UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission File Number: 1-7558
LAWTER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-1370818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
990 Skokie Boulevard; Northbrook, Illinois 60062
(Address of principal executive offices)
(708) 498-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock $1.00 par value per share - 44,903,179 shares outstanding as
of July 29, 1994.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that disclosures are adequate to make
the information presented not misleading. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position of Lawter
International, Inc. and Subsidiaries as of June 30, 1994 and December 31, 1993
and the results of their operations for the three months ended June 30, 1994 and
1993, and the six months ended June 30, 1994 and 1993, and the statements of
cash flows for the six months ended June 30, 1994 and 1993, have been included.
It should be noted that these interim statements are based on certain annual
estimates such as the final level of LIFO inventories and the provision for
income taxes. These and other similar items may be subject to year end
adjustments. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
Lawter International, Inc. and Subsidiaries
Condensed Statements of Earnings
(Shown in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- --------
Net Sales $ 44,415 $ 42,080 $ 87,029 $ 84,150
Cost of Products Sold 30,744 29,241 60,485 58,012
-------- -------- -------- --------
$ 13,671 $ 12,839 $ 26,544 $ 26,138
Selling, General and Administrative Expenses 5,319 3,586 9,795 7,861
-------- -------- -------- --------
$ 8,352 $ 9,253 $ 16,749 $ 18,277
Investment Income 1,132 1,131 1,835 2,241
-------- -------- -------- --------
Earnings before Income Taxes and
Cumulative Effect of Accounting Change $ 9,484 $ 10,384 $ 18,584 $ 20,518
Provision for Income Taxes 2,459 2,719 4,834 5,253
-------- -------- -------- --------
Earnings before Cumulative Effect of
Accounting Change $ 7,025 $ 7,665 $ 13,750 $ 15,265
Cumulative Effect of Change in Accounting
for Income Taxes (Note 3) --- --- --- 4,025
-------- -------- -------- --------
Net Earnings $ 7,025 $ 7,665 $ 13,750 $ 19,290
======== ======== ======== ========
Earnings per Share of Common Stock: (Note 2)
Earnings before Cumulative Effect of
Accounting Change $ .16 $ .17 $ .31 $ .34
Cumulative Effect of Change in
Accounting for Income Taxes (Note 3) --- --- --- .09
-------- -------- -------- --------
Net Earnings $ .16 $ .17 $ .31 $ .43
======== ======== ======== ========
Dividends per Share of Common Stock $ .10 $ .10 $ .20 $ .20
Weighted Average Shares Outstanding 44,858 44,771 44,839 44,473
The accompanying notes to the condensed financial statements are an integral
part of these statements.
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Lawter International, Inc. and Subsidiaries
Condensed Balance Sheets
(Shown in thousands)
June 30 December 31
-------- -----------
Assets 1994 1993
- - -------- -------- --------
Current Assets
Cash $ 5,570 $ 6,701
Time Deposits 63,744 70,787
Marketable Securities 7,692 5,591
Accounts Receivable (net) 40,525 31,317
Inventories (Note 1)
Raw Materials 12,220 11,151
Finished Goods 21,513 15,102
Prepaid Expenses 2,600 1,662
-------- --------
Total Current Assets $153,864 $142,311
-------- --------
Property, Plant and Equipment $ 97,591 $ 87,856
Less Accumulated Depreciation (48,799) (43,661)
-------- --------
Net Property $ 48,792 $ 44,195
-------- --------
Investment in Affiliates $ 18,998 $ 18,077
-------- --------
Intangibles and Other Assets $ 9,207 $ 4,894
-------- --------
Total Assets $230,861 $209,477
======== ========
Liabilities and Stockholders' Equity
- - ------------------------------------
Current Liabilities
Accounts Payable and Accrued Expenses $ 28,560 $ 29,822
Short-Term Borrowings 33,358 20,044
Income Taxes Payable 9,538 8,196
-------- --------
Total Current Liabilities $ 71,456 $ 58,062
-------- --------
Deferred Income Taxes $ 36,478 $ 36,458
-------- --------
Long-Term Obligations $ 4,204 $ 4,206
-------- --------
Total Liabilities $112,138 $ 98,726
-------- --------
Stockholders' Equity
Preferred Stock (None Issued) $ --- $ ---
Common Stock 44,881 44,811
Additional Paid-in Capital 6,666 6,260
Retained Earnings 74,256 69,475
Cumulative Translation Adjustments (5,315) (6,456)
Other (1,765) (3,339)
-------- --------
Net Stockholders' Equity $118,723 $110,751
-------- --------
Total Liabilities and Equity $230,861 $209,477
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these balance sheets.
-3-
Lawter International, Inc. and Subsidiaries
Condensed Statements of Cash Flows
(Shown in thousands)
Six Months Ended June 30
---------------------------
1994 1993
-------- --------
Cash Flow from Operating Activities:
Net Earnings $ 13,750 $ 19,290
Adjustments to Reconcile Net Earnings to
Net Cash Provided/(Used) by Operating Activities-
Depreciation and Amortization 1,905 2,117
Deferred Income Taxes --- (3,937)
Undistributed Equity Income (921) (906)
Deferred Exchange Gain (Loss) (311) (1,039)
Purchase of Marketable Securities (2,298) (5,528)
Proceeds from Sales of Marketable Securities --- 3,802
Net (Gain)/Loss from Marketable Securities 198 (350)
(Increase) Decrease in Current Assets-
Accounts Receivable (4,657) (3,055)
Inventories (5,335) (578)
Prepaid Expenses (473) (127)
Increase (Decrease) in Current Liabilities-
Accounts Payable and Accrued Expenses (4,774) 77
Income Taxes Payable 1,335 2,427
Deferred Income Taxes --- (1,531)
-------- --------
Net Cash Provided/(Used) by Operating Activities $ (1,581) $ 10,662
-------- --------
Cash Flow from Investing Activities:
Expenditures for Property, Plant
& Equipment - Net $ (5,019) $ (6,203)
Loans to Officers (58) (377)
Repayment of Officers' Loans 1,633 37
Purchase of Business-Net of Cash (6,344) ---
-------- --------
Net Cash Provided/(Used) by Investing Activities $ (9,788) $ (6,543)
-------- --------
Cash Flow from Financing Activities:
Exercise of Stock Options $ 476 $ 896
Proceeds from Short-Term Borrowings 11,479 ---
Payment of Short-Term Borrowings --- (8,013)
Cash Dividends Paid (8,969) (8,948)
-------- --------
Net Cash Provided/(Used) by Financing Activities $ 2,986 $(16,065)
-------- --------
Effect of Exchange Rate Changes on Cash $ 209 $ (164)
-------- --------
Increase (Decrease) in Cash and Equivalents $ (8,174) $(12,110)
Cash and Equivalents, Beginning of Period 77,488 72,903
-------- --------
Cash and Equivalents, End of Period $ 69,314 $ 60,793
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these statements.
-4-
Lawter International, Inc. and Subsidiaries
Notes to the Condensed Financial Statements
Note 1. Inventories
At year end, the Company takes a complete physical inventory to determine
inventory values. During interim periods, the Company uses a combination of
perpetual inventory records, physical inventories and the gross profit method to
determine inventory values.
The Company values the majority of its domestic inventories at last-in, first-
out (LIFO) cost which is not in excess of net realizable value. The Company's
other inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
Because the inventory determination under the LIFO method can only be made at
the end of each fiscal year based on the inventory levels and costs at that
point, interim LIFO determinations, including that at June 30, 1994, must
necessarily be based on management's estimates of expected year end inventory
levels and costs. Such future estimates of inventory levels and prices are
subject to many forces beyond the control of management.
Note 2. Earnings per Share
Earnings per share of common stock are computed on the weighted average shares
outstanding during the respective periods. Net earnings per share would not be
materially different from reported earnings per share if all outstanding stock
options were exercised.
Note 3. Change in Accounting Principle
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS
No. 109 changed the Company's method of accounting for income taxes from the
deferred method to the asset and liability method.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity and Capital Resources
Lawter's cash and equivalents, net of short-term borrowings, decreased
$21,400,000 from $57,400,000 at December 31, 1993 to $36,000,000 at June 30,
1994. The decrease in cash and equivalents was due primarily to the purchase of
Cremona Resine, an increase in other working capital and expenditures for the
new U.S. resin facility. Lawter anticipates maintaining a strong liquid
position.
The capital expenditures planned for the near future include construction of a
new synthetic resin and printing ink vehicle facility in Europe, as well as
additions to and modernization of existing facilities elsewhere. The Company
currently anticipates using internally generated funds for the majority of these
capital expenditures.
-5-
Results of Operations
SALES. The Company's consolidated net sales increased 5.5% in the second
quarter of 1994 when compared to the second quarter of 1993. Domestic sales
volume increased 7% while average selling prices decreased 2%, resulting in a 5%
increase in domestic net sales. Reportable European net sales increased 2% as a
result of a 6% increase in sales volume, partially offset by a 3% decrease in
average exchange rates while average selling prices remained constant.
Consolidated net sales for the first six months of 1994 increased 3.4% over
consolidated net sales for the first six months of 1993. Domestic sales volume
increased 4% while average selling prices decreased 1%, resulting in a 3%
increase in domestic net sales. While European sales volume increased 6%, net
reportable European sales remained constant as the result of a 4% decrease in
average exchange rates and a 2% decrease in average selling prices.
GROSS MARGINS. Gross margins as a percent of net sales were comparable at 30.8%
and 30.5% for the quarters ended June 30, 1994 and 1993, respectively, and 30.5%
and 31.1% for the six months ended June 30, 1994 and 1993, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include net foreign transaction exchange gains/(losses)
of $(304,000) and $108,000 for the three months ended June 30, 1994 and 1993,
respectively, and $23,000 and $574,000 for the six months ended June 30, 1994
and 1993, respectively. Transaction gains and losses result mainly from the
effect of the exchange rate fluctuations on transactions of the foreign
subsidiaries which are denominated in currencies other than the subsidiaries'
functional currencies. Excluding these net transaction gains/(losses), selling,
general and administrative expenses as a percent of sales were 11.4% and 11.3%
for the three months and six months ended June 30, 1994, respectively, and 8.8%
and 10.0% for the three months and six months ended June 30, 1993, respectively.
The lower percentages in both periods of 1993 were due primarily to an $840,000
gain on the sale of two properties due to the consolidation of U.S.
manufacturing facilities.
INVESTMENT INCOME. Investment income in the first six months of 1994 decreased
from the same period in 1993 due primarily to $350,000 in gains on the sale of
marketable securities in 1993 versus a $198,000 write down of marketable
securities to the lower of cost or market in 1994.
INCOME TAXES. The effective tax rates were 25.9% and 26.2% for the three months
ended June 30, 1994 and 1993, respectively. The slightly lower effective tax
rate was principally the result of higher taxes on the disposition of U.S.
property in 1993. For the six months ended June 30, 1994 and 1993, the
effective tax rates were 26.0% and 25.6%, respectively. The higher effective
tax rate in 1994 was primarily the result of the increase in the U.S. federal
statutory tax rate from 34% to 35% which was changed in the third quarter of
1993, partially offset by the higher taxes on the disposition of U.S. property
in 1993.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES. Effective
January 1, 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS No. 109
changed the Company's method of accounting for income taxes from the deferred
method to the asset and liability method.
-6-
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On June 30, 1994, the Registrant issued a press release announcing the
acquisition of Cremona Resine SpA, attached hereto as Exhibit A.
On July 18, 1994, the Registrant issued a press release regarding an
explosion/fire at its new resin manufacturing plant located in Pleasant Prairie,
Wisconsin, attached hereto as Exhibit B.
ITEM 6. EXHIBITS
Exhibit A - Press release dated June 30, 1994.
Exhibit B - Press release dated July 18, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAWTER INTERNATIONAL, INC.
--------------------------
(Registrant)
August 5, 1994 /s/ Richard D. Nordman
- - -------------- --------------------------
Richard D. Nordman
President
August 5, 1994 /s/ William S. Russell
- - -------------- --------------------------
William S. Russell
Vice President, Finance
and Secretary
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