 1995 Non-Qualified Stock Option Plan for Non-Employee Directors (incorporated by reference to Appendix A of the Company's Definitive Proxy Statement dated April 24, 1995) (File No. 1-7558).*
12 (g) 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).* (h) Form of Employment Agreement, dated September 26, 1987, between the Company and John P. Jilek (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).* (i) Employment Agreement, dated October 24, 1996, between the Company and John P. O'Mahoney.* (j) Employment Agreement, dated October 24, 1996, between the Company and Mark W. Joslin.* (k) Consulting Agreement, effective January 1, 1996, between the Company and Richard D. Nordman (incorporated by reference to Exhibit (10)(j) of the Company's Annual Report on 10-K for the year ended December 31, 1995) (File No. 1-7558).* (l) Put Option Agreement, dated January 9, 1996, between the Company and Daniel J. Terra (incorporated by reference to Exhibit (10)(j) of the Company's Annual Report on 10-K for the year ended December 31, 1995) (File No. 1-7558). (m) Put Option Agreement, dated April 25, 1996, between the Company and Daniel J. Terra. (13) Those portions of the Lawter International, Inc. and Subsidiaries' 1996 Annual Report to Stockholders which are incorporated by reference in this Form 10-K Annual Report. (21) Principal Subsidiaries of the Company. (23) Consent of Independent Public Accountants (included in this Form 10-K on page 26).
* These documents constitute all of the management contracts, compensatory plans or arrangements in which any director or executive officer participates. 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. 13 LAWTER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share figures)
DECEMBER 31 ---------------------- 1996 1995 ---------- ---------- ASSETS Current Assets: Cash (Note 1)............................................................................. $ 8,221 $ 9,865 Time Deposits, Interest Bearing (Note 1).................................................. 46,710 53,815 Marketable Securities (Note 1)............................................................ 2,400 6,481 Accounts Receivable -- less allowance for doubtful accounts of $743 in 1996 and $636 in 1995..................................................................................... 47,671 42,557 Inventories (Note 1)...................................................................... 49,611 45,177 Prepaid Expenses.......................................................................... 1,974 2,222 ---------- ---------- Total Current Assets...................................................................... $ 156,587 $ 160,117 ---------- ---------- Property, Plant and Equipment (Notes 1 and 7): Land...................................................................................... $ 7,670 $ 7,639 Buildings................................................................................. 40,022 26,085 Machinery and Equipment................................................................... 92,810 79,661 Construction in Progress.................................................................. 844 13,021 ---------- ---------- $ 141,346 $ 126,406 Less Accumulated Depreciation............................................................. 49,229 55,505 ---------- ---------- Net Property, Plant and Equipment......................................................... $ 92,117 $ 70,901 Equity Investment (Note 6)................................................................ 24,833 22,312 Other Assets (Note 1)..................................................................... 19,586 8,144 ---------- ---------- Total..................................................................................... $ 293,123 $ 261,474 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable.......................................................................... $ 20,162 $ 24,105 Accrued Expenses.......................................................................... 21,682 19,920 Short-term Borrowings (Note 8)............................................................ 38,962 39,983 Income Taxes Payable...................................................................... 1,371 4,387 ---------- ---------- Total Current Liabilities................................................................. $ 82,177 $ 88,395 ---------- ---------- Long-term Obligations (Note 7)............................................................ $ 29,050 $ 4,100 Deferred Income Taxes (Note 4)............................................................ 36,281 35,790 ---------- ---------- Total Liabilities......................................................................... $ 147,508 $ 128,285 ---------- ---------- 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 45,348,535 shares................................................................................... 45,349 45,066 Additional Paid-in Capital................................................................ 14,711 11,864 Retained Earnings (Note 1)................................................................ 89,917 79,218 Cumulative Translation Adjustments (Note 1)............................................... (3,826) (2,914) Other..................................................................................... (536) (45) ---------- ---------- Total Stockholders' Equity................................................................ $ 145,615 $ 133,189 ---------- ---------- Total..................................................................................... $ 293,123 $ 261,474 ---------- ---------- ---------- ----------
The accompanying notes to the consolidated financial statements are an integral part of these balance sheets. 14 LAWTER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share figures)
YEARS ENDED DECEMBER 31 ---------------------------------- 1996 1995 1994 ---------- ---------- ---------- Net Sales.................................................................... $ 193,814 $ 204,835 $ 191,056 Cost of Products Sold........................................................ 136,800 162,642 134,894 ---------- ---------- ---------- Gross Profit................................................................. $ 57,014 $ 42,193 $ 56,162 Selling, General and Administrative Expenses................................. 21,374 25,154 20,970 ---------- ---------- ---------- Operating Income............................................................. $ 35,640 $ 17,039 $ 35,192 Investment Income............................................................ 4,914 6,170 4,470 ---------- ---------- ---------- Earnings Before Income Taxes................................................. $ 40,554 $ 23,209 $ 39,662 Provision for Income Taxes (Notes 1 and 4)................................... 11,779 6,931 10,257 ---------- ---------- ---------- Net Earnings................................................................. $ 28,775 $ 16,278 $ 29,405 ---------- ---------- ---------- ---------- ---------- ---------- Net Earnings per Share (Note 1):............................................. $ .64 $ .36 $ .66 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes to the consolidated financial statements are an integral part of these statements. 15 LAWTER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED DECEMBER 31 ---------------------------------- 1996 1995 1994 ---------- ---------- ---------- CASH FLOW FROM OPERATING ACTIVITIES: Net Earnings.................................................................. $ 28,775 $ 16,278 $ 29,405 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities-- Depreciation and Amortization............................................... 5,499 5,447 4,344 Deferred Income Taxes....................................................... 433 425 (1,130) Undistributed Equity Income................................................. (2,583) (2,236) (2,125) Deferred Exchange Gain (Loss)............................................... (1,327) (575) (145) Purchase of Marketable Securities........................................... (23,202) (3,179) (2,299) Proceeds from Sales of Marketable Securities................................ 27,828 3,173 3,069 Net (Gain) Loss from Marketable Securities.................................. (605) (2,002) 349 (Increase) Decrease in Current Assets-- Accounts Receivable......................................................... (4,983) 1,733 (7,658) Inventories................................................................. 43 (11,484) (4,345) Prepaid Expenses............................................................ 220 585 (1,112) Increase (Decrease) in Current Liabilities-- Accounts Payable............................................................ (1,663) 3,266 (1,381) Accrued Expenses............................................................ (367) 6,914 1,638 Income Taxes Payable........................................................ (2,815) (4,579) 4,437 ---------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES..................................... $ 25,253 $ 13,766 $ 23,047 ---------- ---------- ---------- CASH FLOW FROM INVESTING ACTIVITIES: Expenditures for Property, Plant and Equipment, net......................... $ (25,925) $ (21,928) $ (10,613) Purchase of Business, net of cash........................................... (17,161) -- (6,344) Loans to Officers........................................................... (478) (200) (83) Repayment of Officers' Loans................................................ 47 155 3,422 ---------- ---------- ---------- NET CASH USED FOR INVESTING ACTIVITIES........................................ $ (43,517) $ (21,973) $ (13,618) ---------- ---------- ---------- CASH FLOW FROM FINANCING ACTIVITIES: Exercise of Stock Options................................................... $ 2,929 $ 1,223 $ 808 Principal Payments on Long-term Obligations................................. (50) (52) (54) Proceeds from Long-term Borrowings.......................................... 25,000 -- -- Payment of Short-term Borrowings............................................ (26,177) (1,055) (3,328) Proceeds from Short-term Borrowings......................................... 26,013 22,468 -- Cash Dividends Paid......................................................... (18,077) (17,989) (17,951) ---------- ---------- ---------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES.......................... $ 9,638 $ 4,595 $ (20,525) Effect of Exchange Rate Changes on Cash..................................... (123) 505 395 ---------- ---------- ---------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS................................... $ (8,749) $ (3,107) $ (10,701) Cash and Equivalents, Beginning of Year..................................... 63,680 66,787 77,488 ---------- ---------- ---------- Cash and Equivalents, End of Year........................................... $ 54,931 $ 63,680 $ 66,787 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes to the consolidated financial statements are an integral part of these statements. 16 LAWTER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except per share figures)
COMMON ADDITIONAL CUMULATIVE STOCK $1 PAID-IN RETAINED TRANSLATION PAR VALUE CAPITAL EARNINGS ADJUSTMENTS OTHER ----------- ----------- ---------- ----------- --------- Years Ended December 31, 1994, 1995 and 1996 Balance, January 1, 1994.............................. $ 44,811 $ 9,534 $ 69,475 $ (6,456) $ (3,339) Add (deduct): Net Earnings........................................ -- -- 29,405 -- -- Cash Dividends Declared--$.40 per share............. -- -- (17,951) -- -- Exercise of Stock Options........................... 113 813 -- -- -- Loans to Officers (Note 3).......................... -- -- -- -- 3,339 Foreign Currency Translation Adjustments............ -- -- -- 1,441 -- ----------- ----------- ---------- ----------- --------- Balance, December 31, 1994............................ $ 44,924 $ 10,347 $ 80,929 $ (5,015) $ -- Add (deduct): Net Earnings........................................ -- -- 16,278 -- -- Cash Dividends Declared--$.40 per share............. -- -- (17,989) -- -- Exercise of Stock Options........................... 142 1,517 -- -- -- Loans to Officers (Note 3).......................... -- -- -- -- (45) Foreign Currency Translation Adjustments............ -- -- -- 2,101 -- ----------- ----------- ---------- ----------- --------- Balance, December 31, 1995............................ $ 45,066 $ 11,864 $ 79,218 $ (2,914) $ (45) Add (deduct): Net Earnings........................................ -- -- 28,775 -- -- Cash Dividends Declared--$0.40 per share............ -- -- (18,076) -- -- Exercise of Stock Options........................... 283 2,847 -- -- -- Loans to Officers (Note 3).......................... -- -- -- -- (431) Unrealized Loss on Investments...................... -- -- -- -- (60) Foreign Currency Translation Adjustments............ -- -- -- (912) -- ----------- ----------- ---------- ----------- --------- Balance, December 31, 1996............................ $ 45,349 $ 14,711 $ 89,917 $ (3,826) $ (536) ----------- ----------- ---------- ----------- --------- ----------- ----------- ---------- ----------- ---------
The accompanying notes to the consolidated financial statements are an integral part of these statements. 17 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 $93,000 in 1996, $169,000 in 1995 and $(85,000) in 1994. Revenues and expenses are also affected by fluctuations of currency rates from year to year. The effect of these rate fluctuations in 1996 when compared to 1995 resulted in an unfavorable impact on operating results in addition to the transaction gains or losses reflected in net earnings. For 1995, the effect of rate changes when compared to 1994 resulted in a favorable 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 $3,778,000 in 1996, $2,154,000 in 1995 and $990,000 in 1994. EARNINGS PER SHARE Earnings per share of common stock are computed on the weighted average shares outstanding during the respective years (45,175,000 shares in 1996, 45,018,000 shares in 1995 and 44,874,000 shares in 1994). Net earnings per share would not be materially different from reported earnings per share if all outstanding stock options were exercised. 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. RESEARCH AND DEVELOPMENT Research and development costs ($5,049,000 in 1996, $5,320,000 in 1995 and $4,821,000 in 1994) are charged to expense as incurred. 18 NOTE 1--STATEMENT OF ACCOUNTING POLICIES (CONTINUED) 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. Undistributed earnings reinvested indefinitely in foreign subsidiaries totaled $24,288,000 at December 31, 1996. Income taxes paid during 1996, 1995 and 1994 amounted to $13,595,000, $9,419,000 and $7,220,000, respectively. 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, 1996, all of Lawter's marketable securities were classified as available-for-sale securities, which are reported at fair value. Unrealized gains and losses are charged or credited to Stockholders' Equity. In 1996, proceeds from the sale of these securities was $7,333,000, the realized (loss) included in income was $(183,000) and the unrealized (loss) charged to Stockholders' Equity (net of the tax effect) was $(60,000). At December 31, 1995, 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. The net unrealized holding gain/(loss) included in income was $(1,699,000), $2,206,000 and $7,000 in 1996, 1995 and 1994, respectively. For the purpose of determining realized gains and losses, the cost of securities sold is based upon specific identification. 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's other inventories aggregating $30,608,000 and $24,511,000 at December 31, 1996 and 1995, 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) 1996 1995 --------- --------- Finished Goods.......................................................... $ 25,517 $ 22,362 Raw Materials........................................................... 24,094 22,815 --------- --------- $ 49,611 $ 45,177 --------- --------- --------- ---------
If the FIFO inventory valuation method had been used for all inventories, they would have been $4,839,000 and $6,019,000 higher than reported at December 31, 1996 and 1995, respectively. 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. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions. The reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amount of revenues and expenses reported during the period are affected by these assumptions and estimates. Actual results could differ from these estimates. 19 NOTE 1--STATEMENT OF ACCOUNTING POLICIES (CONTINUED) BALANCE SHEET PRESENTATION Certain prior year amounts have been reclassified to conform with current year presentation. 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 $494,000 in 1996, $530,000 in 1995 and $545,000 in 1994 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 In 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which permits either recording the estimated value of stock-based compensation over the applicable vesting period or continued application of APB Opinion No. 25 with disclosure on a pro forma basis of information for the unrecorded cost and related effect on earnings per share in the Notes to the Financial Statements. The Company will apply the new standard on a pro forma basis. Had compensation costs for the Company's stock option plans been determined based on the fair value at the grant dates for awards consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been adjusted to the pro forma amounts indicated below.
(IN THOUSANDS) 1996 1995 --------- --------- Net earnings--as reported............................................... $ 28,775 $ 16,278 Net earnings--pro forma................................................. 28,292 16,042 Earnings per share--as reported......................................... $ .64 $ .36 Earnings per share--pro forma........................................... .63 .36
The Company has two fixed stock option plans for officers, directors and other key employees. Options may be granted at prices not less than the fair market value at the date of grant. Options expire ten years from the date of grant and are exercisable one year after the date of grant. The fair value of each option granted is estimated on the grant date using the Black-Scholes option-pricing model. The following weighted average assumptions were made in estimating the fair value: dividend yield of 3.6% in 1996 and 3.5% in 1995; expected volatility of 18.1% in both 1996 and 1995; risk- free interest rate of 5.8% in 1996 and 6.4% in 1995; and expected lives of 5 years. 20 NOTE 3--COMMON STOCK (CONTINUED) A summary of the status and activity in the stock option plans is shown in the tables below.
WEIGHTED NUMBER OF AVERAGE SHARES PRICE ---------- ----------- Outstanding January 1,1995............................................. 1,870,331 $ 11.71 Granted................................................................ 388,500 11.38 Exercised.............................................................. (142,657) 8.58 Forfeited or Expired................................................... (95,861) 12.20 ---------- Outstanding December 31, 1995.......................................... 2,020,313 11.85 Granted................................................................ 233,250 11.29 Exercised.............................................................. (282,149) 10.38 Forfeited or Expired................................................... (160,864) 11.91 ---------- Outstanding December 31, 1996.......................................... 1,810,550 12.00 ---------- ---------- Exercisable December 31, 1995.......................................... 1,631,813 11.96 Exercisable December 31, 1996.......................................... 1,608,550 12.08
1996 1995 ----------------- ---------------- Price range at end of year............................... $ 11.00 to 14.38 $ 9.29 to 14.38 Price range for exercised shares......................... $ 9.29 to 10.41 $ 6.62 to 12.25 Options available for grant at end of year............... 992,950 1,075,700 Weighted average remaining contractual life at the end of the year............................................... 8 Years 7 Years
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. NOTE 4--PROVISION FOR INCOME TAX The Company uses the asset and liability method to account for income taxes. Pre-tax earnings were as follows:
(IN THOUSANDS) 1996 1995 1994 --------- --------- --------- United States................................................ $ 25,483 $ 13,393 $ 20,188 Foreign...................................................... 15,071 9,816 19,474 --------- --------- --------- $ 40,554 $ 23,209 $ 39,662 --------- --------- --------- --------- --------- ---------
21 NOTE 4--PROVISION FOR INCOME TAX (CONTINUED) The provisions (benefits) for income taxes were as follows:
(IN THOUSANDS) 1996 1995 1994 --------- --------- --------- Currently payable: United States: Federal.................................................... $ 8,667 $ 4,082 $ 7,655 State...................................................... 1,180 1,060 1,083 Foreign...................................................... 1,481 1,353 2,622 --------- --------- --------- Total Current................................................ 11,328 6,495 11,360 --------- --------- --------- Deferred (principally U.S.): Excess of tax over book depreciation......................... 1,556 442 220 Undistributed earnings of the equity investment.............. 904 782 744 Undistributed earnings of foreign subsidiaries............... (2,560) (1,485) (2,917) Environmental expenditures................................... 278 138 486 Other........................................................ 273 559 364 --------- --------- --------- Total Deferred............................................... 451 436 (1,103) --------- --------- --------- $ 11,779 $ 6,931 $ 10,257 --------- --------- --------- --------- --------- ---------
Temporary differences that gave rise to the deferred tax liability at December 31, 1996 were as follows:
(IN THOUSANDS) Undistributed earnings of foreign subsidiaries................................. $ 26,100 Undistributed earnings of equity investments................................... 6,148 Excess of tax over book depreciation........................................... 5,130 Environmental expenditures..................................................... (827) Other.......................................................................... (270) ------------- 36$,281..... ------------- -------------
The Company's earnings from manufacturing operations in Waterford, Ireland were tax exempt until 1990 and will have a 10% tax rate through 2010. The total "Provision for Income Taxes" represents an effective tax rate of 29.0% for 1996, 29.9% for 1995 and 25.9% for 1994. The differences from the U.S. statutory rate for 1996, 1995 and 1994 were as follows:
(IN THOUSANDS) 1996 1995 1994 --------- --------- --------- Computed tax provision at 35%................................ $ 14,194 $ 8,123 $ 13,882 Increase (decrease) in tax provision resulting from: Waterford, Ireland operation................................. (1,884) (1,947) (2,604) Inclusion of state & local income taxes (net of Federal income taxes).............................................. 787 689 679 Other foreign operations..................................... (710) 1,009 (581) Other........................................................ (608) (943) (1,119) --------- --------- --------- Provision for Income Taxes................................... $ 11,779 $ 6,931 $ 10,257 --------- --------- --------- --------- --------- ---------
NOTE 5--RESTRUCTURING CHARGES In the fourth quarter of 1995, a new management team was formed. The new management, taking into account a change in market conditions, developed a new corporate strategy. Part of the decision making 22 NOTE 5--RESTRUCTURING CHARGES (CONTINUED) process included an evaluation of the feasibility of continuing to utilize older manufacturing facilities. With the anticipated completion of construction of the new ink vehicle and resin facility in Europe combined with the new ink vehicle and resin facility in the U. S., the Company decided to implement a restructuring plan. This plan included the decommissioning of older ink vehicle and resin plants. This resulted in a fourth quarter pretax charge of $8,449,000, of which $2,791,000 was charged to selling, general and administrative expenses for personnel redundancy and $5,658,000 was charged to Cost of Products Sold for site decommissioning. These restructuring activities commenced in the fourth quarter of 1995 and will continue through the middle of 1997. The personnel redundancy costs relate to cash outlays for benefits to be paid to the manufacturing and office employees at the older plants in Europe and North America. The labor force will be reduced by approximately 100 positions when the restructuring plan is completed, of which 73 positions have already been eliminated. As of December 31, 1996, employee headcount was down to 502 employees from a high of 604 employees in 1995. Redundancy payments charged against the reserve through December 31, 1996 were $2,278,000 including $2,003,000 utilized in 1996. The site decommissioning costs represent demolition, cleanup and asset write down costs for older facilities, mainly in Europe and North America. Included in the $5,658,000, is $4,461,000 for non-cash items which relate to the write down of the net book value of the assets at these locations. As of December 31, 1996, three manufacturing facilities in North America were shut down and two manufacturing facilities in Europe were in the final stages of being shut down. The costs charged against the reserve related to these facilities were $3,652,000 comprised of $3,738,000 for the write down of net book value of the assets, $153,000 for cleanup costs and $191,000 for relocation costs partially offset by the proceeds of $430,000 from the sale of the assets of one of the North American facilities. NOTE 6--EQUITY INVESTMENTS At December 31, 1996, 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, 1996 was $18.50 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. NOTE 7--LONG-TERM OBLIGATIONS Long-term obligations were as follows:
(IN THOUSANDS) 1996 1995 --------- --------- Series 1993-LI IDB Bond.................................................. $ 4,000 $ 4,000 Series 1978-A IDB Bond................................................... 100 150 Less--Current portion in accounts payable................................ (50) (50) Net long-term bonds payable.............................................. 4,050 4,100 Prudential Shelf Agreement............................................... 25,000 -- --------- --------- Total long-term obligations.............................................. $ 29,050 $ 4,100 --------- --------- --------- ---------
In December of 1995, the Company entered into a private shelf agreement with Prudential Capital Group under which it may borrow up to $125,000,000. The shelf agreement provides for promissory notes to mature no more than 15 years after the original date of issuance, which was December 6, 1995. The 23 NOTE 7--LONG-TERM OBLIGATIONS (CONTINUED) interest is payable semi-annually at 6.33%. There are various covenants related to this agreement. At December 31, 1996, the Company was in compliance with these covenants. 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, 1996 and 1995, 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, 6.75% Industrial Revenue Bond, Series 1993-LI to the Company. 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 7.25%. Remaining principal of $100,000 is payable in two installments of $50,000 on September 1, 1997 and 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, 1996 and 1995. The capitalized costs are being depreciated over the estimated useful lives of the individual assets. At December 31, 1996, the future lease payments under the capitalized leases relating to the Industrial Revenue Bonds were as follows:
(IN THOUSANDS) 1997........................................................................... $ 327 1998........................................................................... 270 1999........................................................................... 270 2000........................................................................... 270 2001........................................................................... 270 Later years.................................................................... 6,130 ------------- Total minimum lease payments................................................... 7,537 Less interest.................................................................. (3,437) ------------- Present value of minimum lease payments........................................ $ 4,100 ------------- -------------
Operating leases are not significant. NOTE 8--COMMITMENTS AND CONTINGENCIES The Company has unsecured lines of credit for borrowings of $255,000,000 at December 31, 1996. During 1996, average borrowings were $36,370,000 against these lines of credit and the weighted average interest rate was 4.48%. In 1995, average borrowings were $30,765,000 and the weighted average interest rate was 6.23%. In 1994, average borrowings were $20,536,000 and the weighted average interest rate was 4.77%. There are no commitment fees or compensating balance requirements relating to these lines 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. 24 NOTE 9--SEGMENT INFORMATION A dominant portion of Lawter's operations is in a single industry-specialty polymers. Within this industry, Lawter is principally engaged in the production and marketing of printing ink vehicles, slip additives, synthetic and hydrocarbon resins, 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 Canada, China, Japan, Singapore and Taiwan which, individually, are not considered to be significant as defined by SFAS No. 14. The Company sells the majority of 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 whose purchases are made for a wide variety of specialized products at multiple locations through numerous companies in various countries approximated nineteen percent of sales in 1996, eighteen percent of sales in 1995 and nineteen percent of sales in 1994. 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, 1996, 1995 and 1994 is shown in the table below.
(IN THOUSANDS) 1996 1995 1994 ---------- ---------- ---------- Net Sales: Domestic..................................................................... $ 92,139 $ 94,657 $ 98,628 Europe....................................................................... 84,841 94,071 74,974 Other Foreign................................................................ 16,834 16,107 17,454 ---------- ---------- ---------- Total........................................................................ $ 193,814 $ 204,835 $ 191,056 ---------- ---------- ---------- ---------- ---------- ---------- Earnings Before Tax: Domestic..................................................................... $ 25,462 $ 12,206 $ 20,263 Europe....................................................................... 11,113 4,687 13,887 Other Foreign................................................................ 853 1,959 2,746 Corporate.................................................................... 3,126 4,357 2,766 ---------- ---------- ---------- Total........................................................................ $ 40,554 $ 23,209 $ 39,662 ---------- ---------- ---------- ---------- ---------- ---------- Identifiable Assets: Domestic..................................................................... $ 64,333 $ 69,176 $ 62,724 Europe....................................................................... 116,320 83,812 58,514 Other Foreign................................................................ 18,147 17,091 17,675 Corporate.................................................................... 94,323 91,395 92,914 ---------- ---------- ---------- Total........................................................................ $ 293,123 $ 261,474 $ 231,827 ---------- ---------- ---------- ---------- ---------- ----------
25 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, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. The schedule listed in the index on page 12 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 10, 1997 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 10, 1997, 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, 1996, 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 26 Chicago, Illinois, March 24, 1997 27 LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (in thousands)
ALLOWANCES FOR DOUBTFUL ACCOUNTS 1996 1995 1994 - ------------------------------------------------------------------------------------------ --------- --------- --------- Balance at beginning of year.............................................................. $ 636 $ 415 $ 319 Additions (credited)/charged to earnings................................................ 166 327 (30) Additions/(deductions) for accounts written off, net of recoveries...................... (59) (106) 126(1) --------- --------- --------- Balance at end of year.................................................................... $ 743 $ 636 $ 415 --------- --------- --------- --------- --------- ---------
- ------------------------ (1) Includes approximately $179,000 of Cremona Resine allowance for doubtful accounts which was acquired June 30, 1994. 27 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/ JOHN P. O'MAHONEY -------------------------------------- John P. O'Mahoney Chairman of the Board and Chief Executive Officer (Principal Executive Officer) /s/ MARK W. JOSLIN -------------------------------------- Mark W. Joslin Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Date: March 24, 1997 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/ WILLIAM P. CLARK /s/ RICHARD D. NORDMAN - -------------------------------------------- -------------------------------------------- William P. Clark, March 24, 1997 Richard D. Nordman, March 24, 1997 Director Director /s/ ARTHUR A. HARTMAN /s/ JOHN P. O'MAHONEY - -------------------------------------------- -------------------------------------------- Arthur A. Hartman, March 24, 1997 John P. O'Mahoney, March 24, 1997 Director Director /s/ JOHN P. JILEK /s/ FRED G. STEINGRABER - -------------------------------------------- -------------------------------------------- John P. Jilek, March 24, 1997 Fred G. Steingraber, March 24, 1997 Director Director /s/ LEONARD P. JUDY - -------------------------------------------- Leonard P. Judy, March 24, 1997 Director
Registrant's 1996 Annual Report to Stockholders, some portions of which have been incorporated by reference in this Form 10-K, has been sent to each stockholder and was included with this report to the Securities and Exchange Commission. 28 EX-10.I 2 EXHIBIT 10(I) Exhibit 10(i) EMPLOYMENT AGREEMENT This Agreement, dated as of October 24, 1996, between Lawter International, Inc., a Delaware corporation (hereinafter referred to as the "Company"), and John P. O'Mahoney (hereinafter referred to as the "Employee"). RECITALS The Employee has been employed by the Company for a substantial period of time and currently serves as its Chairman and Chief Executive Officer and as a member of its board of directors. Because of the Employee's extensive experience and his familiarity with the affairs of the Company, the Company wishes to assure that, in the event of a "Change in Control," as hereinafter defined, it will continue to have the Employee available to perform duties substantially similar to those currently being performed by him and to continue to contribute to the Company's growth and success as he has in the past. The Employee is willing to commit to continue in the performance of his services for the Company upon the terms and conditions set forth herein. COVENANTS NOW, THEREFORE, in consideration of the mutual promises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. The Company hereby agrees that, effective upon a "Change in Control" and provided that Employee is still serving as an employee of the Company at that time, it will continue to employ Employee as the Chairman and Chief Executive Officer of the Company to perform the duties described herein, and Employee hereby accepts such employment on the terms and conditions stated herein. It is understood that prior to such "Change in Control," this Agreement shall confer no rights of employment or other benefits (or obligations) whatsoever upon Employee, and that Employee shall remain subject to termination at will. 2. TERM OF EMPLOYMENT. Subject to provisions for termination set forth herein, the term of Employee's employment hereunder shall commence on the date of a "Change in Control" (if any) and shall extend until three years after the date of such "Change in Control." For purposes of this Agreement a "Change in Control" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934; provided that, without limitation, such a Change in Control shall be deemed to have occurred if during any period of two consecutive years individuals who at the beginning of such period constitute members of the board of directors cease for any reason to constitute at least a majority thereof, unless the nomination or election of each director who was not a director at the beginning of the period was approved by a vote of a majority of the directors still in office at the time of such nomination or election who were directors at the beginning of the period. 3. DUTIES OF EMPLOYEE. Employee shall be the Chairman and Chief Executive Officer of the Company and shall perform such duties and responsibilities for the Company as may be assigned to him by the board of directors of the Company and which are not unreasonably inconsistent with the duties of the Chairman and Chief Executive Officer, including such duties as are currently being performed by the Employee. During the term of his employment, Employee shall devote substantially all of his business time, attention and energy, and his reasonable best efforts, to the interests and business of the Company and to the performance of his duties and responsibilities on behalf of the Company. During the term of Employee's employment hereunder, the Company will use its best efforts to cause the Employee to be elected a director of the Company and will cause the Employee to be included as a nominee for director in any proxy solicitation by management. 4. COMPENSATION. Throughout the term of Employee's employment hereunder, the Company shall pay Employee, for services to be rendered by him hereunder, a guaranteed minimum salary at an annual rate equal to that being paid on the date the term of employment hereunder commences, less all applicable federal and state income tax withholding, FICA taxes and other payroll taxes. The guaranteed minimum salary shall be reviewed by the Company on a yearly basis to ascertain if any upward adjustment in the annual rate is in order, and if any increase is made, the new annual rate shall become the guaranteed minimum salary under this Section 4. Such compensation shall be payable semi-monthly. 5. WORKING FACILITIES AND FRINGE BENEFITS. The Employee shall be furnished with office space, secretarial assistance and such other facilities and services as are appropriate to his position and adequate for the performance of his duties. The Company also shall provide to Employee during the term of employment fringe benefits and perquisites at least equal to those provided to Employee immediately prior to the date thereof, and the Company shall not discriminate against Employee with respect to any vacation or holiday plan, medical, hospital, life and disability insurance programs, pension programs and other similar welfare benefit programs from time to time made available to the Company's officers and key employees. 6. EXPENSES. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him in the performance of services rendered by him pursuant to this Agreement. Such expenses shall be supported by the documentary evidence required to substantiate them as income tax deductions. 7. COVENANT RESTRICTING COMPETITION; NONDISCLOSURE OF CONFIDENTIAL INFORMATION. (a) Employee acknowledges that his services are special and unique, and of an unusual and extraordinary character which gives them peculiar value, the loss of which cannot adequately be compensated in damages. Therefore, Employee agrees that he will not, except with the written consent of the Company, for a continuous period of eighteen (18) months commencing immediately following termination of Employee's employment hereunder, directly or indirectly engage or become interested in, as a partner, director, officer, principal, agent or employee, any business which competes with products produced, marketed or in development by the Company at the time of such termination. (b) Employee acknowledges that in his employment he is or will be making use of, acquiring or adding to, confidential information of the Company, and is or will be familiar with the Company's business, activities, employees, customers and suppliers. Therefore, in order to protect the Company's confidential information and to protect other employees who depend upon the Company for regular employment, Employee agrees that, except in connection with his employment by the Company, or with the consent of the Company, he will not during or after the term of his employment hereunder in any way utilize any of said confidential information and he will not copy, reproduce, or take with him the original or any copies of said confidential information and will not disclose any of said confidential information to anyone. In the event of a breach of the covenants contained in this Section 7, the Company shall be entitled to an injunction restraining such breach in addition to any other remedies provided by law. If any provision of this Section 7 is adjudged by a court to be invalid or unenforceable, the same will in no way affect any other provision of this Section 7 or any other part of this Agreement, the application of such provision in any other circumstances or the validity or enforceability of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination will have the power to reduce the duration and/or area of such provision, and/or to delete specific words or phrases, and in its reduced form such provision will then be enforceable and will be enforced. 8. TERMINATION BY COMPANY. (a) DISABILITY. The Company may terminate the active employment of the Employee if, in the reasonable judgment of the board of directors of the Company, he becomes unable to satisfactorily perform his duties and responsibilities hereunder during the term of his employment because of mental or physical disability. Upon such termination, the Employee shall be relieved of all further obligations hereunder except obligations pursuant to Section 7. In the event of such termination, the Company shall continue to pay to the Employee, until the end of the term of his employment hereunder, a salary at a rate equal to the annual rate in effect on the date of such termination (as set forth in Section 4). Notwithstanding the foregoing, the amounts so payable shall be reduced by any amounts payable to the Employee during the term of his employment hereunder pursuant to any disability benefit or wage continuation plan of the Company in effect. (b) DEATH. In the event of the death of the Employee during the term, the Company shall make, until the end of the term of employment hereunder, payments at a rate equal to the annual rate in effect on the date of death. The payments to be made under this Section 8(b) shall not be reduced by reason of any insurance proceeds payable directly to the Employee's beneficiaries or estate pursuant to insurance carried or provided by the Company, and shall be made to such beneficiary as the Employee may designate for that purpose by written notice given to the Secretary of the Company prior to his death, or if the Employee has not so designated, then to the personal representative of his Estate. (c) TERMINATION FOR CAUSE. In the event fraud, defalcation, or other similar dishonesty of the Employee involving the operations, funds or other assets of the Company is established, or Employee is convicted of a crime involving moral turpitude, or Employee breaches the terms of this Agreement in any material respect, then the Company may terminate this Agreement upon giving written notice to the Employee and thereafter, neither the Employee, his surviving spouse or his estate shall be entitled to any further salary or compensation from the Company pursuant to this Agreement, but the Employee's obligations under Section 7 shall remain in effect. The parties agree that the provisions of this Section 8(c) shall not be utilized in any manner by the Company to avoid, negate or frustrate application of the provisions of Section 9 of this Agreement. 9. TERMINATION BY EMPLOYEE. (a) IF LOCATION OF OFFICE CHANGES. In the event that, at any time during the term of employment, the Company, without Employee's consent, changes the location of the Company's offices at which Employee works to a city more than 150 miles from its present location, the Employee may terminate his employment with the Company by giving to the Secretary of the Company notice in writing within three months after this right to termination arises. (b) IF POSITION CHANGES. It is the intention of the parties that the Employee will be the Chairman and Chief Executive Officer of the Company during the entire term of employment hereunder. In the event that, at any time during the term hereunder, Employee, without his consent, does not hold the position of Chairman and Chief Executive Officer of the Company and have the duties and responsibilities that would normally be expected of the Chairman and Chief Executive Officer of the Company (except by reason of termination under Section 8), Employee may terminate his employment with the Company hereunder by giving to the Secretary of the Company written notice of such termination within three months after this right to terminate arises. (c) FOLLOWING CHANGE IN CONTROL. Employee may terminate his employment under this Agreement in the event of a Change in Control, as defined in Section 2 hereof, by giving written notice of such termination to the Secretary of the Company not less than six months nor more than twelve months following such Change in Control. Without limiting the generality of the definition of Change in Control as set forth in Section 2, the failure of the Employee to be re- elected a director of the Company shall be deemed a Change in Control unless such failure is due to the Employee's voluntary act or the Employee's employment has been terminated by the Company for Cause. (d) LUMP SUM PAYMENT. In the event of termination pursuant to subsection (a), (b) or (c) of this Section 9, the Company shall pay to the Employee, in a lump sum and within 30 days of such termination, an amount equal to the aggregate balance (based on the annual rate in effect at the time of such termination) which would have been payable to the Employee during the remaining portion of the term hereunder had such termination not occurred, including any benefits payable to Employee. (e) REIMBURSEMENT. If a tax is imposed pursuant to Section 4999 of the Internal Revenue Code, or successor provision of like import, upon payments due under this Agreement or upon other payments to the Employee by the Company, the Employee shall be paid an additional amount calculated so as to provide the Employee, after he has paid the tax (including any related interest and/or penalty) imposed by Section 4999 of the Code, with the same compensation he would have received had not tax (including any related interest and/or penalty) been imposed by Section 4999. For purposes of this subsection (e), the term "Company" shall include any parent, subsidiary, affiliate, assignee, or successor in interest of the Company or of such assignee or successor in interest. 10. ASSIGNMENT. This Agreement is binding upon and shall be for the benefit of the successors and assigns of the Company, including any corporation or any other form of business organization with which the Company may merge or consolidate, or to which it may transfer substantially all of its assets. Employee shall not assign his interest in this Agreement or any part thereof. 11. CONSENT OF THE COMPANY. Any act, request, approval, consent or opinion of the Company under this Agreement must be in writing and may be authorized, given or expressed only by resolution of the board of directors of the Company, or by such other person as the board of directors of the Company may designate. 12. NOTICES. Any notice required hereunder to be given shall be in writing and if: (a) by the Company to Employee shall be directed to him at his address set forth below, or to such other address as he shall have furnished in writing to the Company; or (b) by Employee to the Company shall be directed to Lawter International, Inc., 990 Skokie Blvd., Northbrook, Illinois 60062, Attn: Secretary, or to such designee or other address as the board of directors shall name and have furnished in writing to Employee. 13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois applicable to contracts made and to be performed therein. 14. ENFORCEMENT EXPENSES AND ARBITRATION. The Company agrees to reimburse the Employee for all costs and expenses incurred by him (including the reasonable fees of his counsel) in successfully enforcing any of his rights under this Agreement or any claim arising out of the breach thereof. In addition, the parties acknowledge the relative economic power of the Company versus the Employee, and the ability of the Company to resist the conclusion of litigation should the Employee institute legal proceedings to enforce this Agreement or to recover damages for the breach thereof. In recognition of this, any controversy or claim arising out of or relating to this Agreement, including any dispute over or interpretation of the occurrence of a "Change in Control," as previously defined, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, at the sole election of the Employee; provided, however, that an action by the Company to enforce its rights under Section 7 hereof shall be excluded from the arbitration provisions of this Section 14. Any such election by Employee shall be made by written notice given to the Company any time after such controversy or claim arises, and in the event Employee is served with process relating to any court proceeding concerning any such claim or controversy commenced by the Company, such election, to be effective, shall be made by written notice within 15 days of the time Employee is served with such process. Commencement of court proceedings by Employee shall be deemed an election not to arbitrate. In the event the Company commences court proceedings (other than an action by the Company solely to enforce its rights under Section 7 hereof) and is given notice of the election to arbitrate by the Employee within the time period set forth above, the Company agrees to promptly dismiss such court proceedings and submit to arbitration. In the event of such arbitration, judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. LAWTER INTERNATIONAL, INC. By: ___________________________________ Title: ________________________________ _______________________________________ John P. O'Mahoney _______________________________________ Address EX-10.J 3 EXHIBIT 10(J) Exhibit 10(j) EMPLOYMENT AGREEMENT This Agreement, dated as of October 24, 1996, between Lawter International, Inc., a Delaware corporation (hereinafter referred to as the "Company"), and Mark W. Joslin (hereinafter referred to as the "Employee"). RECITALS The Employee has been employed by the Company and currently serves as its Chief Financial Officer and Treasurer. Because of the Employee's extensive experience and his familiarity with the affairs of the Company, the Company wishes to assure that, in the event of a "Change in Control," as hereinafter defined, it will continue to have the Employee available to perform duties substantially similar to those currently being performed by him and to continue to contribute to the Company's growth and success as he has in the past. The Employee is willing to commit to continue in the performance of his services for the Company upon the terms and conditions set forth herein. COVENANTS NOW, THEREFORE, in consideration of the mutual promises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. The Company hereby agrees that, effective upon a "Change in Control" and provided that Employee is still serving as an employee of the Company at that time, it will continue to employ Employee as the Chief Financial Officer and Treasurer of the Company to perform the duties described herein, and Employee hereby accepts such employment on the terms and conditions stated herein. It is understood that prior to such "Change in Control," this Agreement shall confer no rights of employment or other benefits (or obligations) whatsoever upon Employee, and that Employee shall remain subject to termination at will. 2. TERM OF EMPLOYMENT. Subject to provisions for termination set forth herein, the term of Employee's employment hereunder shall commence on the date of a "Change in Control" and shall extend until two years after the date of such "Change in Control." For purposes of this Agreement a "Change in Control" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934; provided that, without limitation, such a Change in Control shall be deemed to have occurred if during any period of two consecutive years individuals who at the beginning of such period constitute members of the board of directors cease for any reason to constitute at least a majority thereof, unless the nomination or election of each director who was not a director at the beginning of the period was approved by a vote of a majority of the directors still in office at the time of such nomination or election who were directors at the beginning of the period. 3. DUTIES OF EMPLOYEE. Employee shall be the Chief Financial Officer and Treasurer of the Company and shall perform such duties and responsibilities for the Company as may be assigned to him by the board of directors of the Company and which are not unreasonably inconsistent with the duties currently being performed by the Employee. During the term of his employment, Employee shall devote substantially all of his business time, attention and energy, and his reasonable best efforts, to the interests and business of the Company and to the performance of his duties and responsibilities on behalf of the Company. 4. COMPENSATION. Throughout the term of Employee's employment hereunder, the Company shall pay Employee, for services to be rendered by him hereunder, a guaranteed minimum salary at an annual rate equal to that being paid on the date the term of employment hereunder commences, less all applicable federal and state income tax withholding, FICA taxes and other payroll taxes. The guaranteed minimum salary shall be reviewed by the Company on a yearly basis to ascertain if any upward adjustment in the annual rate is in order, and if any increase is made, the new annual rate shall become the guaranteed minimum salary under this Section 4. Such compensation shall be payable semi-monthly. 5. WORKING FACILITIES AND FRINGE BENEFITS. The Employee shall be furnished with office space, secretarial assistance and such other facilities and services as are appropriate to his position and adequate for the performance of his duties. The Company also shall provide to Employee during the term of employment fringe benefits and perquisites at least equal to those provided to Employee immediately prior to the date thereof, and the Company shall not discriminate against Employee with respect to any vacation or holiday plan, medical, hospital, life and disability insurance programs, pension programs and other similar welfare benefit programs from time to time made available to the Company's officers and key employees. 6. EXPENSES. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him in the performance of services rendered by him pursuant to this Agreement. Such expenses shall be supported by the documentary evidence required to substantiate them as income tax deductions. 7. COVENANT RESTRICTING COMPETITION; NONDISCLOSURE OF CONFIDENTIAL INFORMATION. (a) Employee acknowledges that his services are special and unique, and of an unusual and extraordinary character which gives them peculiar value, the loss of which cannot adequately be compensated in damages. Therefore, Employee agrees that he will not, except with the written consent of the Company, for a continuous period of eighteen (18) months commencing immediately following termination of Employee's employment hereunder, directly or indirectly engage or become interested in, as a partner, director, officer, principal, agent or employee, any business which competes with products produced, marketed or in development by the Company at the time of such termination. (b) Employee acknowledges that in his employment he is or will be making use of, acquiring or adding to, confidential information of the Company, and is or will be familiar with the Company's business, activities, employees, customers and suppliers. Therefore, in order to protect the Company's confidential information and to protect other employees who depend upon the Company for regular employment, Employee agrees that, except in connection with his employment by the Company, or with the consent of the Company, he will not during or after the term of his employment hereunder in any way utilize any of said confidential information and he will not copy, reproduce, or take with him the original or any copies of said confidential information and will not disclose any of said confidential information to anyone. In the event of a breach of the covenants contained in this Section 7, the Company shall be entitled to an injunction restraining such breach in addition to any other remedies provided by law. If any provision of this Section 7 is adjudged by a court to be invalid or unenforceable, the same will in no way affect any other provision of this Section 7 or any other part of this Agreement, the application of such provision in any other circumstances or the validity or enforceability of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination will have the power to reduce the duration and/or area of such provision, and/or to delete specific words or phrases, and in its reduced form such provision will then be enforceable and will be enforced. 8. TERMINATION BY COMPANY. (a) DISABILITY. The Company may terminate the active employment of the Employee if, in the reasonable judgment of the board of directors of the Company, he becomes unable to satisfactorily perform his duties and responsibilities hereunder during the term of his employment because of mental or physical disability. Upon such termination, the Employee shall be relieved of all further obligations hereunder except obligations pursuant to Section 7. In the event of such termination, the Company shall continue to pay to the Employee, until the end of the term of his employment hereunder, a salary at a rate equal to three-quarters of the annual rate in effect on the date of such termination (as set forth in Section 4). Notwithstanding the foregoing, the amounts so payable shall be reduced by any amounts payable to the Employee during the term of his employment hereunder pursuant to any disability benefit or wage continuation plan of the Company in effect. (b) DEATH. In the event of the death of the Employee during the term, the Company shall make, until the end of the term of employment hereunder, payments at a rate equal to one-half of the annual rate in effect on the date of death. The payments to be made under this Section 8(b) shall not be reduced by reason of any insurance proceeds payable directly to the Employee's beneficiaries or estate pursuant to insurance carried or provided by the Company, and shall be made to such beneficiary as the Employee may designate for that purpose by written notice given to the Secretary of the Company prior to his death, or if the Employee has not so designated, then to the personal representative of his Estate. (c) TERMINATION FOR CAUSE. In the event fraud, defalcation, or other similar dishonesty of the Employee involving the operations, funds or other assets of the Company is established, or Employee is convicted of a crime involving moral turpitude, or Employee breaches the terms of this Agreement in any material respect, then the Company may terminate this Agreement upon giving written notice to the Employee and thereafter, neither the Employee, his surviving spouse or his estate shall be entitled to any further salary or compensation from the Company pursuant to this Agreement, but the Employee's obligations under Section 7 shall remain in effect. The parties agree that the provisions of this Section 8(c) shall not be utilized in any manner by the Company to avoid, negate or frustrate application of the provisions of Section 9 of this Agreement. 9. TERMINATION BY EMPLOYEE. (a) IF LOCATION OF OFFICE CHANGES. In the event that, at any time during the term of employment, the Company, without Employee's consent, changes the location of the Company's offices at which Employee works to a city more than 150 miles from its present location, the Employee may terminate his employment with the Company by giving to the Secretary of the Company notice in writing within three months after this right to termination arises. (b) IF POSITION CHANGES. It is the intention of the parties that the Employee will have the positions specified in Section 1 hereof during the entire term of employment. In the event that, at any time during the term hereunder, Employee, without his consent, does not hold such positions with the Company and have the duties and responsibilities that would normally be expected of an officer of the Company with these positions (except by reason of termination under Section 8), Employee may terminate his employment with the Company hereunder by giving to the Secretary of the Company written notice of such termination within three months after this right to terminate arises. (c) LUMP SUM PAYMENT. In the event of termination pursuant to subsection (a) or (b) of this Section 9, the Company shall pay to the Employee, in a lump sum and within 30 days of such termination, an amount equal to the aggregate balance (based on the annual rate in effect at the time of such termination) which would have been payable to the Employee during the remaining portion of the term hereunder had such termination not occurred, including any benefits payable to Employee. (d) REIMBURSEMENT. If a tax is imposed pursuant to Section 4999 of the Internal Revenue Code, or successor provision of like import, upon payments due under this Agreement or upon other payments to the Employee by the Company, the Employee shall be paid an additional amount calculated so as to provide the Employee, after he has paid the tax (including any related interest and/or penalty) imposed by Section 4999 of the Code, with the same compensation he would have received had not tax (including any related interest and/or penalty) been imposed by Section 4999. For purposes of this subsection (d), the term "Company" shall include any parent, subsidiary, affiliate, assignee, or successor in interest of the Company or of such assignee or successor in interest. 10. ASSIGNMENT. This Agreement is binding upon and shall be for the benefit of the successors and assigns of the Company, including any corporation or any other form of business organization with which the Company may merge or consolidate, or to which it may transfer substantially all of its assets. Employee shall not assign his interest in this Agreement or any part thereof. 11. CONSENT OF THE COMPANY. Any act, request, approval, consent or opinion of the Company under this Agreement must be in writing and may be authorized, given or expressed only by resolution of the board of directors of the Company, or by such other person as the board of directors of the Company may designate. 12. NOTICES. Any notice required hereunder to be given shall be in writing and if: (a) by the Company to Employee shall be directed to him at his address set forth below, or to such other address as he shall have furnished in writing to the Company; or (b) by Employee to the Company shall be directed to Lawter International, Inc., 990 Skokie Blvd., Northbrook, Illinois 60062, Attn: Secretary, or to such designee or other address as the board of directors shall name and have furnished in writing to Employee. 13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois applicable to contracts made and to be performed therein. 14. ENFORCEMENT EXPENSES AND ARBITRATION. The Company agrees to reimburse the Employee for all costs and expenses incurred by him (including the reasonable fees of his counsel) in successfully enforcing any of his rights under this Agreement or any claim arising out of the breach thereof. In addition, the parties acknowledge the relative economic power of the Company versus the Employee, and the ability of the Company to resist the conclusion of litigation should the Employee institute legal proceedings to enforce this Agreement or to recover damages for the breach thereof. In recognition of this, any controversy or claim arising out of or relating to this Agreement, including any dispute over or interpretation of the occurrence of a "Change in Control," as previously defined, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, at the sole election of the Employee; provided, however, that an action by the Company to enforce its rights under Section 7 hereof shall be excluded from the arbitration provisions of this Section 14. Any such election by Employee shall be made by written notice given to the Company any time after such controversy or claim arises, and in the event Employee is served with process relating to any court proceeding concerning any such claim or controversy commenced by the Company, such election, to be effective, shall be made by written notice within 15 days of the time Employee is served with such process. Commencement of court proceedings by Employee shall be deemed an election not to arbitrate. In the event the Company commences court proceedings (other than an action by the Company solely to enforce its rights under Section 7 hereof) and is given notice of the election to arbitrate by the Employee within the time period set forth above, the Company agrees to promptly dismiss such court proceedings and submit to arbitration. In the event of such arbitration, judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. LAWTER INTERNATIONAL, INC. By:___________________________________ Title:________________________________ ______________________________________ Mark W. Joslin ______________________________________ Address EX-13 4 EXHIBIT 13 Exhibit 13 Common Stock Prices Quarter 1996 1995 First $12 1/8-10 3/8 $13 3/8-11 1/2 Second 12 1/2-10 1/2 14 3/8-11 3/4 Third 12 1/2-11 12 1/8-10 7/8 Fourth 13-11 1/8 12- 10 1/4 Dividends Per Common Share Quarter 1996 1995 First $.10 $.10 Second .10 .10 Third .10 .10 Fourth .10 .10 Principal Products Lawter International, Inc. is the world's leading developer and manufacturer of specialty polymers that form the backbone of printing ink. We make it possible to apply inks and coatings to paper, plastic, metal and other surfaces more quickly and accurately, with faster drying, so presses can run at higher speeds using inks that require less pigment, produce less waste, and offer better performance characteristics such as gloss, brightness, and rub or scratch-resistance. Lawter products include printing ink vehicles, slip additives and resins as well as fluorescent pigments, and additives for coatings, adhesives and rubber compounding. Printing ink vehicles are fluid gelled compositions which provide to lithographic and letterpress printing inks the ability to carry color onto a variety of printing surfaces. They influence 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. 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. We develop, produce and market products for ink manufacturers and other customers using proprietary technologies and modern manufacturing facilities in North America, Europe and the Pacific Rim. Lawter was founded in 1940. EX-21 5 EXHIBIT 21 Exhibit 21 Principal Subsidiaries of the Company (Jurisdiction of Incorporation) Lawter International FSC, Limited (Jamaica) Kingston, Jamaica Lawter International (Belgium) N.V. (Belgium) Lokeren, Belgium Kallo, 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, 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 EX-27 6 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 DEC-31-1996 54,931 2,400 47,671 0 49,611 156,587 141,346 49,229 293,123 82,177 29,050 0 0 45,349 100,266 293,123 193,814 193,814 136,800 136,800 0 0 0 40,554 11,779 28,775 0 0 0 28,775 .64 .64
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