-----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, SqVx54CDnJWbR6k5Q3SXIHN2JQ9fcun4oar41KNlo+I2MiHzwLNlMsxlt8720QdO VNW8i8qlfey2x5LIOHyAig== 0001047469-98-011790.txt : 19980330 0001047469-98-011790.hdr.sgml : 19980330 ACCESSION NUMBER: 0001047469-98-011790 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 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-K SEC ACT: SEC FILE NUMBER: 001-07558 FILM NUMBER: 98574920 BUSINESS ADDRESS: STREET 1: ONE TERRA WAY STREET 2: 8601 95TH STREET CITY: KENOSHA STATE: WI ZIP: 53412-7716 BUSINESS PHONE: 4149477300 MAIL ADDRESS: STREET 1: ONE TERRA WAY STREET 2: 8601 95TH STREET CITY: KENOSHA STATE: WI ZIP: 53412-7716 FORMER COMPANY: FORMER CONFORMED NAME: LAWTER CHEMICALS INC DATE OF NAME CHANGE: 19810602 FORMER COMPANY: FORMER CONFORMED NAME: KRUMBHAAR CHEMICALS INC DATE OF NAME CHANGE: 19701117 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /X/ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 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.) ONE TERRA WAY, 8601 95TH STREET, KENOSHA, WISCONSIN 53142 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (414) 947-7300 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 NEW YORK STOCK EXCHANGE VALUE PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None (TITLE OF CLASS) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ____ INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. / / AS OF FEBRUARY 13, 1998, 45,533,335 COMMON SHARES WERE OUTSTANDING. THE AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE FEBRUARY 13, 1998 CLOSING PRICE OF THESE SHARES ON THE NEW YORK STOCK EXCHANGE) OF LAWTER INTERNATIONAL, INC. HELD BY NON-AFFILIATES WAS APPROXIMATELY $326 MILLION. DOCUMENTS INCORPORATED BY REFERENCE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997--PARTS I AND II. PROXY STATEMENT TO STOCKHOLDERS FOR THE 1998 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................................................. 11 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...................................................................... 12 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 12 Item 13. Certain Relationships and Related Transactions.............................................. 12 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 1997 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) 1997 1996 1995 --------- --------- --------- Printing Ink Vehicles and Slip Additives................................ 44.2 43.3 44.7 Synthetic and Hydrocarbon Resins........................................ 53.0 52.2 50.2 Other................................................................... 2.8 4.5 5.1
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 its products in four plants in the United States and in six plants in foreign countries (Belgium, China, England, Germany, Ireland and Singapore). 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 twenty-two 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. 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, 1997, 1996 and 1995, the Company spent approximately $5,342,000, $5,049,000 and $5,320,000, 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, 1997, 1996 and 1995 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 1998 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. EMPLOYEES. At December 31, 1997, the Company had 549 employees. 3 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 - --------------------------------------- ------------ ----------------------------------------------- --------- Pleasant Prairie, Wisconsin 250,000 Corporate headquarters Owned Printing ink vehicles and slip additives Synthetic and hydrocarbon resins Research facilities Warehouse Moundville, Alabama 250,000 Synthetic and hydrocarbon resins (1) Warehouse La Vergne, Tennessee 27,000 Printing ink vehicles Owned Warehouse Newark, New Jersey 50,000 Slip additives Leased Warehouse Bell, California 15,000 Warehouse Leased 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 Bicester, Oxon, England 38,000 Printing ink vehicles Owned Warehouse Frechen, Germany 17,000 Printing ink vehicles Leased Warehouse Waterford, Ireland 97,000 Synthetic resins Owned Jurong Town, Singapore 10,000 Printing ink vehicles Owned Warehouse
- ------------ (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. The Company believes that it is the subject of a federal grand jury investigation in Mobile, Alabama into the classification for tariff purposes of certain products imported by the Company. The grand jury has subpoenaed Company records. One current Company employee and one former Company employee have appeared before the grand jury. The Company is cooperating with the investigation. The Company believes that its classification of such products was proper, and has presented its position to the U.S. Attorney's office in Mobile, Alabama. 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, 1997. 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 1998, is as follows:
YEAR NAME POSITION AGE ELECTED - --------------------------- -------------------------------------------------------------- --- --------- John P. O'Mahoney.......... Chairman of the Board and Chief Executive Officer 41 1996 John P. Jilek.............. President and Chief Operating Officer 46 1996 Mark W. Joslin............. Chief Financial Officer, Treasurer and Secretary 38 1996 Ludwig P. Horn............. Vice President 68 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 1997 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 ---------------------------------------------------------- 1997(1) 1996(1) 1995(1) 1994 1993 ---------- ---------- ---------- ---------- ---------- Net Sales.......................................... $ 206,539 $ 193,814 $ 204,835 $ 191,056 $ 172,249 ---------- ---------- ---------- ---------- ---------- Gross Profit....................................... 63,100 60,433 45,801(7) 59,294 46,628 Selling, Administrative, Research and Distribution Expenses......................................... 27,283 24,793 28,762(7) 24,102 21,495 Subsidiary Closure Costs........................... 9,535(5) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Operating Income................................... 26,282 35,640 17,039 35,192 25,133 Net Investment Income.............................. 2,333 4,914 6,170 4,470 4,318 Sale of Affiliate.................................. 32,030(6) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Earnings Before Income Taxes and Cumulative Effect of Accounting Change............................. 60,645 40,554 23,209 39,662 29,451 Provision for Income Taxes......................... 23,319 11,779 6,931 10,257 28,449(4) ---------- ---------- ---------- ---------- ---------- Earnings Before Cumulative Effect of Accounting Change........................................... 37,326 28,775 16,278 29,405 1,002 Cumulative Effect of Change in Accounting for Income Taxes..................................... -- -- -- -- 4,025(3) ---------- ---------- ---------- ---------- ---------- Net Earnings....................................... $ 37,326 $ 28,775 $ 16,278 $ 29,405 $ 5,027 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Depreciation and Amortization...................... $ 5,832 $ 5,499 $ 5,447 $ 4,344 $ 4,291 Cash Provided by Operating Activities.............. 10,792 25,253 13,766 23,047 23,811 Cash Dividends..................................... 18,173 18,077 17,989 17,951 17,909 Capital Expenditures, net.......................... 10,485 25,925 21,928 10,613 12,940 Gross Property, Plant and Equipment................ 127,451 141,346 126,406 102,788 87,856 Net Working Capital................................ 117,961 74,410 71,722 88,993 87,523 Total Assets....................................... 276,184 293,123 261,474 231,827 209,477 Long-term Obligations.............................. 29,050 29,050 4,100 4,152 4,206 Stockholders' Equity............................... 161,357 145,615 133,189 131,185 114,025 Average Shares Outstanding(2)...................... 45,431 45,175 45,018 44,874 44,772 Earnings per Share(2): Earnings Before Cumulative Effect of Accounting Change........................................... $ .82 $ .64 $ .36 $ .66 $ .02 Cumulative Effect of Change in Accounting for Income Taxes..................................... -- -- -- -- .09(3) ---------- ---------- ---------- ---------- ---------- Net Earnings....................................... $ .82 $ .64 $ .36 $ .66 $ .11 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash Dividends per Share(2)........................ .40 .40 .40 .40 .40 Stockholders' Equity per Share(2).................. 3.55 3.22 2.96 2.92 2.55 Cash Dividends to Net Earnings..................... 48.7% 62.8% 110.5% 61.0% 356.3% Net Earnings to Average Equity..................... 24.3% 20.6% 12.3% 24.0% 4.1%
- ------------ (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 and 1990. (3) Represents cumulative effect on prior years' earnings of adopting SFAS No. 109 which was adopted January 1, 1993. (4) Includes additional tax provision of $21.6 million for future repatriation of foreign earnings. (5) Represents costs associated with the closure of several subsidiaries. The after tax effect of these costs was $.20 per share. (6) Represents the gain on the sale of the Company's 28% share of Hach Company common stock. This resulted in an after tax gain of $.43 per share. (7) The 1995 Gross Margin was reduced by $10,562,000 for restructuring and other charges. The 1995 Selling, Administrative, Research and Distribution Expenses includes $2,791,000 in restructuring charges. The after tax effect of these charges was $.24 per share. 6 TEN YEAR FINANCIAL SUMMARY (IN THOUSANDS, EXCEPT PER SHARE FIGURES)
YEARS ENDED DECEMBER 31 ---------------------------------------------------------- 1992 1991 1990 1989 1988 ---------- ---------- ---------- ---------- ---------- Net Sales.......................................... $ 167,568 $ 152,893 $ 150,005 $ 136,006 $ 125,818 ---------- ---------- ---------- ---------- ---------- Gross Profit....................................... 53,933 50,543 48,397 40,576 40,633 Selling, Administrative, Research and Distribution Expenses......................................... 22,641 20,401 20,717 18,074 16,435 Subsidiary Closure Costs........................... -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Operating Income................................... 31,292 30,142 27,680 22,502 24,198 Investment Income.................................. 5,271 6,221 4,963 3,929 3,173 Sale of Affiliate.................................. -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Earnings Before Income Taxes and Cumulative Effect of Accounting Change............................. 36,563 36,363 32,643 26,431 27,371 Provision for Income Taxes......................... 9,548 9,893 9,223 6,963 6,520 ---------- ---------- ---------- ---------- ---------- Earnings Before Cumulative Effect of Accounting Change........................................... 27,015 26,470 23,420 19,468 20,851 Cumulative Effect of Change in Accounting for Income Taxes..................................... -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net Earnings....................................... $ 27,015 $ 26,470 $ 23,420 $ 19,468 $ 20,851 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Depreciation and Amortization...................... $ 4,179 $ 3,900 $ 3,521 $ 3,550 $ 3,410 Cash Provided by Operating Activities.............. 34,440 23,192 34,240 20,388 15,796 Cash Dividends..................................... 17,556 14,947 12,582 12,561 12,403 Capital Expenditures, net.......................... 7,548 8,902 6,198 3,073 4,524 Gross Property, Plant and Equipment................ 78,491 74,022 66,271 57,421 54,282 Net Working Capital................................ 96,082 87,075 82,560 70,200 62,807 Total Assets....................................... 187,334 178,218 153,500 133,988 125,210 Long-term Obligations.............................. 4,858 5,238 5,137 5,083 4,810 Stockholders' Equity............................... 129,659 117,315 105,090 87,752 79,521 Average Shares Outstanding(2)...................... 43,913 43,318 43,011 42,940 42,267 Earnings per Share(2): Earnings Before Cumulative Effect of Accounting Change........................................... $ .62 $ .61 $ .54 $ .45 $ .49 Cumulative Effect of Change in Accounting for Income Taxes..................................... -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net Earnings....................................... $ .62 $ .61 $ .54 $ .45 $ .49 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash Dividends per Share(2)........................ .40 .35 .29 .29 .29 Stockholders' Equity per Share(2).................. 2.95 2.71 2.44 2.04 1.88 Cash Dividends to Net Earnings..................... 65.0% 56.5% 53.7% 64.5% 59.5% Net Earnings to Average Equity..................... 21.9% 23.8% 24.3% 23.3% 28.0%
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, increased $43,900,000 from $16,000,000 at December 31, 1996 to $59,900,000 at December 31, 1997. This is primarily the result of the sale, on July 8, 1997, of the Company's investment in Hach Company for $60,000,000. The after tax cash proceeds were approximately $42,100,000 which will be used to further the Company's long term plans. In the short term, a portion of the funds was used to pay off short term debt while the remainder was invested in short term time deposits. 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. On March 19, 1998, the Company entered into an agreement to repurchase 11,503,130 shares of Lawter International, Inc.'s common stock held by the estate of Daniel J. Terra, at a price of $11.375 per share. The agreement calls for the closing of this transaction April 17, 1998. The repurchase will be financed by a combination of debt and cash on hand. In 1997, the majority of Lawter's capital expansion program was financed with internally generated funds. In 1996 and 1995, the Company used external financing in connection with the new manufacturing facility in Belgium. The revised capital expenditures budget for 1997 was $9,400,000. Actual expenditures were 11% higher than budgeted due primarily to equipment additions and improvements which were not included in the budget. Lawter's capital expenditures for 1998 are estimated at $9,000,000. These expenditures include funds for the startup of a joint venture in China as well as additions to and maintenance of existing facilities elsewhere. The Company currently anticipates using internally generated funds for the majority of these capital expenditures. RESULTS OF OPERATIONS 1997 VERSUS 1996 NET SALES. The Company's consolidated net sales increased 7% when compared to 1996. Included in 1997 are $20,900,000 in sales of products, mostly in Europe, relating to the Wolstenholme and Hercules acquisitions, which were acquired in the fourth quarter of 1996. Excluding the Wolstenholme and Hercules products from both years, consolidated net sales decreased 3% as a result of the impact of a stronger U.S. dollar versus most European currencies and lower average selling prices caused by a change in product mix, partially offset by increased volume in all geographic areas. By region, net sales increased 12% in Europe, 24% in the Pacific Rim and less than 1% in North America when compared to 1996. In addition to the impact of Wolstenholme and Hercules sales, higher sales volumes in Europe were partially offset by the stronger U.S dollar versus European currencies. The increase in the Pacific Rim was the result of increased customer and product base. GROSS PROFIT. Gross profit as a percent of sales was 30.6% and 31.2% for 1997 and 1996, respectively. The gross profit in 1997 and 1996 included the impact of the accounting for business interruption insurance claims (see "Insurance" below). Excluding the effect of the business interruption insurance claims, the gross margin increased from 28.2% in 1996 to 29.3% in 1997 as the result of lower raw material costs in North America, decreased operating costs as a result of the restructuring plan described in "Restructuring Charges" below and the startup costs of the new polymer facility in Belgium included in 1996. SELLING, ADMINISTRATIVE, RESEARCH AND DISTRIBUTION EXPENSES. Selling, administrative, research and distribution expenses increased from $24,793,000 in 1996 to $27,283,000 in 1997. The higher expenses in 1997 were due principally to increased sales volume, higher distribution costs caused by the shutdown of various manufacturing facilities and increased commission and royalty payments as the result of acquisitions. SUBSIDIARY CLOSURE COSTS. The subsidiary closure costs represent $4,236,000 for the write off of goodwill related to the Company's Italian subsidiary along with $3,299,000 for the write off of accumulated 8 foreign currency translation losses and $2,000,000 for other costs related to other subsidiaries that have been or are in the process of being closed. The after tax effect of these costs was $.20 per share. INVESTMENT INCOME. Investment income decreased in 1997 when compared to 1996 as a result of the Company's July 1997 sale of its equity investment in Hach Company and the liquidation of its stock portfolio in 1996 which had resulted in appreciation gains in 1996. SALE OF AFFILIATE. During the third quarter of 1997, the Company sold its 28% share of Hach Company common stock for $59,987,000. This resulted in an after tax gain of $19,570,000 or $.43 per share. INCOME TAXES. The effective tax rates for 1997 and 1996 were 38.5% and 29.0%, respectively. The higher effective tax rate in 1997 was the result of a 38.9% effective tax rate on the sale of the Hach Company stock along with a minimal tax benefit from the subsidiary closure costs. Excluding these items, the effective tax rate in 1997 would have been 29.1%. 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% in North America, 10% in Europe and increased 5% in the Pacific Rim 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 31.2% and 22.4% for 1996 and 1995, respectively. Excluding the charges listed below, the gross profit for 1995 would have been 27.5%. 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 in North America, 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. SELLING, ADMINISTRATIVE, RESEARCH AND DISTRIBUTION EXPENSES. Selling, administrative, research and distribution expenses decreased from $28,556,000 in 1995 to $24,793,000 in 1996. The 1995 selling, administrative, research and distribution expenses included restructuring costs (see "Restructuring Charges" below) of $2,791,000. Excluding these charges, selling, administrative, research and distribution expenses decreased by $972,000 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. 9 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 these charges, was due to a shift in earnings from lower to higher taxed entities. 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 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, administrative, research and distribution 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 have been substantially completed as of the end 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. Approximately 100 positions were eliminated as a result of the restructuring plan. As of December 31, 1997, employee headcount was down to 549 employees from a high of 604 employees in 1995. Redundancy payments charged against the reserve through December 31, 1997 were $2,699,000 including $421,000 utilized in 1997. The balance of the reserve will be utilized for several remaining employees at one of the European locations. The site decommissioning costs represent demolition, cleanup, relocation and asset write down costs along with costs incurred during the wind down period 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, 1997, five manufacturing facilities in North America and six manufacturing facilities in Europe were shut down and/or sold. The costs charged against the reserve related to these facilities were $5,194,000 comprised of $3,880,000 for the write down of net book value of the assets, $563,000 for cleanup costs, $880,000 for costs incurred during the wind down period of the European facilities, $110,000 for plant and equipment dismantling 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. The balance of the site decommissioning reserve will be used for the final dismantling and cleanup costs of one of the European facilities. 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 in 1996 and $2,622,000 in 1997 for lost sales and additional expenses incurred. This was recorded as a reduction to Cost of Products Sold. This facility is now fully operational. The Company also received proceeds of $1,864,000 in 1996 for the final settlement of claims arising from an explosion and fire at its U.S. resin facility in 1994. This was in addition to the $1,675,000 recorded in 1995 for these claims. These amounts were also recorded as a reduction to Cost of Products Sold. YEAR 2000. Modifications to significant portions of the Company's computer software will be required in order for it to function properly in the year 2000 and beyond. An initial assessment of the situation has been completed. Systems affected have been identified and alternatives have been considered. Conversion and testing of system applications is expected to be substantially completed by the end of 1998. The costs associated with the year 2000 compliance are expected to be approximately $200,000 and will be expensed as incurred. The Company is continuing to address the year 2000 impact with customers, suppliers and other constituents. 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 1997 and 1996. During 1995, there was a tightening of supply of some important raw 10 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, improved raw material sourcing 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. OPERATING RESULTS BY QUARTERS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE FIGURES)
NET EARNINGS/(LOSS) GROSS ------------------------ 1996 NET SALES PROFIT AMOUNT PER SHARE - --------------------------------------------- ---------- ----------- --------- ------------- March 31..................................... $ 49,366 $ 13,556 $ 6,165 $ .14 June 30...................................... 46,247 14,193 7,360 .16 September 30................................. 47,157 15,797 7,644 .17 December 31.................................. 51,044 16,887 7,606 .17 ---------- ----------- --------- --- $ 193,814 $ 60,433 $ 28,775 $ .64 ---------- ----------- --------- --- ---------- ----------- --------- --- 1997 - --------------------------------------------- March 31..................................... $ 50,140 $ 15,616 $ 5,938 $ .13 June 30...................................... 50,657 16,034 7,566 .17 September 30................................. 50,411 16,014 17,099(1) .37 December 31.................................. 55,331 15,436 6,723 .15 ---------- ----------- --------- --- $ 206,539 $ 63,100 $ 37,326 $ .82 ---------- ----------- --------- --- ---------- ----------- --------- ---
- ------------ (1) Includes a one-time gain from the sale of the Hach Company stock net of a one-time charge for subsidiary closure charges. Excluding these items, the net income in the third quarter would have been $6,815,000 or $.15 per share. 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 1998 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 1998 Proxy Statement under the heading "Executive Compensation" (hereby incorporated by reference) for this information. 11 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Reference is made to the Company's 1998 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 1998 Proxy Statement under the headings "Indebtedness of Management" and "Certain Relationships and Related Transactions" (hereby incorporated by reference) for this information. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)1. Consolidated Financial Statements--
PAGE NUMBER --------- Balance Sheets as of December 31, 1997 and 1996.................................................. 14 Statements of Earnings for the years ended December 31, 1997, 1996 and 1995...................... 15 Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.................... 16 Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995.......... 17 Notes to the Consolidated Financial Statements for the years ended December 31, 1997, 1996 and 1995........................................................................................... 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.*
12 (f) The 1997 Amendment to the 1992 Non-Qualified Stock Option Plan.* (g) 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).* (h) The 1997 Amendment to the 1995 Non-Qualified Stock Option Plan for Non-Employee Directors.* (i) Employment Agreement, dated January 1, 1997, between the Company and Ludwig P. Horn.* (j) Employment Agreement, dated July 24, 1997, between the Company and John P. Jilek.* (k) Employment Agreement, dated October 24, 1996, between the Company and John P. O'Mahoney (incorporated by reference to Exhibit (10)(i) of the Company's Annual Report on Form 10-K for the year ended December 31, 1996) (File No. 1-7558).* (l) Employment Agreement, dated October 24, 1996, between the Company and Mark W. Joslin (incorporated by reference to Exhibit (10)(j) of the Company's Annual Report on Form 10-K for the year ended December 31, 1996) (File No. 1-7558).* (m) 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 Form 10-K for the year ended December 31, 1995) (File No. 1-7558).* (13) Those portions of the Lawter International, Inc. and Subsidiaries' 1997 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). (27) Financial Data Schedule for the year ended December 31, 1997.
* These documents constitute all of the management contracts, compensatory plans or arrangements in which any director or executive officer participates. (b) There were no reports on Form 8-K filed during the fourth quarter of 1997. 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 ---------------------- 1997 1996 ---------- ---------- ASSETS Current Assets: Cash (Note 1)............................................................................. $ 8,052 $ 8,221 Time Deposits, Interest Bearing (Note 1).................................................. 74,819 46,710 Marketable Securities (Note 1)............................................................ -- 2,400 Accounts Receivable--less allowance for doubtful accounts of $490 in 1997 and $743 in 1996.................................................................................... 44,170 47,671 Inventories (Note 1)...................................................................... 43,090 49,611 Prepaid Expenses.......................................................................... 1,051 1,974 ---------- ---------- Total Current Assets...................................................................... $ 171,182 $ 156,587 ---------- ---------- Property, Plant and Equipment (Notes 1 and 7): Land...................................................................................... $ 6,982 $ 7,670 Buildings................................................................................. 34,476 40,022 Machinery and Equipment................................................................... 83,681 92,810 Construction in Progress.................................................................. 2,312 844 ---------- ---------- $ 127,451 $ 141,346 Less Accumulated Depreciation............................................................. 38,803 49,229 ---------- ---------- Net Property, Plant and Equipment......................................................... $ 88,648 $ 92,117 Equity Investment (Note 6)................................................................ -- 24,833 Other Assets (Note 1)..................................................................... 16,354 19,586 ---------- ---------- Total..................................................................................... $ 276,184 $ 293,123 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable.......................................................................... $ 12,324 $ 20,162 Accrued Expenses.......................................................................... 13,805 21,682 Short-term Borrowings (Note 8)............................................................ 22,993 38,962 Income Taxes Payable...................................................................... 4,099 1,371 ---------- ---------- Total Current Liabilities................................................................. $ 53,221 $ 82,177 ---------- ---------- Long-term Obligations (Note 7)............................................................ 29,050 29,050 Deferred Income Taxes (Note 4)............................................................ 32,556 36,281 ---------- ---------- Total Liabilities......................................................................... $ 114,827 $ 147,508 ---------- ---------- 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 45,533,335 shares.... 45,533 45,349 Additional Paid-in Capital................................................................ 16,747 14,711 Retained Earnings (Note 1)................................................................ 109,070 89,917 Cumulative Translation Adjustments (Note 1)............................................... (9,535) (3,826) Other..................................................................................... (458) (536) ---------- ---------- Total Stockholders' Equity................................................................ $ 161,357 $ 145,615 ---------- ---------- Total..................................................................................... $ 276,184 $ 293,123 ---------- ---------- ---------- ----------
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 ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- Net Sales.................................................................... $ 206,539 $ 193,814 $ 204,835 Cost of Products Sold........................................................ 143,439 133,381 159,034 ---------- ---------- ---------- Gross Profit................................................................. $ 63,100 $ 60,433 $ 45,801 Selling, Administrative, Research & Distribution Expenses.................... 27,283 24,793 28,762 Subsidiary Closure Costs..................................................... 9,535 -- -- ---------- ---------- ---------- Operating Income............................................................. $ 26,282 $ 35,640 $ 17,039 Investment Income............................................................ 2,333 4,914 6,170 Sale of Affiliate............................................................ 32,030 -- -- ---------- ---------- ---------- Earnings Before Income Taxes................................................. $ 60,645 $ 40,554 $ 23,209 Provision for Income Taxes (Notes 1 and 4)................................... 23,319 11,779 6,931 ---------- ---------- ---------- Net Earnings................................................................. $ 37,326 $ 28,775 $ 16,278 ---------- ---------- ---------- ---------- ---------- ---------- Net Earnings per Share (Note 1):............................................. $ .82 $ .64 $ .36 ---------- ---------- ---------- ---------- ---------- ----------
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 ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- CASH FLOW FROM OPERATING ACTIVITIES: Net Earnings................................................................. $ 37,326 $ 28,775 $ 16,278 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities-- Depreciation and Amortization.............................................. 5,832 5,499 5,447 Deferred Income Taxes...................................................... (3,474) 433 425 Undistributed Equity Income................................................ (1,456) (2,583) (2,236) Deferred Exchange Gain (Loss).............................................. 2,984 (1,327) (575) Purchase of Marketable Securities.......................................... -- (23,202) (3,179) Proceeds from Sales of Marketable Securities............................... 2,502 27,828 3,173 Net (Gain) Loss from Marketable Securities................................. (2) (605) (2,002) Gain on Sale of Business................................................... (738) -- -- Gain on Sale of Hach Company Common Stock.................................. (33,730) -- -- Write-off of Goodwill...................................................... 4,236 -- -- (Increase) Decrease in Current Assets-- Accounts Receivable........................................................ 858 (4,983) 1,733 Inventories................................................................ 3,149 43 (11,484) Prepaid Expenses........................................................... 787 220 585 Increase (Decrease) in Current Liabilities-- Accounts Payable........................................................... (6,541) (1,663) 3,266 Accrued Expenses........................................................... (3,651) (367) 6,914 Income Taxes Payable....................................................... 2,710 (2,815) (4,579) ---------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................................... $ 10,792 $ 25,253 $ 13,766 ---------- ---------- ---------- CASH FLOW FROM INVESTING ACTIVITIES: Expenditures for Property, Plant and Equipment, net........................ $ (10,485) $ (25,925) $ (21,928) Purchase of Business, net of cash.......................................... (9,219) (17,161) -- Proceeds from the Sale of Business......................................... 4,856 -- -- Proceeds from Sale of Hach Company Common Stock............................ 59,987 -- -- Loans to Officers.......................................................... (24) (478) (200) Repayment of Officers' Loans............................................... 43 47 155 ---------- ---------- ---------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES......................... $ 45,158 $ (43,517) $ (21,973) ---------- ---------- ---------- CASH FLOW FROM FINANCING ACTIVITIES: Exercise of Stock Options.................................................. $ 2,220 $ 2,929 $ 1,223 Principal Payments on Long-term Obligations................................ (50) (50) (52) Proceeds from Long-term Borrowings......................................... -- 25,000 -- Payment of Short-term Borrowings........................................... (11,182) (26,177) (1,055) Proceeds from Short-term Borrowings........................................ -- 26,013 22,468 Cash Dividends Paid........................................................ (18,173) (18,077) (17,989) ---------- ---------- ---------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES......................... $ (27,185) $ 9,638 $ 4,595 Effect of Exchange Rate Changes on Cash.................................... (825) (123) 505 ---------- ---------- ---------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS.................................. $ 27,940 $ (8,749) $ (3,107) Cash and Equivalents, Beginning of Year.................................... 54,931 63,680 66,787 ---------- ---------- ---------- Cash and Equivalents, End of Year.......................................... $ 82,871 $ 54,931 $ 63,680 ---------- ---------- ---------- ---------- ---------- ----------
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, 1995, 1996 and 1997 Balance, January 1, 1995................................ $ 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--$.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) Add (deduct): Net Earnings.......................................... -- -- 37,326 -- -- Cash Dividends Declared--$0.40 per share.............. -- -- (18,173) -- -- Exercise of Stock Options............................. 184 2,036 -- -- -- Loans to Officers (Note 3)............................ -- -- -- -- 18 Unrealized Gain on Investments........................ -- -- -- -- 60 Foreign Currency Translation Adjustments.............. -- -- -- (5,709) -- ----------- ----------- ---------- ----------- --------- Balance, December 31, 1997.............................. $ 45,533 $ 16,747 $ 109,070 $ (9,535) $ (458) ----------- ----------- ---------- ----------- --------- ----------- ----------- ---------- ----------- ---------
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, administrative, research and distribution expenses, were $(321,000) in 1997, $93,000 in 1996 and $169,000 in 1995. Revenues and expenses are also affected by fluctuations of currency rates from year to year. The effect of these rate fluctuations in 1997 when compared to 1996 and 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. 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 $4,462,000 in 1997, $3,778,000 in 1996 and $2,154,000 in 1995. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share," which requires companies to present basic earnings per share and diluted earnings per share, instead of primary earnings per share and fully diluted earnings per share that were previously required. The new standard is effective for all periods ending after December 15, 1997. The new standard has no impact on the Company's earnings per share. Earnings per share of common stock are computed on the weighted average shares outstanding during the respective years (45,431,000 in 1997, 45,175,000 shares in 1996 and 45,018,000 shares in 1995). 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. 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. 18 NOTE 1--STATEMENT OF ACCOUNTING POLICIES (CONTINUED) RESEARCH AND DEVELOPMENT Research and development costs ($5,342,000 in 1997, $5,049,000 in 1996 and $5,320,000 in 1995) are charged to expense as incurred. 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 $26,653,000 at December 31, 1997. Income taxes paid during 1997, 1996 and 1995 amounted to $23,295,000, $13,595,000 and $9,419,000, respectively. INVESTMENTS During 1997 and 1996, all of Lawter's marketable securities were classified as available-for-sale securities, which were reported at fair value. Unrealized gains and losses were charged or credited to Stockholders' Equity. In 1997 and 1996, proceeds from the sales of these securities were $2,502,000 and $7,333,000, respectively, the realized gain (loss) included in income was $2,000 and $(183,000), respectively and the unrealized gain (loss) charged to Stockholders' Equity (net of the tax effect) was $60,000 and $(60,000), respectively. At December 31, 1995, all of Lawter's marketable securities were classified as trading securities. Trading securities were 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) and $2,206,000 in 1996 and 1995, respectively. For the purpose of determining realized gains and losses, the cost of securities sold was 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 $28,375,000 and $30,608,000 at December 31, 1997 and 1996, 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) 1997 1996 --------- --------- Raw Materials........................................................... $ 21,132 $ 24,094 Finished Goods.......................................................... 21,958 25,517 --------- --------- $ 43,090 $ 49,611 --------- --------- --------- ---------
If the FIFO inventory valuation method had been used for all inventories, they would have been $4,259,000 and $4,839,000 higher than reported at December 31, 1997 and 1996, 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 19 NOTE 1--STATEMENT OF ACCOUNTING POLICIES (CONTINUED) 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. STATEMENT OF EARNINGS PRESENTATION Certain prior year amounts have been reclassified to conform with current year presentation. NOTE 2--RETIREMENT PLANS The Company had in 1997, 1996 and 1995 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 $478,000 in 1997, $494,000 in 1996 and $530,000 in 1995 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 applies the 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) 1997 1996 1995 --------- --------- --------- Net earnings--as reported.................................... $ 37,326 $ 28,775 $ 16,278 Net earnings--pro forma...................................... 37,054 28,292 16,042 Earnings per share--as reported.............................. $ .82 $ .64 $ .36 Earnings per share--pro forma................................ .82 .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 3.3%, 3.6% and 3.5% in 1997, 1996 and 1995, respectively; expected volatility of 22.0% in 1997 and 18.1% in both 1996 and 1995; risk-free interest rate of 5.8% in 1997 and 1996 and 6.4% in 1995; and expected lives of 5 years. 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. 20 NOTE 3--COMMON STOCK (CONTINUED) A summary of the status and activity in the stock option plans is shown in the tables below.
NUMBER WEIGHTED 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 Granted................................................................ 205,000 11.86 Exercised.............................................................. (184,800) 12.01 Forfeited or Expired................................................... (63,375) 12.10 ---------- Outstanding December 31, 1997.......................................... 1,767,375 11.97 ---------- ---------- Exercisable December 31, 1995.......................................... 1,631,813 11.96 Exercisable December 31, 1996.......................................... 1,608,550 12.08 Exercisable December 31, 1997.......................................... 1,568,500 11.71
1997 1996 1995 ----------------- ----------------- ----------------- Price range at end of year.......... $ 10.75 to 14.38 $ 11.00 to 14.38 $ 9.29 to 14.38 Price range for exercised shares.... $ 11.25 to 13.25 $ 9.29 to 10.41 $ 6.62 to 12.25 Options available for grant at end of year........................... 843,825 992,950 1,075,700 Weighted average remaining contractual life at the end of the year.............................. 7 Years 8 Years 7 Years
NOTE 4--PROVISION FOR INCOME TAXES The Company uses the asset and liability method to account for income taxes. Pre-tax earnings were as follows:
(IN THOUSANDS) 1997 1996 1995 --------- --------- --------- United States................................................ $ 56,758 $ 25,483 $ 13,393 Foreign...................................................... 3,887 15,071 9,816 --------- --------- --------- $ 60,645 $ 40,554 $ 23,209 --------- --------- --------- --------- --------- ---------
21 NOTE 4--PROVISION FOR INCOME TAXES (CONTINUED) The provisions (benefits) for income taxes were as follows:
(IN THOUSANDS) 1997 1996 1995 --------- --------- --------- Currently payable: United States: Federal.................................................... $ 19,871 $ 8,667 $ 4,082 State...................................................... 4,009 1,180 1,060 Foreign...................................................... 1,650 1,481 1,353 --------- --------- --------- Total Current................................................ 25,530 11,328 6,495 --------- --------- --------- Deferred (principally U.S.): Excess of tax over book depreciation......................... 3,952 1,556 442 Undistributed earnings of the equity investment.............. (6,148) 904 782 Undistributed earnings of foreign subsidiaries............... -- (2,560) (1,485) Other........................................................ (15) 551 697 --------- --------- --------- Total Deferred............................................... (2,211) 451 436 --------- --------- --------- $ 23,319 $ 11,779 $ 6,931 --------- --------- --------- --------- --------- ---------
Temporary differences that gave rise to the deferred tax liability at December 31, 1997 were as follows:
(IN THOUSANDS) Undistributed earnings of foreign subsidiaries..................................... $ 25,971 Excess of tax over book depreciation............................................... 7,856 Other.............................................................................. (1,271) --------- $ 32,556 --------- ---------
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 38.5% for 1997, 29.0% for 1996 and 29.9% for 1995. The differences from the U.S. statutory rate for 1997, 1996 and 1995 were as follows:
(IN THOUSANDS) 1997 1996 1995 --------- --------- --------- Computed tax provision at 35%................................ $ 21,226 $ 14,194 $ 8,123 Increase (decrease) in tax provision resulting from: Waterford, Ireland operation................................. (1,144) (1,884) (1,947) Inclusion of state & local income taxes (net of Federal income taxes).............................................. 2,606 787 689 Goodwill write off........................................... 1,483 -- -- Foreign currency translation adjustment write off............ 1,606 -- -- Other foreign operations..................................... (1,033) (710) 1,009 Other........................................................ (1,425) (608) (943) --------- --------- --------- Provision for Income Taxes................................... $ 23,319 $ 11,779 $ 6,931 --------- --------- --------- --------- --------- ---------
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 process included an evaluation of the feasibility of continuing to utilize older manufacturing facilities. With 22 NOTE 5--RESTRUCTURING CHARGES (CONTINUED) 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, administrative, research and distribution 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 have been substantially completed as of the end 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. Approximately 100 positions were eliminated as a result of the restructuring plan. As of December 31, 1997, employee headcount was down to 549 employees from a high of 604 employees in 1995. Redundancy payments charged against the reserve through December 31, 1997 were $2,699,000 including $421,000 utilized in 1997. The balance of the reserve will be utilized for several remaining employees at one of the European locations. The site decommissioning costs represent demolition, cleanup, relocation and asset write down costs along with costs incurred during the wind down period 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, 1997, five manufacturing facilities in North America and six manufacturing facilities in Europe were shut down and/or sold. The costs charged against the reserve related to these facilities were $5,194,000 comprised of $3,880,000 for the write down of net book value of the assets, $563,000 for cleanup costs, $880,000 for costs incurred during the wind down period of the European facilities, $110,000 for plant and equipment dismantling 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. The balance of the site decommissioning reserve will be used for the final dismantling and cleanup costs of one of the European facilities. NOTE 6--EQUITY INVESTMENTS At December 31, 1996, the Company owned 3,157,223 shares, representing approximately 28% of the outstanding shares, of the Common Stock of Hach Company (Hach). During the third quarter of 1997, the Company sold its 28% share of Hach for $59,987,000. This resulted in an after tax gain of $19,570,000 or $.43 per share. The investment in Hach was accounted for under the equity method. 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) 1997 1996 --------- --------- Series 1993-LI IDB Bond................................................. $ 4,000 $ 4,000 Series 1978-A IDB Bond.................................................. 50 50 --------- --------- Net long-term bonds payable............................................. 4,050 4,050 Prudential Shelf Agreement.............................................. 25,000 25,000 --------- --------- Total long-term obligations............................................. $ 29,050 $ 29,050 --------- --------- --------- ---------
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, 1997, 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, 1997 and 1996, 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 $50,000 is payable on 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, 1997 and 1996. The capitalized costs are being depreciated over the estimated useful lives of the individual assets. At December 31, 1997, the future lease payments under the capitalized leases relating to the Industrial Revenue Bonds were as follows:
(IN THOUSANDS) 1998........................................................................... $ 270 1999........................................................................... 270 2000........................................................................... 270 2001........................................................................... 270 2002........................................................................... 270 Later years.................................................................... 5,859 ------------- Total minimum lease payments................................................... 7,209 Less interest.................................................................. (3,159) ------------- Present value of minimum lease payments........................................ $ 4,050 ------------- -------------
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, 1997. During 1997, average borrowings were $32,318,000 against these lines of credit and the weighted average interest rate was 4.08%. In 1996, average borrowings were $36,370,000 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%. 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 is expected to 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, synthetic and hydrocarbon resins, and slip additives. Lawter's total business is broken down into three geographical areas: North America, Europe and Pac Rim. Pac Rim includes the Company's operations in 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 twenty-two percent of sales in 1997, nineteen percent of sales in 1996, and eighteen percent of sales in 1995. Transfers between geographic areas are not material. Corporate earnings before tax is the net of the gain on the sale of the Hach Company common stock, 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, 1997, 1996 and 1995 is shown in the table below.
(IN THOUSANDS) 1997 1996 1995 ---------- ---------- ---------- Net Sales: North America................................................................ $ 101,154 $ 100,871 $ 103,018 Europe....................................................................... 95,379 84,841 94,071 Pac Rim...................................................................... 10,006 8,102 7,746 ---------- ---------- ---------- Total........................................................................ $ 206,539 $ 193,814 $ 204,835 ---------- ---------- ---------- ---------- ---------- ---------- Earnings Before Tax: North America................................................................ $ 25,754 $ 24,947 $ 12,820 Europe....................................................................... 5,912 11,113 4,687 Pac Rim...................................................................... 1,340 1,368 1,345 Corporate.................................................................... 27,639 3,126 4,357 ---------- ---------- ---------- Total........................................................................ $ 60,645 $ 40,554 $ 23,209 ---------- ---------- ---------- ---------- ---------- ---------- Identifiable Assets: North America................................................................ $ 69,339 $ 72,418 $ 77,548 Europe....................................................................... 98,842 116,320 83,812 Pac Rim...................................................................... 10,915 10,062 8,719 Corporate.................................................................... 97,088 94,323 91,395 ---------- ---------- ---------- Total........................................................................ $ 276,184 $ 293,123 $ 261,474 ---------- ---------- ---------- ---------- ---------- ----------
NOTE 10--SUBSEQUENT EVENT On March 19, 1998, the Company entered into an agreement to repurchase 11,503,130 shares of Lawter International, Inc.'s common stock held by the estate of Daniel J. Terra, at a price of $11.375 per share. The agreement calls for the closing of this transaction April 17, 1998. The repurchase will be financed by a combination of debt and cash on hand. 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, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, 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 9, 1998 (Except with respect to the matter discussed in Note 10, as to which the date is March 19, 1998.) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated February 9, 1998 (except with respect to the matter discussed in Note 10, as to which the date is March 19, 1998), 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, 1997, into the Company's previously filed Registration Statements on Forms S-3 (File No. 33-24165), S-8 (File No. 33-24859), S-8 (File No. 33-61506) and S-8 (File No. 2-84421). /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Chicago, Illinois, March 24, 1998 26 LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (in thousands)
ALLOWANCES FOR DOUBTFUL ACCOUNTS 1997 1996 1995 - ----------------------------------------------------------------------------------------- --------- --------- --------- Balance at beginning of year............................................................. $ 743 $ 636 $ 415 Additions (credited)/charged to earnings............................................... (102) 166 327 Additions/(deductions) for accounts written off, net of recoveries..................... (151) (59) (106) --------- --------- --------- Balance at end of year................................................................... $ 490 $ 743 $ 636 --------- --------- --------- --------- --------- ---------
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, 1998 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, 1998 Richard D. Nordman, March 24, 1998 Director Director /s/ ARTHUR A. HARTMAN /s/ JOHN P. O'MAHONEY - -------------------------------------------- -------------------------------------------- Arthur A. Hartman, March 24, 1998 John P. O'Mahoney, March 24, 1998 Director Director /s/ JOHN P. JILEK /s/ FRED G. STEINGRABER - -------------------------------------------- -------------------------------------------- John P. Jilek, March 24, 1998 Fred G. Steingraber, March 24, 1998 Director Director /s/ LEONARD P. JUDY - -------------------------------------------- Leonard P. Judy, March 24, 1998 Director
Registrant's 1997 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.E 2 AMENDMENT TO 1992 NON-QUALIFIED STOCK OPTION PLAN Exhibit 10(e) LAWTER INTERNATIONAL, INC. AMENDMENT TO 1992 NON-QUALIFIED STOCK OPTION PLAN Pursuant to a resolution duly adopted by the Board of Directors of Lawter International, Inc. (the "Company") on February 14, 1995, the Company's 1992 Non-Qualified Stock Option Plan (the "Plan") is hereby amended as follows, subject to approval of this amendment (the "Amendment") by the Company's stockholders. 1. The first sentence of Section 6 of the Plan is hereby amended to read in its entirety as follows: "Any option granted under the Plan (including options granted prior to February 14, 1995) shall be exercisable in whole or in part only after the date of the latest of the following events: (a) one year after date of grant, or (b) upon the lapse of such additional period or periods of time as the Committee in its sole discretion may provide upon the granting thereof; provided that no such option may be exercisable alter the expiration of ten years from the date on which such option was granted." 2. The fourth sentence of Section 13 of the Plan is hereby amended to read in its entirety as follows: "The Board of Directors of the Company may amend or discontinue the Plan as it may deem proper and in the best interests of the Company, provided that no such amendment or discontinuance shall affect or impair options previously granted under the Plan without the consent of the optionee, and provided further that (i) the total number of shares which may be purchased under the Plan shall not be increased (except as provided in Section 11 hereof) and (ii) the option price specified in Section 5 hereof shall not be decreased (except as provided in Section 11 hereof); provided, however, that the Plan may not be amended more than once every six months, other than to comply with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder." This Amendment shall be deemed to have become effective on February 14, 1995 if it is approved by the affirmative vote of the holders of a majority of the voting stock of the Company voting in person or by proxy at a duly held stockholders' meeting. Adopted by the Board of Directors of the Company on February 14, 1995 LAWTER INTERNATIONAL, INC. AMENDMENT TO 1992 NON-QUALIFIED STOCK OPTION PLAN Pursuant to a resolution duly adopted by the Board of Directors of Lawter International, Inc. (the "Company") on February 14, 1995, the Company's 1992 Non-Qualified Stock Option Plan (the "Plan") is hereby amended as follows, subject to approval of the 1995 Non-Qualified Stock Option Plan for Non-Employee Directors (the "Directors Plan") by the Company's stockholders. 1. Section 4.1 of the Plan is hereby amended to read in its entirety as follows: "4.1 ELIGIBILITY Options may be granted under the Plan only to persons who are officers, directors or key employees of the Company or of a subsidiary of the Company; provided that directors who are not employees, officers, or executive officers of the Company or a subsidiary of the Company shall not be eligible to receive options under the Plan on or after February 14, 1995." 2. Section 4.2 of the Plan is hereby amended to read in its entirety as follows: "4.2 DIRECTORS Options granted under the Plan to non-employee directors prior to February 14, 1995 shall remain outstanding in accordance with the terms of the Plan. Such options shall be exercisable in accordance with Section 7 hereof and shall be subject to the provisions of the Plan. A person receiving an option as a director shall not be subject to the termination provisions of Section 9 if, having ceased to be a director he or she immediately becomes an employee or consultant of the Company or a subsidiary of the Company, in which case termination shall occur thereunder when he or she ceases to be an employee or consultant." This Amendment shall be deemed to have become effective on February 14, 1995 if the Directors Plan is approved by the affirmative vote of the holders of a majority of the voting stock of the Company voting in person or by proxy at a duly held stockholders' meeting. Adopted by the Board of Directors of the Company on February 14, 1995 EX-10.F 3 AMENDMENT TO 1992 NON-QUALIFIED STOCK OPTION PLAN Exhibit 10(f) LAWTER INTERNATIONAL, INC. AMENDMENT TO 1992 NON-QUALIFIED STOCK OPTION PLAN Pursuant to a resolution duly adopted by the Board of Directors of Lawter International, Inc. (the "Company") on February 18, 1997, the Company's 1992 Non-Qualified Stock Option Plan (the "Plan") is hereby amended as follows, subject to approval by the Company's stockholders. 1. Section 4 of the Plan is hereby amended by the addition of a new paragraph 4.4 to read as follows: "4.4 LIMIT ON GRANTS Anything else contained herein to the contrary notwithstanding, no person shall be granted options for more than 300,000 shares in any calendar year commencing with 1997, provided that this provision shall not apply to grants of options in 1997 prior to the first date in 1997 on which a meeting of the Company's stockholders is held at which directors are to be elected." 2. Section 8 of the Plan is hereby amended to read in its entirety as follows: "8. LIMIT ON TRANSFER OF OPTIONS An optionee may transfer options granted under this Plan to his spouse, his descendants or their spouses (including descendants by adoption), or a trust for any of the foregoing. Any such transfer shall be made by written assignment, shall not be effective until written notice thereof is actually received by the Company, and shall be subject to such conditions as the Committee may require. If any option is so transferred, the transferee shall have the right to exercise the option and to purchase the Common Stock, but all other provisions of this Plan (including specifically Sections 9 and 10 and the second paragraph of Section 7) shall be applied as if the optionee still owned the option. Except as otherwise specifically provided in this Section 8, an option granted under the Plan shall be exercisable during the life of the optionee only by the optionee, and shall not be transferable by the optionee (or any transferee) other than by will or the laws of descend and distribution." Adopted by the Board of Directors of the Company on February 18, 1997 EX-10.H 4 AMENDMENT TO 1995 NON-QUALIFIED STOCK OPTION PLAN Exhibit 10(h) LAWTER INTERNATIONAL, INC. AMENDMENT TO 1995 NON-QUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS Pursuant to a resolution duly adopted by the Board of Directors of Lawter International, Inc. (the "Company") on February 18, 1997, the Company's 1995 Non-Qualified Stock Option Plan for Non-Employee Directors (the "Plan") is hereby amended as follows, subject to approval by the Company's stockholders. 1. The first paragraph of Section 3 of the Plan is hereby amended to read in its entirety as follows: Each director of the Company who is eligible to be granted an option under the Plan shall receive an automatic grant of options for 15,000 shares upon his or her initial election by the stockholders as a director of the Company and shall receive one additional automatic grant of options for 15,000 shares upon his or her next election as a director of the Company. Each director of the Company who has received options pursuant to the preceding sentence shall thereafter receive an automatic grant of options for 5,000 shares the third and each subsequent time he or she is elected a director by the stockholders. Each of the incumbent directors in office on February 14, 1995 shall receive on that date, subject to stockholder approval of this Plan, a one-time grant of options for 30,000 shares. Each option shall entitle the holder thereof to purchase a total of one share of the Common Stock of the Company. The aggregate number of shares which shall be available for such options under this Plan shall be 300,000 shares. Such number of shares, and the number of shares subject to options outstanding under the Plan, shall be subject to adjustment as provided in Paragraph 9. No option shall be granted under the Plan subsequent to February 13, 2005. Options granted under the plan are intended not to be treated as incentive stock options as defined in Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Section 8 of the Plan is hereby amended to read in its entirety as follows: "8. LIMIT ON TRANSFER OF OPTIONS An optionee may transfer options granted under this Plan to his spouse, his descendants or their spouses (including descendants by adoption), or a trust for any of the foregoing. Any such transfer shall be made by written assignment, shall not be effective until written notice thereof is actually received by the Company, and shall be subject to such conditions as the Committee may require. If any option is so transferred, the transferee shall have the right to exercise the option and to purchase the Common Stock, but all other provisions of this Plan (including specifically Section 7 and the third paragraph of Section 6) shall be applied as if the optionee still owned the option. Except as otherwise specifically provided in this Section 8, an option granted under the Plan shall be exercisable during the life of the optionee only by the optionee, and shall not be transferable by the optionee (or any transferee) other than by will or the laws of descent and distribution." Adopted by the Board of Directors of the Company on February 18, 1997 EX-10.I 5 EMPLOYMENT AGREEMENT WITH LAVVTER INTL Exhibit 10(i) EMPLOYMENT AGREEMENT This Agreement (the "Agreement") is made and entered into as of January 1, 1997, between LAVVTER INTERNATIONAL, INC., a Delaware corporation, (the "Company"), and LUDWIG P. HORN (the "Employee"). 1. POSITION AND DUTIES. The Employee shall have the title and position of Vice President, Ink Vehicle Research/Development. The Employee shall devote his full working time and creative energies to the performance of his duties hereunder and will, at all times, devote such additional time and efforts as are reasonably sufficient for fulfilling the significant responsibilities entrusted to him. 2. PERIOD OF CONTRACT EMPLOYMENT. The term "Period of Contract Employment," as used in this Agreement, means the period beginning on January 1, 1997 and ending on the earlier of (a) twelve (12) months from the commencement of employment or (b) termination of the Employee's employment with the Company pursuant to Section 6 herein. This Agreement shall automatically be renewed for a like term unless written notice of termination is given as provided herein at least thirty (30) days prior to the termination of the Period of Contract Employment. 3. ANNUAL BASE SALARY. During the Period of Contract Employment, the Company agrees to pay the Employee a base salary (the "Base Salary") in the annual amount of One Hundred Ten Thousand Dollars ($110,000.00). The Base Salary shall be payable as current salary, subject to all applicable withholding and deductions, in installments in accordance with the Company's customary payroll practices. The Base Salary may be increased at the sole discretion of the Company. 4. BONUS COMPENSATION. Upon and in consideration of Employee executing and agreeing to this Employment Agreement and the covenants and obligations hereunder, the Company shall pay the Employee a signing bonus of Ten Thousand Dollars ($10,000.00), less withholding and deductions as required by law. The bonus shall be paid at the first regular payroll period after the execution of this Agreement. 5. BENEFITS. During the Period of Contract Employment, the Employee shall be entitled to participate in or received benefits equivalent to any employee benefit plan or other arrangement, including but not limited to any medical, dental, retirement, disability, life insurance and sick leave, generally made available by the Company to its employees, subject to or on a basis consistent with the terms, conditions, eligibility requirements and overall administration of such plans or arrangements; PROVIDED, that such plans and arrangements are made available at the discretion of the Company and noting in this Agreement establishes any right of the Employee to the availability of, eligibility for or continuance of any such plan or arrangement. 6. TERMINATION BY THE COMPANY. The Company may terminate the Employee's employment hereunder with or without due cause at any time during the Period of Contract Employment by giving written notice ("Termination Notice") to the Employee. Such termination shall become effective upon the date specified in the Termination Notice (the "date of termination"). (a) In the event such termination is without due cause and provided that the Employee shall have executed and delivered to the Company a General Release in a mutually agreeable form and the termination is not pursuant to subsections (b), (c) or (d) of this Section, the Employee shall be entitled to: (i) payment of all earned but unpaid Base Salary, and vacation pay through the date of termination, payable in a lump sum within five (5) days after the date of termination; (ii) payment of an amount equal to the Base Salary the Employee would have earned during the unfulfilled remainder of the Period of Contract Employment (the "Severance Period"), payable in equal installments over the Severance Period in accordance with the Company's customary payroll practices provided the Employee is not in violation of Sections 8 through 12 of this Agreement and provided further that the Employee shall have executed and delivered to the Company a General Release in a mutually agreeable form; (iii) rights and benefits of the Employee under the benefit plans and programs of the Company, or which are paid by the Company, shall be determined in accordance with the provisions of such plans and programs; and (iv) upon the termination of his employment by the Company under this subsection (a), the Employee shall have no right to compensation except as set forth in this subsection of this Agreement. (b) The employment of the Employee may be terminated by the Company at any time for Due Cause (as hereinafter defined). In the event of such termination, the Company shall pay to the Employee his Base Salary and any unused vacation accrued to the date of such termination and -not theretofore paid to the Employee. Rights and benefits of the Employee under the benefit plans and programs of the Company, or which are paid by the Company, shall be determined in accordance with the provisions of such plans and programs. For purposes hereof, "Due Cause" shall mean (a) the Employee's gross neglect or willful misconduct in the discharge of his duties and responsibilities; (b) the Employee's failure to obey appropriate written directions from his Manager; (c) any willful or purposeful act (or any act or omission taken in bad faith) of the Employee having the effect of injuring the Company; (d) the Employee's conviction for a felony or for any other crime; (e) the Employee's breach of his duty of loyalty to the Company which breach has the effect of injuring the Company; (D a final determination by a court or governmental agency that the Employee failed to comply with an applicable law, ordinance, rule or regulation materially affecting the Company for which the Employee, was directly responsible; or (g) the breach of any term or provision of this Agreement by the Employee. (c) In the event of the death of the Employee, the Company shall pay to the estate or other legal representative of the Employee the Base Salary and any unused vacation accrued to the date of death and not theretofore paid to the Employee. Rights and benefits of the estate or other legal representative of the Employee under the benefit plans and programs of the Company, or which are paid by the Company, shall be determined in accordance with the provision of said plans and programs. Neither the estate or other legal representative of the Employee shall have any further rights or obligations under this Agreement. (d) If the Employee shall become incapacitated by reason of physical or mental disability (as defined in the Regulations of the Social Security Administration in effect from time to time) and/or shall fail to perform his normal duties for the Company for a cumulative period of twelve (12) weeks in any period of twelve (12) consecutive months, the employment of the Employee may be terminated by the Company or the Employee upon notice to the other. The parties agree that in such event, the Employee shall not be considered as a Qualified Individual with a Disability under the Americans With Disabilities Act. In the event of such termination, the Company shall pay to the Employee his Base Salary and any unused vacation accrued to the date of such termination and not theretofore paid to the Employee. Rights and benefits of the Employee under the benefit plans and programs of the Company, or which are paid by the Company, shall be determined in accordance with the provisions of such plans and programs. Neither the Employee nor the Company shall have any further rights or obligations under this Agreement, except as provided in Sections 8 through 16 of this Agreement. 7. TERMINATION BY THE EMPLOYEE. The Employee may terminate his employment with the Company by giving a Termination Notice to the Company. Such termination will become effective upon the date specified in the Termination Notice (the "Effective Date") and provided that the Effective Date is at least thirty (30) days after the date of the Termination Notice. In the event that the Employee. delivers a Termination Notice to the Company, the Employee shall be entitled to payment of all earned but unpaid Base Salary, and vacation pay through the Effective Date, payable in a lump sum within fifteen (15) days after the Effective Date. 8. CONFIDENTIAL INFORMATION AND PROPRIETARY DATA. a. The term "Confidential Information" means information and data not generally known outside the Company (unless as a result of a breach by the Employee or others of any of the obligations imposed by this Agreement or a similar agreement or legal duty) Company's computer programs, methods, processes, formulas, inventions, customer lists, procedures, confidential management information, strategic plans, management reports, information concerning pending transactions, confidential personnel information, confidential financial information and other confidential and proprietary information belonging to the Company or relating to the Company's customers. b. Except as otherwise herein provided, the Employee agrees that during the Period of Contract Employment, and thereafter, the Employee will hold in strictest confidence and will not use or disclose to any person, firm, entity, partnership or corporation, without the written authorization of the President of the Company, or use for his own benefit or the benefit of any person, firm, entity, partnership or corporation any of the Company's Confidential Information, except as such use or disclosure may be required in connection with the Employee's work for the Company. The Employee understands that this agreement applies to computerized as well as written information. It is expressly understood, however, that the obligations of this Section shall only apply for as long as and to the extent that the aforesaid Confidential Information has not become generally known to or available for use by the public other than by the Employee's act or omission or a breach by another person of a legal duty or obligation. c. The Employee agrees that he has no proprietary interest in the Company's Confidential Information, and that he will not take any Confidential Information that is in written, computerized, machine readable, model, sample, or other form capable of physical delivery, upon or after termination of employment with the Company, without the prior written consent of the Company. The Employee agrees that upon termination of employment with the Company, he shall deliver promptly and return to the Company all such materials, along with all other property, brochures, lists, supplies, property, and documents of the Company or relating to its customers and prospective customers, in his possession or control. 9. NON-SOLICITATION OF COMPANY'S CUSTOMERS AND PROSPECTIVE CUSTOMERS. The Employee agrees that during the term of his employment with the Company and for a period of two (2) years after the termination of such employment, he will not, for himself, or as an employee or otherwise, directly or indirectly, solicit or transact business with any customer of the Company for services which are provided by the Company and which was a customer of the Company which the Employee had contact with during his last twelve (12) months of employment or about which the Company developed Confidential Information during his last twelve (12) months of employment with the Company. The Employee also agrees that during the Period of Contract Employment with the Company and for a period of two (2) years after the termination of such employment, he will not for himself or as an employee, consultant or otherwise, directly or indirectly, solicit for sales or services or transact any business with any prospective customer of the Company which was a prospective customer of the Company, and with which he had contact with during his last twelve (12) months of employment or about which he obtained Confidential Information during the last twelve (12) months of his employment with the Company. 10. NON-COMPETITION. The Employee further agrees that during and for a period of two (2) years after the Period of Contract Employment with the Company, regardless of reason, whether the termination is initiated or brought about by the Employee, by the Company, or otherwise, unless such termination is caused by the Company ceasing to do business, the Employee absolutely and unconditionally agrees that he will not directly or indirectly, either for his own account or for the benefit of any person or entity, engage in competitive activities with the Company. 'Competitive activities with the Company" shall include but not be limited to, being a director, officer, stockholder (except the Employee may purchase shares in a publicly traded company not to exceed five percent (5%) of the issued and outstanding shares of the publicly traded company), agent, representative, consultant, officer or employee of a partnership, sole proprietor, or any other entity which is engaged in the manufacture and sale of chemical resins, ink vehicles and other products manufactured by the Company. 11. NON-SOLICITATION OF EMPLOYEES. During the period of this Agreement and for a period of twelve (12) months thereafter, the Employee agrees to refrain from directly or indirectly soliciting, inducing, persuading or assisting the Company's employees, agents or representatives from leaving their employment or relationship with the Company. 12. NOTIFICATION OF EMPLOYMENT. For a period of two (2) years after termination of this Agreement, or for a period of two (2) years after the end of the Employee's association with the Company, whichever is later, Employee shall inform any prospective new employer, principal, or associate which is or is seeking to become engaged in the same or similar business as the Company of the existence of this Agreement and provide same with a copy of this Agreement prior to accepting any employment or entering into any business relationship. 13. DISCLOSURE OF INTELLECTUAL PROPERTIES. Employee will make prompt and full disclosure to the Company or to its designated representatives of any and all intellectual property acquired during the period of his employment by the Company, including technological innovations, discoveries, inventions, designs, formulae, know-how, tests, performance data, processes, production methods, improvements to all such property, and all recorded material defining, describing, or illustrating all such property, whether written or not and whether stored in plain or in code form (hereinafter collectively referred to as "Intellectual Property"), whether or not patentable, copyrightable, or subject to trademark, (1) which he has made, conceived, originated, devised, discovered, invented, or developed or which he may hereafter make, conceive, originate, devise, discover, invent or develop either solely or jointly with others, during any Period of Contract Employment with the Company, whether during working hours or not, and which relate or have application to business of the general nature now or hereafter carried on or contemplated by the Company during any Period of Contract Employment and (ii) which he may make, conceive, originate, devise, discover, invent or develop during the six (6) month period following termination of his employment with the Company and which directly or indirectly relates to work initiated, conducted, observed, or contemplated during any Period of Contract Employment. Employee will not at any time, without the prior written consent of the Company, disclose any Intellectual Properties, whether or not the Intellectual Properties are patentable, copyrightable, or subject to trademark protection. 14. OWNERSHIP OF INTELLECTUAL PROPERTIES. Employee agrees that the Company shall be the sole owner of all property rights to all Intellectual Properties made, conceived, originated, devised, discovered, invented, or developed by him, either alone or with others, during his employment. Employee agrees that such Intellectual Properties are works made for hire, and further hereby assigns all of his rights therein to Company. 15. OBLIGATIONS AS TO PATENTS AND OTHER PROTECTIONS. Employee agrees to apply for Letters Patent whenever the Company, in its sole discretion and at its expense, directs him to make such application in the United States and in any or all foreign countries. Such Letters Patent shall be applied for in the Company's own name or otherwise as the Company may desire. Employee will, without charge to the Company, do what the Company deems necessary to vest in the Company the entire interest in all Intellectual Properties and to enable the Company to secure Letters Patent, copyright registrations and trademark registrations and similar protections in the United States and foreign countries. Employee agrees to and does hereby assign to the Company all Intellectual Properties, and all other similar protections which may issue whether in the United States or in such foreign countries. Employee agrees to execute and deliver without charge to the Company any documents reasonably requested by the Company in order to demonstrate or protect its ownership of or related to its protection of patent applications and similar protections for Intellectual Properties. Employee further agrees to assist the Company or its nominees in the performance of any lawful acts that the Company at is discretion deems necessary to secure proper patent, copyright, trademark, and other protection for Intellectual Properties and improvements thereon, and to vest in the Company the entire interest therein in the United States and all foreign countries, without additional compensation. Employee also agrees to assist the Company in connection with any demands, reissues, oppositions, litigation, controversy, or other actions involving Intellectual Properties, without additional compensation. 16. NO COMPANY OBLIGATIONS AS TO PATENTS AND OTHER PROPERTIES. The Company may, at its sole discretion and at its own expense, determine whether to secure legal protection for or develop its Intellectual Properties. The Company shall not be obligated hereunder to file or take any other action to protect its Intellectual Properties from infringement or copying. The filing or prosecution of any patent application, or the maintenance of any other action or protect any Intellectual Properties shall be within the exclusive discretion and under the sole control of the Company, and shall be solely at the Company's expense. Any amounts recovered thereby shall belong to the Company. 17. REMEDIES FOR BREACH. If the Employee shall breach any agreement contacted in Sections 8 through 16 of this Agreement, the Company may bring an action directly in any court of competent jurisdiction to enforce the Agreement. Such breach may render the Employee liable to the Company for damages therefor and entitle the Company to enjoin the Employee from breaching his agreements. In addition, the Company shall have the right to such event to enjoin the Employee from disclosing any confidential information concerning the Company or rendering personal services to any competing business, to enjoin any competing business from receiving the Employee or using any such confidential information and/or to enjoy any competing business from retaining or seeking to retain any other employees of the Company. 18. SEVERABILITY; ENFORCEABILITY. In the event that Sections 8, 9, 10, 11, 12, 13, 14, 15 or 16 of this Agreement or any portion thereof, should ever be adjudicated by a court of competent jurisdiction in proceedings to which the Company is a proper party to exceed the time or geographic or other limitations permitted by applicable law, then such provisions will be deemed reformed to the maximum time or geographic or other limitations permitted by applicable law, as determined by such court in such action, the parties hereby acknowledging their desire that in such event such action be taken. Without limiting the foregoing, the covenants contained herein will be construed as separate covenants covering their respective subject matters, including without limitation, with respect to (a) each of the separate cities, countries, metropolitan areas, and each other political subdivision of the United States in which any of the Company or its successors now transact any business or propose to transact business, (b) each business now conducted by the Company or its successors, and (c) the Company and its successors separately. In addition to the above, all provisions of this Agreement are severable, and the invalidity or unenforceability of any provision or provisions of this Agreement or portions or aspects thereof will not affect the validity or enforceability of any other provision, or portion of this Agreement, which will remain in full force and effect as if executed with the unenforceable or invalid provision or portion or aspect thereof modified, as set forth above. 19. GOVERNING LAW. This Agreement is being made and executed in and is intended to be performed in the Sate of Illinois and shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of Illinois, without regard to the conflict of laws principles thereof. 20. ENTIRE AGREEMENT. This Agreement comprises the entire agreement between the parties hereto relating to the subject matter hereof and, as of the date hereof, supersede, cancel and annual all previous employment agreements between the Company (and/or its predecessors) and the Employee, as the same may have been amended or modified, and any right of the Employee thereunder other than for compensation accrued thereunder as of the date hereof, and supersede, cancel and annual all other prior written and oral agreements between the Employee and the Company or any predecessor to the Company. The terms of this Agreement are intended by the parties to be final expression of their agreement with respect tot he employment of the Employee by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. This Agreement does not, however, supersede or negate the terms of the Employee Confidentiality Agreement dated December 21, 1983, between Employee and the Company, and the parties hereto reconfirm the existence and validity of such Employee Confidentiality Agreement. 21. DISPUTES. Other than an action brought under Section 17 related to Sections 8 through 16 of this Agreement, which may be brought directly in any court of competent jurisdiction, any dispute or controversy arising under, out of, in connection with or in relation to this Agreement, shall be finally determined and settled by arbitration. Arbitration shall be initiated by one party making written demand upon the other party and simultaneously filing the demand together with required fees in the office of the American Arbitration Association in Chicago, Illinois. The arbitration proceeding shall be conducted in Chicago, Illinois by a single arbitrator in accordance with the Expedited Procedures of the Employment Dispute Resolution Rules of the American Arbitration Association, except as otherwise proved herein. Except as required by the arbitrator, or applicable law, the parties shall have no obligation to comply with discovery requests made in the arbitration proceeding. The arbitration award shall be a final and binding determination of the dispute and shall be fully enforceable as an arbitration award In any court having jurisdiction and venue over such parties. The prevailing party (as determined by the arbitrator) shall be awarded by the arbitrator such party's attorney's fees and expenses in connection with such proceedings, in addition to any other relief that may be granted. The non-prevailing party (as determined by the arbitrator) shall pay the arbitrators fees and expenses. 22. NOTICES. Any notice, request, claim, demand, document and other communication hereunder to any party will be effective upon receipt (or refusal of receipt) and will be in writing and delivered personally or sent by telecopy or certified or registered mail, postage prepaid, as follows: If to the Company, addressed to the attention of its President at Lawter International, Inc.; 990 Skokie Boulevard; Northbrook, Illinois 60062; and if to the Employee, at the address set forth below under his signature; or at any other address as any party has specified by notice in writing to the other party. 23. AMENDMENTS: WAIVERS. This Agreement may not be modified, amended, or terminated except by an instrument in writing, approved by the Board and signed by the Employee and the President. By an instrument in writing similarly executed, the Employee or the Company may waive compliance BY the other party with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy or power hereunder shall preclude any other or further exercise of any other right, remedy or power provided herein or by law or in equity. 24. SUCCESSORS AND ASSIGNS. By reason of the special and unique nature of the services of the Employee hereunder, it is agreed that neither party hereto may assign any interests, rights or duties which it or he may have in this Agreement without the prior written consent of the other party, except that upon any merger, liquidation, or sale of all or substantially all of the assets of the Company to another corporation, this Agreement shall inure to the benefit of and be binding upon the Employee and the purchasing, surviving, or resulting company or corporation in the same manner and to the same extent as though such company or corporation were the Company. 25. HEADINGS. The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. 26. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 27. EFFECT OF TERMINATION. Sections 8, 9, 10, 11, 12, 13, 14, 15, 16 and 17 shall in all events survive any termination of the Employee's employment and/or the expiration of the Period of Contract Employment. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written and execution of this Agreement supersedes all prior written and/or oral agreements. LAWTER INTERNATIONAL, INC. LUDWIG P. HORN By: /s/ John P. Jilek /s/ Ludwig P. Horn ------------------------------------ --------------------------------- Address: 2619 Colbert Rd. Waukegan, IL 60085 EX-10.J 6 EMPLOYMENT AGREEMENT WITH JOHN P JILEK Exhibit 10(j) EMPLOYMENT AGREEMENT This Agreement, dated as of July 24, 1997, between Lawter International, Inc., a Delaware corporation (hereinafter referred to as the "Company"), and John P. Jilek (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 President and Chief Operating 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 President and Chief Operating 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 continence 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 occur-red 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 President and Chief Operating 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 President and Chief Operating 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 President and Chief Operating 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 President and Chief Operating Officer of the Company and have the duties and responsibilities that would normally be expected of the President and Chief Operating 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 reelected 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 no 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 ARTITRATION. 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. 15. 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: /s/ John O'Mahoney -------------------------------------- Title: Chairman and Chief Executive Officer /s/ John P. Jilek ------------------------------------------ John P. Jilek EX-13 7 EXHIBIT 13 Exhibit 13 Common Stock Prices
Quarter 1997 1996 High Low High Low First $12 3/4 11 1/4 $12 1/8 10 3/8 Second 12 5/8 10 5/8 12 1/2 10 1/2 Third 14 1/8 12 1/8 12 1/2 11 Fourth 12 1/2 10 5/8 13 11 1/8 Dividends Per Common Share Quarter 1997 1996 First $.10 $.10 Second .10 .10 Third .10 .10 Fourth .10 .10
Principal Products Lawter International, Inc. is the world's leading provider of specialty polymers used to enhance the performance of printing inks and coatings. Our products form the backbone of printing inks, and they make it possible to apply inks and coatings to paper, plastic, metal and other surfaces more quickly and accurately and with faster drying. They also make it possible for presses to 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. Our products include printing ink vehicles, slip additives and resins, as well as additives for coatings, adhesives and rubber compounding. Printing ink vehicles are fluid and gelled compositions which provide to lithographic and letterpress printing inks the ability to carry color onto a variety of printing surfaces. They influence 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 8 PRINCIPAL SUBSIDIARIES OF THE COMPANY Exhibit 21 Principal Subsidiaries of the Company (Jurisdiction of Incorporation) Lawter International FSC, Limited (Jamaica) Kingston, Jamaica Lawter International (Kallo) N.V. (Belgium) Kallo, Belgium Lawter International (Canada) Inc. (Canada) Rexdale, Ontario, Canada Lawter International Fujian Nanping PRC Limited Peoples Republic of China Dazhou, China 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 9 EXHIBIT 27
5 1,000 YEAR DEC-31-1997 DEC-31-1997 82,871 0 44,170 0 43,090 171,182 127,451 38,803 276,184 53,221 29,050 0 0 45,533 115,824 276,184 206,539 206,539 143,439 143,439 0 0 0 60,645 23,319 37,326 0 0 0 37,326 .82 .82
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