Market Price and Quarterly Dividend Statistics for Common Stock
MARKET PRICE DIVIDENDS
(per share) 1995 1994 1995 1994
High Low High Low
First Quarter $13 3/8 $11 1/2 $13 3/4 $11 1/4 $.10 $.10
Second Quarter 14 3/8 11 3/4 12 1/4 10 3/4 .10 .10
Third Quarter 12 1/8 10 7/8 13 1/4 10 7/8 .10 .10
Fourth Quarter 12 10 1/4 13 1/4 11 .10 .10
Total Year $.40 $.40
The common stock of Lawter International, Inc. is traded on the New York Stock
Exchange (symbol, LAW). The continuation of dividend payments is expected. The
approximate number of holders of record of Lawter's common stock as of February
15, 1996 was 3,000.
-1-
General Nature and Scope of Business
Lawter is engaged predominantly in a single industry - specialty chemicals. The
primary products produced and marketed by the Company within this industry
consist of: (1) printing ink vehicles and slip additives; (2) synthetic and
hydrocarbon resins; and (3) fluorescent pigments and coatings, and thermographic
compounds. In addition, the Company produces thermographic and rota-matic
machines.
Printing ink vehicles are fluid and gelled compositions which provide to
lithographic and letterpress printing inks the ability to carry color onto a
variety of printing surfaces. They influence printing quality, gloss, drying
speed, adhesion, rub resistance and press speed. Slip additives are used in
printing inks to provide additional surface slip and rub resistance to the ink
film. These products are sold to printing ink manufacturers.
Synthetic and hydrocarbon resins are used in the production of adhesives, liquid
printing inks and printing ink vehicles, rubber compounds, paints and various
coatings to improve durability, chemical resistance, appearance, adhesion and
speed of drying.
Fluorescent pigments and coatings are used in the manufacture of paints,
printing inks, paper coatings, plastic products, rubber compounds, textile inks
and other products where striking color properties are desired. Such fluorescent
products are used for greater visibility in safety marking applications. They
are also used in display advertising and in the plastic industry in toys and
bottles.
Thermographic machines and compounds are used in the production of thermographic
printing, a process which produces raised printing. Rota-matic machines are used
to cut, score or perforate paper products. The thermographic printing process
and rota-matic machines are used in the manufacture of greeting cards, specialty
printing, business cards, stationery and advertising material.
No material part of the business of the Company is dependent upon a single
product for any customer or a small group of customers.
Operating Results By Quarters (Unaudited)
(in thousands, except per share figures)
Gross Net Earnings/(Loss)
1994 Net Sales Profit Amount Per Share
March 31 $ 42,614 $12,873 $ 6,725 $0.15
June 30 44,415 13,671 7,025 0.16
September 30 48,844 14,522 7,655 0.17
December 31 55,183 15,096 8,000 0.18
$191,056 $56,162 $29,405 $0.66
1995
March 31 $ 52,489 $14,997 $ 8,090 $0.18
June 30 50,009 13,319 7,050 0.16
September 30 50,971 13,172 7,155 0.16
December 31(1) 51,366 705 (6,017) (0.14)
$204,835 $42,193 $16,278 $0.36
(1) Fourth quarter earnings were reduced by restructuring and other charges. See
Note 5 to the consolidated financial statements and Management's Discussion and
Analysis.
-4-
Sales by Product Group
(percent of net sales) 1995 1994 1993
Printing Ink Vehicles and Slip Additives 44.7 47.5 47.0
Synthetic and Hydrocarbon Resins 50.2 46.7 46.7
Other 5.1 5.8 6.3
-5-
Management's Discussion and Analysis
Liquidity and Capital Resources
Lawter's cash and equivalents, net of short-term borrowings, decreased
$24,600,000 from $48,300,000 at December 31, 1994 to $23,700,000 at December 31,
1995. The decrease was due primarily to expenditures for the new synthetic resin
and printing ink vehicle facility in Europe along with an increase in inventory
of some important raw materials due to a tightening of their supply. The
Company generally relies upon internally generated funds from operations to
satisfy working capital requirements and to fund capital expenditures. However,
in certain circumstances, the Company finds it is more advantageous to borrow
funds on a short-term basis to satisfy these requirements. Lawter anticipates
maintaining a strong liquid position.
In 1995, the Company used external financing in connection with the new
manufacturing facility in Europe. In 1994, the majority of Lawter's capital
expansion program was financed with internally generated funds. In 1993, the
Company used external financing in connection with the new U.S. manufacturing
facility. Capital expenditures for 1995 were budgeted at $17,000,000. Actual
expenditures were fifty-three percent higher than budgeted due primarily to the
new manufacturing facility in Europe being constructed faster than anticipated
along with various equipment additions and replacements made which were required
during the year and not included in the original budget. Lawter's capital
expenditures for 1996 are estimated at $21,500,000. These expenditures include
the completion of a multi-year project for the new polymer facility in Europe as
well as additions to and modernization of existing facilities elsewhere. The
Company currently anticipates using externally generated funds for the majority
of these capital expenditures since it is more cost effective than using
internally generated funds.
Results of Operations
Net Sales. The Company's consolidated net sales increased 7% in 1995 when
compared to 1994. Domestic average selling prices increased 3%, while sales
volume decreased 7%, resulting in a 4% decrease in domestic net sales.
Reportable European net sales increased 25% as a result of a 5% increase from
the sales of Cremona Resine during the first six months of 1995 (the acquisition
took place on June 30, 1994), a 5% increase in sales volume, an 8% increase
caused by higher exchange rates and a 6% increase in average selling prices.
Consolidated net sales increased 11% in 1994 when compared to 1993. Domestic
net sales increased 6% due entirely to higher sales volume. Reportable European
net sales, which included the sales of Cremona Resine since the date of its
acquisition on June 30, 1994, increased 16% as a result of a 20% increase in
sales volume and a 2% increase in average exchange rates, partially offset by a
5% decrease in average selling prices due to product mix. Excluding Cremona
Resine sales, the European sales volume would have shown an increase of 13% and
average selling prices a decrease of 3% due to product mix.
Gross Margins. Gross margins as a percent of sales were 20.6%, 29.4% and 25.4%
for 1995, 1994 and 1993, respectively. The 1995 gross margin was decreased by
$5,658,000 in restructuring charges and $4,303,000 in other charges. During the
fourth quarter of 1995, the Company made a detailed review of all of its
manufacturing facilities and determined that certain facilities would be closed
and others would have their production reduced because of the Company's new
manufacturing facilities. As a result, a restructuring charge was recorded for
the consolidating of manufacturing facilities, primarily in Europe, which will
be incurred in conjunction with the completion of the new manufacturing facility
in Europe in 1996. This restructuring charge should result in reduced
manufacturing costs in the future. Other charges include: 1) Write down of
inventory to net realizable value - $1,368,000. 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 decomissioned
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) Other
smaller items - $600,000. Excluding the above charges, the gross margin for 1995
would have been 25.5%. The lower gross margin for 1995 when compared to 1994,
excluding the above charges, was caused principally by higher raw material costs
not fully offset by selling price increases, LIFO inventory adjustments and the
startup costs associated with the new U.S. resin plant. The 1993 gross margin
was lower than 1994 due mainly to the following charges. 1) Voluntary waste
disposal - $3,405,000. These charges were due to the Company evaluating its
current onsite incineration cost and efficiency versus the cost of offsite waste
disposal. During the fourth quarter of 1993, a decision was made to transition
waste disposal to an approved offsite landfill. 2) Refurbishing and cleaning
waste water treatment facilities - $3,145,000. These charges were due to a
detailed review made of these facilities during the fourth quarter of 1993 which
disclosed that they were not as effective as desired. At that time, a decision
was made to refurbish and clean these facilities. 3) Inventory obsolescence -
$1,000,000. These charges were due to a review made during the fourth quarter of
1993 which disclosed that certain inventory was not reworkable and would have
to be disposed. 4) Disputed utility charges -$865,000.
-6-
This was due to a dispute on utility meter readings at one location. 5) Other
smaller items -$350,000. There was no material beneficial or adverse effect to
future operations as a result of these charges. Excluding the above charges, the
gross margin for 1993 would have been 30.5%. The lower gross margin in 1994 when
compared to 1993, excluding the above charges, was caused primarily by higher
raw material costs not fully offset by selling price increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include foreign transaction exchange gains/(losses) of
$169,000 in 1995, $(85,000) in 1994 and $411,000 in 1993. These transaction
gains and losses result mainly from the effect of the foreign exchange rate
fluctuations on transactions of the foreign subsidiaries that are denominated in
currencies other than the subsidiaries' functional currencies. Excluding these
transaction gains and losses, selling, general and administrative expenses as a
percent of sales were 12.4%, 10.9% and 11.1% in 1995, 1994 and 1993,
respectively. Also included in the 1995 selling, general and administrative
expenses are restructuring costs of $2,791,000 and various other charges of
$900,000 which include employees relocation costs, adjustments to the allowance
for doubtful accounts receivable and other smaller items. The restructuring
costs are for personnel redundancy, primarily in Europe, which is part of the
restructuring plan implemented in the fourth quarter of 1995 to streamline
operations with consolidation of the European facilities. These charges should
result in reduced operating costs in the future. Excluding these charges,
selling, general and administrative expenses as a percent of sales would have
been 10.6%. When compared to 1994 and 1993, the lower percentage in 1995
excluding these charges resulted primarily from sales increasing at a higher
rate than general and administrative expenses.
Investment Income. Investment income increased in 1995 when compared to 1994 due
primarily to $2,002,000 in net gains on marketable securities in 1995 compared
to $349,000 in net losses in 1994 along with increased equity earnings in Hach
Company, partially offset by increased interest expense from borrowings to
finance the new plant in Europe and to satisfy U.S. working capital
requirements. Investment income in 1994 increased slightly when compared to
1993 principally as a result of higher interest rates and increased equity
earnings from the investment in Hach Company offset by $349,000 in net losses on
the sales of marketable securities in 1994 versus $929,000 in realized gains on
the sales of marketable securities offset by a $513,000 write down of marketable
securities to market in 1993.
Income Taxes. The effective tax rates for 1995, 1994 and 1993 were 29.9%, 25.9%
and 96.6%, respectively. The higher effective tax rate in 1995 when compared to
1994 was primarily the result of lower foreign earnings, caused by the charges
mentioned above, which are taxed at a lower rate. The 1993 tax provision
includes an additional U.S. tax provision of $21,600,000 for future repatriation
of foreign earnings as more fully described in Note 4 to the consolidated
financial statements. Excluding this additional provision, the 1993 effective
tax rate would have been 23.3%. This rate was lower than the 1994 rate primarily
as a result of lower domestic earnings, caused by the charges mentioned above,
which have a higher tax rate and also higher foreign earnings which have a lower
tax rate.
Cumulative Effect of Change in Accounting for Income Taxes. Effective January 1,
1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." The adoption of SFAS No. 109 changed the
Company's method of accounting for income taxes from the deferred method to the
asset and liability method.
Other Matters. In July 1994, there was an explosion/fire in the warehouse at the
new U.S. resin facility. This new resin plant was designed to include the
production of a group of new synthetic resins. The accident delayed the
introduction of these new products. The Company is adequately insured and,
therefore, no significant costs related to the accident were reflected in
earnings. This facility continues to increase its production rate in line with
expectations.
Effects of Inflation. The Company attempts to minimize the effects of inflation
on sales and earnings by appropriately increasing selling prices and pursuing
ongoing cost control programs and productivity improvements. The effects of
inflation were minimized through increased manufacturing efficiencies and cost
controls in 1993. During 1994 and 1995, there was a tightening of supply of some
important raw materials and their prices increased. These increases have been
difficult to fully pass on, in a timely fashion, to Lawter customers. It is felt
by management that, as in the past, the Company's new concepts and new products
should help stabilize the conditions that have been experienced.
Looking Forward. Lawter management believes that prospects for the Company's
growth of future sales and earnings are promising. While our markets continue
to be highly competitive, continued emphasis on research and development, and
cost effective utilization of our new production facilities, combined with the
present program of streamlining operations, will position the Company for both
medium and long-term gains in our strategic markets.
-7-
Ten Year Financial Summary
(in thousands, except per share figures)
Years Ended December 31 1995(1) 1994(1) 1993(1) 1992 1991
Net Sales $204,835 $191,056 $172,249 $167,568 $152,893
Gross Profit 42,193 56,162 43,833 51,395 48,396
Selling, General and Administrative Expenses 25,154 20,970 18,700 20,103 18,254
Operating Income 17,039 35,192 25,133 31,292 30,142
Investment Income 6,170 4,470 4,318 5,271 6,221
Earnings Before Income Taxes and Cumulative Effect of
Accounting Change 23,209 39,662 29,451 36,563 36,363
Provision for Income Taxes 6,931 10,257 28,449(5) 9,548 9,893
Earnings Before Cumulative Effect of Accounting Change 16,278 29,405 1,002 27,015 26,470
Cumulative Effect of Change in Accounting for
Income Taxes --- --- 4,025(4) --- ---
Net Earnings $ 16,278 $ 29,405 $ 5,027 $ 27,015 $ 26,470
Depreciation and Amortization $ 5,447 $ 4,344 $ 4,291 $ 4,179 $ 3,900
Cash Provided by Operating Activities 13,766 23,047 23,811 34,440 23,192
Cash Dividends 17,989 17,951 17,909 17,556 14,947
Capital Expenditures, net 21,928 10,613 12,940 7,548 8,902
Gross Property, Plant and Equipment 126,406 102,788 87,856 78,491 74,022
Net Working Capital 67,894 85,601 84,249 93,079 86,448
Total Assets 261,474 231,827 209,477 187,334 178,218
Long-Term Obligations 4,100 4,152 4,206 4,858 5,238
Stockholders' Equity 129,361 127,793 110,751 126,656 116,688
Average Shares Outstanding(2) 45,018 44,874 44,772 43,913 43,318
Earnings per Share(2):
Earnings Before Cumulative Effect of
Accounting Change $ .36 $ .66 $ .02 $ .62 $ .61
Cumulative Effect of Change in Accounting for
Income Taxes --- --- .09(4) --- ---
Net Earnings .36 .66 .11 .62 .61
Cash Dividends per Share(2) .40 .40 .40 .40 .35
Stockholders' Equity per Share(2) 2.87 2.85 2.47 2.88 2.69
Cash Dividends to Net Earnings 110.5% 61.0% 356.3% 65.0% 56.5%
Net Earnings to Year End Equity 12.6% 23.0% 4.5% 21.3% 22.7%
<FN>
(1) See Management's Discussion and Analysis for analysis of changes between years.
(2) Average shares outstanding and per share amounts are adjusted to reflect the four-for-three stock splits in 1991, 1990 and 1988.
(3) Restated to reflect the effects of SFAS No. 95 which was adopted in 1988.
(4) Represents cumulative effect on prior years' earnings of adopting SFAS No. 109 which was adopted January 1, 1993. See Note 4 to
the consolidated financial statements.
(5) Includes additional tax provision of $21.6 million for future repatriation of foreign earnings. See Note 4 to the consolidated
financial statements.
-8-
Ten Year Financial Summary
(in thousands, except per share figures)
Years Ended December 31 1990 1989 1988 1987 1986
Net Sales $150,005 $136,006 $125,818 $112,018 $103,515
Gross Profit 46,362 38,624 38,949 34,556 30,332
Selling, General and Administrative Expenses 18,682 16,122 14,751 11,960 10,631
Operating Income 27,680 22,502 24,198 22,596 19,701
Investment Income 4,963 3,929 3,173 1,952 1,175
Earnings Before Income Taxes and Cumulative Effect of
Accounting Change 32,643 26,431 27,371 24,548 20,876
Provision for Income Taxes 9,223 6,963 6,520 7,847 7,931
Earnings Before Cumulative Effect of Accounting Change 23,420 19,468 20,851 16,701 12,945
Cumulative Effect of Change in Accounting for
Income Taxes --- --- --- --- ---
Net Earnings $ 23,420 $ 19,468 $ 20,851 $ 16,701 $ 12,945
Depreciation and Amortization $ 3,521 $ 3,550 $ 3,410 $ 3,193 $ 2,908
Cash Provided by Operating Activities 34,240 20,388 15,796 22,726(3) 19,701(3)
Cash Dividends 12,582 12,561 12,403 9,820 9,791
Capital Expenditures, net 6,198 3,073 4,524 1,405(3) 1,581(3)
Gross Property, Plant and Equipment 66,271 57,421 54,282 49,503 45,560
Net Working Capital 82,560 70,200 62,807 59,719 45,087
Total Assets 153,500 133,988 125,210 109,917 93,392
Long-Term Obligations 5,137 5,083 4,810 4,682 4,738
Stockholders' Equity 105,090 87,752 79,521 69,458 55,191
Average Shares Outstanding(2) 43,011 42,940 42,267 41,673 41,444
Earnings per Share(2):
Earnings Before Cumulative Effect of
Accounting Change $ .54 $ .45 $ .49 $ .40 $ .31
Cumulative Effect of Change in Accounting for
Income Taxes --- --- --- --- ---
Net Earnings .54 .45 .49 .40 .31
Cash Dividends per Share(2) .29 .29 .29 .24 .24
Stockholders' Equity per Share(2) 2.44 2.04 1.88 1.67 1.33
Cash Dividends to Net Earnings 53.7% 64.5% 59.5% 58.8% 75.6%
Net Earnings to Year End Equity 22.3% 22.2% 26.2% 24.0% 23.5%
<FN>
(1) See Management's Discussion and Analysis of changes between years.
(2) Average shares outstanding and per share amounts are adjusted to reflect the four-for-three stock splits in 1991, 1990 and 1988.
(3) Restated to reflect the effects of SFAS No. 95 which was adopted in 1988.
(4) Represents cumulative effect on prior years' earnings of adopting SFAS No. 109 which was adopted January 1, 1993. See Note 4 to
the consolidated financial statements.
(5) Includes additional tax provision of $21.6 million for future repatriation of foreign earnings. See Note 4 to the consolidated
financial statements.
-9-
Consolidated Balance Sheets
Assets
(in thousands, except share and per share figures)
December 31 1995 1994
Current Assets:
Cash (Note 1) $ 9,865 $ 8,063
Time Deposits, Interest Bearing (Note 1) 53,815 58,724
Marketable Securities (Note 1) 6,481 4,473
Accounts Receivable - less allowance for
possible losses of $636 in 1995 and $415 in 1994 42,557 43,327
Inventories (Note 1) 45,177 32,803
Prepaid Expenses 2,222 2,739
Total Current Assets 160,117 150,129
Property, Plant and Equipment (Notes 1 and 7):
Land 7,639 2,943
Buildings 26,085 20,466
Machinery and Equipment 79,661 66,159
Construction in Progress 13,021 13,220
126,406 102,788
Less Accumulated Depreciation 55,505 50,323
Net Property, Plant and Equipment 70,901 52,465
Equity Investment (Note 6) 22,312 20,139
Other Assets (Note 1) 8,144 9,094
Total $261,474 $231,827
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
-10-
Liabilities and Stockholders' Equity
(in thousands, except share and per share figures)
December 31 1995 1994
Current Liabilities:
Accounts Payable and Accrued Expenses (Note 8) $ 44,025 $ 33,217
Short-Term Borrowings (Note 10) 39,983 18,504
Income Taxes Payable 8,215 12,807
Total Current Liabilities 92,223 64,528
Long-Term Obligations (Note 7) 4,100 4,152
Deferred Income Taxes (Note 4) 35,790 35,354
Total Liabilities 132,113 104,034
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 45,066,386 shares 45,066 44,924
Additional Paid-in Capital 8,036 6,955
Retained Earnings (Note 1) 79,218 80,929
Cumulative Translation Adjustments (Note 1) (2,914) (5,015)
Other (45) ---
Total Stockholders' Equity 129,361 127,793
Total $261,474 $231,827
The accompanying notes to the consolidated financial statements are and
integral part of these balance sheets.
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Consolidated Statements of Earnings
(in thousands, except per share figures)
Years Ended December 31 1995 1994 1993
Net Sales $204,835 $191,056 $172,249
Cost of Products Sold 162,642 134,894 128,416
Gross Profit 42,193 56,162 43,833
Selling, General and Administrative Expenses 25,154 20,970 18,700
Operating Income 17,039 35,192 25,133
Investment Income 6,170 4,470 4,318
Earnings Before Income Taxes and Cumulative
Effect of Accounting Change 23,209 39,662 29,451
Provision for Income Taxes (Notes 1 and 4) 6,931 10,257 28,449
Earnings Before Cumulative Effect of
Accounting Change 16,278 29,405 1,002
Cumulative Effect of Change in
Accounting for Income Taxes (Note 4) --- --- 4,025
Net Earnings $ 16,278 $ 29,405 $ 5,027
Earnings per Share (Note 1):
Earnings Before Cumulative Effect of
Accounting Change $ 0.36 $ 0.66 $ 0.02
Cumulative Effect of Change in
Accounting for Income Taxes (Note 4) --- --- 0.09
Net Earnings $ 0.36 $ 0.66 $ 0.11
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-12-
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31 1995 1994 1993
Cash Flow from Operating Activities:
Net Earnings $16,278 $29,405 $ 5,027
Adjustments to Reconcile Net Earnings
to Net Cash Provided by Operating Activities-
Depreciation and Amortization 5,447 4,344 4,291
Deferred Income Taxes 425 (1,130) 17,118
Undistributed Equity Income (2,236) (2,125) (1,998)
Deferred Exchange Gain (Loss) (575) (145) (524)
Purchase of Marketable Securities (3,179) (2,299) (14,214)
Proceeds from Sales of Marketable Securities 3,173 3,069 9,469
Net (Gain) Loss from Marketable Securities (2,002) 349 (416)
(Increase) Decrease in Current Assets-
Accounts Receivable 1,733 (7,658) (5,145)
Inventories (11,484) (4,345) 184
Prepaid Expenses 585 (1,112) (616)
Increase (Decrease) in Current Liabilities-
Accounts Payable and Accrued Expenses 10,180 257 11,795
Income Taxes Payable (4,579) 4,437 371
Deferred Income Taxes --- --- (1,531)
Net Cash Provided by Operating Activities 13,766 23,047 23,811
Cash Flow from Investing Activities:
Expenditures for Property, Plant
and Equipment, net (21,928) (10,613) (12,940)
Purchase of Business, net of cash --- (6,344) ---
Loans to Officers (200) (83) (436)
Repayment of Officers' Loans 155 3,422 37
Net Cash Used for Investing Activities (21,973) (13,618) (13,339)
Cash Flow from Financing Activities:
Exercise of Stock Options 1,223 808 995
Principal Payments on Long-Term Obligations (52) (54) (4,656)
Proceeds from Long-Term Borrowings --- --- 4,000
Payment of Short-Term Borrowings (1,055) (3,328) ---
Proceeds from Short-Term Borrowings 22,468 --- 12,033
Cash Dividends Paid (17,989) (17,951) (17,909)
Net Cash Provided by
(Used for) Financing Activities 4,595 (20,525) (5,537)
Effect of Exchange Rate Changes on Cash 505 395 (350)
Increase (Decrease) in Cash and Equivalents (3,107) (10,701) 4,585
Cash and Equivalents, Beginning of Year 66,787 77,488 72,903
Cash and Equivalents, End of Year $63,680 $66,787 $77,488
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-13-
Consolidated Statements of Stockholders' Equity
(in thousands, except per share figures)
Common Additional Retained Cumulative Other
Years Ended December 31, Stock Paid-in Earnings Translation
1993, 1994 and 1995 $1 Par Value Capital Adjustments
Balance, January 1, 1993 $44,682 $ 5,394 $82,357 $(2,837) $(2,940)
Add (deduct):
Net Earnings --- --- 5,027 --- ---
Cash Dividends Declared
$0.40 per share --- --- (17,909) --- ---
Exercise of Stock Options 129 866 --- --- ---
Loans to Officers (Note 3) --- --- --- --- (399)
Foreign Currency
Translation Adjustments --- --- --- (3,619) ---
Balance, December 31, 1993 44,811 6,260 69,475 (6,456) (3,339)
Add (deduct):
Net Earnings --- --- 29,405 --- ---
Cash Dividends Declared
$0.40 per share --- --- (17,951) --- ---
Exercise of Stock Options 113 695 --- --- ---
Loans to Officers (Note 3) --- --- --- --- 3,339
Foreign Currency
Translation Adjustments --- --- --- 1,441 ---
Balance, December 31, 1994 44,924 6,955 80,929 (5,015) ---
Add (deduct):
Net Earnings --- --- 16,278 --- ---
Cash Dividends Declared
$0.40 per share --- --- (17,989) --- ---
Exercise of Stock Options 142 1,081 --- --- ---
Loans to Officers (Note 3) --- --- --- --- (45)
Foreign Currency
Translation Adjustments --- --- --- 2,101 ---
Balance, December 31, 1995 $45,066 $8,036 $79,218 $(2,914) $ (45)
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-14-
Notes to the Consolidated Financial Statements
Note 1-Statement of Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include all of its wholly
owned subsidiaries. All material intercompany balances and transactions have
been eliminated in consolidation. The equity method is used for any investment
where ownership is from 20% to 50%.
Foreign Currency Translation
All assets and liabilities of operations denominated in foreign currencies are
translated at the rates of exchange in effect at the close of the year. Revenue
and expense accounts are translated at the average exchange rates which were in
effect during the year. Translation gains and losses are reported as a separate
component of stockholders' equity and are not included in net earnings.
Foreign currency transaction gains and losses continue to be an element in
determining net earnings for the period. Foreign currency transaction gains
(losses), included in selling, general and administrative expenses, were
$169,000 in 1995, $(85,000) in 1994 and $411,000 in 1993. Revenues and expenses
are also affected by fluctuations of currency rates from year to year. The
effect of these rate fluctuations in 1995 when compared to 1994 resulted in a
favorable impact on operating results in addition to the transaction gains or
losses reflected in net earnings. For 1994, the effect of rate changes when
compared to 1993 resulted in no significant impact.
Consolidated Statement of Cash Flows
The Company considers time deposits, which are highly liquid with an original
maturity of three months or less, to be cash equivalents for purposes of the
consolidated statements of cash flows. The carrying amount of cash and time
deposits approximates fair market value. The Company paid interest of $2,154,000
in 1995, $990,000 in 1994 and $925,000 in 1993.
Earnings per Share
Earnings per share of common stock are computed on the weighted average shares
outstanding during the respective years (45,018,000 shares in 1995, 44,874,000
shares in 1994 and 44,772,000 shares in 1993). Net earnings per share would not
be materially different from reported earnings per share if all outstanding
stock options were exercised.
Inventories
The majority of the Company's domestic inventories are valued at last-in, first-
out (LIFO) cost which is not in excess of net realizable value. The Company's
other inventories aggregating $24,511,000 and $19,658,000 at December 31, 1995
and 1994, 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) 1995 1994
Finished Goods $22,362 $18,437
Raw Materials 22,815 14,366
$45,177 $32,803
If the FIFO inventory valuation method had been used for all inventories, they
would have been $6,019,000 and $4,191,000 higher than reported at December 31,
1995 and 1994, respectively.
Research and Development
Research and development costs ($5,320,000 in 1995, $4,821,000 in 1994 and
$4,423,000 in 1993) 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. In the fourth quarter
of 1993, U.S. income taxes were provided on all undistributed earnings of
foreign subsidiaries (See Note 4). undistributed earnings reinvested
indefinitely in foreign subsidiaries totaled $19,174,000 at December 31, 1995.
Income taxes paid during 1995, 1994 and 1993 amounted to $9,419,000, $7,220,000
and $8,497,000, respectively.
Investments
Effective January 1, 1994, Lawter adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." At December 31, 1995 and 1994, all of Lawter's marketable
securities were classified as trading securities. Trading securities are
reported at fair value, with changes in fair value included in earnings. For the
purpose of determining realized gains and losses, the cost of securities sold is
based upon specific identification. In 1995, the net unrealized holding gain
included in income was $2,206,000. The change in net unrealized holding gain or
loss during 1994 was not material.
-15-
Intangible Assets
The excess of cost over equity in net assets of acquisitions is being amortized
on a straight line basis over periods not exceeding 40 years. Subsequent to its
acquisition, the Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful life of
goodwill may warrant revision or that the remaining balance of goodwill may not
be recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the related business
segment's undiscounted net income over the remaining life of the goodwill in
measuring whether the goodwill is recoverable.
Property
Property, plant and equipment is stated at cost. Depreciation, computed using
the straight-line method for financial statement purposes, is provided over the
useful lives of the various classes of property, plant and equipment.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions. The
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the amount of
revenues and expenses reported during the period are affected by these
assumptions and estimates. Actual results could differ from these estimates.
Note 2-Retirement Plans
The Company has contributory profit sharing plans and a non-contributory money
purchase pension plan. The majority of domestic and Canadian employees are
covered by one of these plans.
Company contributions to these plans charged to operations were $530,000 in
1995, $545,000 in 1994 and $514,000 in 1993 and are funded on a current basis.
There is no past service liability under these plans.
The Company has no material postretirement or postemployment benefit
obligations.
Note 3-Common Stock
Currently, the Company issues common stock when stock options are exercised. At
the time of exercise, officers may borrow funds from the Company in order to
exercise their stock options. These loans bear interest at the Company's
effective rate to borrow and are repayable within eighteen months. The unpaid
portion of the options exercised, evidenced by a note, has been deducted from
Stockholders' Equity in the accompanying Consolidated Balance Sheets. The par
value of the shares issued is credited to the common stock account and the
excess of the purchase price over the par value is credited to additional paid-
in capital.
Options may be granted at prices not less than the fair market value at the date
of grant. Options expire five or ten years from the date of grant and are
exercisable one year after the date of grant. A summary of changes in the stock
options is shown in the table below.
Shares
-------------------------------------
Reserved Granted Available
Balance,
January 1, 1994 3,054,866 898,666 2,156,200
Granted --- 1,101,500 (1,101,500)
Exercised (112,549) (112,549) ---
Cancelled or expired (1,286) (17,286) 16,000
Balance,
December 31, 1994 2,941,031 1,870,331 1,070,700
Authorized 300,000 --- 300,000
Granted --- 388,500 (388,500)
Exercised (142,657) (142,657) ---
Cancelled or expired (2,361) (95,861) 93,500
Balance,
December 31, 1995 3,096,013 2,020,313 1,075,700
Exercisable,
December 31, 1995 1,631,813
Additional information under the stock option plans is shown below:
Option Price
--------------------------
Number of Per
Shares Share Total
Options outstanding 2,020,313 $ 9.29 to $23,930,933
December 31, 1995 14.38
Exercised 1994 112,549 6.62 to 857,533
10.41
Exercised 1995 142,657 6.62 to 1,223,682
12.25
Became exercisable 1994 31,500 12.38 to 414,750
13.75
Became exercisable 1995 1,358,050 11.13 to 16,672,644
14.38
-16-
Note 4-Provision for Income Tax
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," as required by the
Financial Accounting Standards Board which resulted in a benefit of $4,025,000.
The adoption of SFAS No. 109 changed the Company's method of accounting for
income taxes from the deferred method to the asset and liability method.
In 1993, the Company provided taxes for past undistributed earnings of foreign
subsidiaries. The Company had, through the end of 1993, accumulated $70,500,000
of foreign earnings which were deemed permanently reinvested abroad. These
earnings have be en exempt from local taxes or taxed at rates lower than the
U.S. tax rate and no additional tax provision had been required.
At a meeting held on January 7, 1994, the Board of Directors discussed this
issue at length and determined that it was now in the best interest of the
Company to make these funds available to the U.S. parent for working capital,
capital expenditures and potential U.S. acquisitions. As a result, the Company
reported an additional charge of $21.6 million for U.S. taxes in 1993. This
charge was equivalent to 48 cents per share. The Company is not required to pay
these taxes until the funds are actually remitted to the U.S. Parent.
Pre-tax earnings were as follows:
(in thousands) 1995 1994 1993
United States $13,393 $20,188 $12,629
Foreign 9,816 19,474 16,822
$23,209 $39,662 $29,451
The provisions (benefits) for income taxes were as follows:
(in thousands) 1995 1994 1993
Currently payable:
United States:
Federal $4,082 $ 7,655 $ 4,976
State 1,060 1,083 344
Foreign 1,353 2,622 2,103
Total Current 6,495 11,360 7,423
Deferred (principally U.S.):
Excess of tax over
book depreciation 442 220 300
Undistributed earnings
of the equity investment 782 744 721
Undistributed earnings of
foreign subsidiaries (1,485) (2,917) 21,600
Environmental expenditures 138 486 (1,330)
Other 559 364 (265)
Total Deferred 436 (1,103) 21,026
$6,931 $10,257 $28,449
Temporary differences that gave rise to the deferred tax liability at December
31, 1995 were as follows:
(in thousands)
Undistributed earnings of foreign subsidiaries $28,661
Undistributed earnings of the equity investment 5,244
Excess of tax over book depreciation 3,574
Environmental expenditures (1,104)
Other (585)
$35,790
The Company's earnings from the manufacturing operation in Waterford, Ireland
were tax exempt until 1990 and will have a 10% tax rate through 2010.
The total "Provision for Income Taxes" represents an effective tax rate of 29.9%
for 1995, 25.9% for 1994 and 96.6% for 1993. The differences from the U.S.
statutory rate for 1995, 1994 and 1993 were as follows:
(in thousands) 1995 1994 1993
Computed tax provision at 35% $8,123 $13,882 $10,308
Increase (decrease) in tax provision
resulting from:
Waterford, Ireland operation (1,947) (2,604) (2,627)
Inclusion of state & local income taxes
(net of Federal income taxes) 689 679 193
Other foreign operations 1,009 (581) (533)
Undistributed earnings of foreign subsidiaries --- --- 21,600
Other (943) (1,119) (492)
Provision for Income Taxes $6,931 $10,257 $28,449
-17-
Notes to the Consolidated Financial Statements Continued
Note 5-Restructuring Charges
In December 1995, the Company implemented a restructuring plan that resulted in
a fourth quarter pretax charge of $8,449,000, of which $5,658,000 was included
in Cost of Products Sold and $2,791,000 was included in Selling, General and
Administrative Expenses. The charge was taken to cover the one-time costs of
consolidating manufacturing facilities (primarily in Europe), reduction of
personnel and disposal of certain assets. Personnel reductions have already
become effective at certain location s and should ultimately approximate 20% of
the total work force. As of December 31, 1995, $275,000 of these charges were
utilized in connection with the personnel reductions. The restructuring actions
are expected to be completed by the end of 1996. These actions are intended to
streamline operations, reduce costs and position the Company for increased
growth and profitability in the future.
Note 6-Equity Investment
At December 31, 1995, the Company owned 3,157,223 shares, representing
approximately 27% of the outstanding shares, of the Common Stock of Hach Company
(Hach). The closing price on NASDAQ at December 31, 1995 was $17.25 per share.
The investment in Hach is accounted for under the equity method. Income and
other transactions in this investment were not material to the consolidated
financial statements of the Company.
Hach is a leading international manufacturer of instruments and test kits that
analyze the chemical content and other properties of water and other aqueous
solutions. In addition, Hach sells analytical reagents which are used in
connection with the instruments and test kits.
Note 7-Long-Term Obligations
Long-term obligations were as follows:
(in thousands) 1995 1994
Series 1993-LI IDB Bond $4,000 $4,000
Series 1978-A IDB Bond 150 200
Less - Current portion in
accounts payable (50) (50)
Net long-term bonds payable 4,100 4,150
Other long-term obligations --- 2
Total long-term obligations $4,100 $4,152
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, 1995,
the fair value of Lawter's long-term obligations was not materially different
than cost.
During 1993, the Industrial Development Board of the Town of Moundville (IDB)
issued a $4,000,000, 6 3/4% Industrial Revenue Bond, Series 1993-LI. Interest is
payable semi-annually. Principal is due in six annual installments of various
amounts beginning December 1, 2006 with the final payment due December 1, 2011.
The Series 1978-A Industrial Revenue Bond was originally issued in 1978 by the
IDB for $1,000,000. Interest is payable semi-annually at 7 1/4%. Principal of
$50,000 is payable annually through 1997 with the final payment due September 1,
2003.
In connection with the issuance of these Industrial Revenue Bonds by the IDB,
the Company entered into capital lease agreements with the IDB with future
minimum lease payments sufficient to amortize the principal and interest on each
series of the Industrial Revenue Bonds.
Costs capitalized under these leases were $8,500,000 as of December 31, 1995 and
1994. The capitalized costs are being depreciated over the estimated useful
lives of the individual assets.
At December 31, 1995, the future lease payments under the capitalized leases
relating to the Industrial Revenue Bonds are as follows:
(in thousands)
1996 $ 331
1997 327
1998 270
1999 270
2000 270
Later years 6,400
Total minimum
lease payments 7,868
Less interest (3,718)
Present value of minimum
lease payments $4,150
Operating leases are not significant.
-18-
Notes to the Consolidated Financial Statements Continued
Note 8-Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses were as follows:
(in thousands) 1995 1994
Trade Accounts Payable $24,105 $19,972
Accrued Environmental Expenditures 4,313 4,838
Accrued Compensation and Benefits 4,755 2,867
Accrued Taxes, Other 2,903 1,920
Other Accrued Liabilities 7,949 3,620
$44,025 $33,217
Note 9-Segment Information
A dominant portion of Lawter's operations is in a single industry-specialty
chemicals. Within this industry, Lawter is principally engaged in the production
and marketing of printing ink vehicles, slip additives, synthetic and
hydrocarbon resins, thermographic compounds, and fluorescent pigments and
coatings.
Lawter's total business is broken down into three geographical areas: Domestic,
Europe and Other Foreign. Other Foreign includes the Company's operations in
Australia, Canada, China, Hong Kong, Japan, Singapore and Taiwan which,
individually, are not considered to be significant as defined by SFAS No. 14.
The Company sells its products to both large and small ink companies. Lawter
is a major supplier of printing ink vehicles and resins for printing inks and,
therefore, sells substantial quantities to larger ink companies around the
world. One customer whose purchases are made for a wide variety of specialized
products at multiple locations through numerous companies in various countries
approximated eighteen percent of sales in 1995, nineteen percent of sales in
1994 and eighteen percent of sales in 1993.
Transfers between geographic areas are not material. Corporate earnings before
tax is the net of investment income and corporate expenses. Identifiable assets
are those assets used exclusively in the operations of each geographic area.
Corporate assets are principally comprised of time deposits, marketable
securities, the equity investment and other assets. The contribution of European
operations to net earnings is greater than their contribution to earnings before
tax principally due to the Waterford, Ireland operation discussed in Note 4.
Information about the Company's operations for the years ended December 31,
1995, 1994 and 1993 is shown in the table below.
(in thousands) 1995 1994 1993
Net Sales:
Domestic $94,657 $98,628 $93,649
Europe 94,071 74,974 64,008
Other Foreign 16,107 17,454 14,592
Total 204,835 191,056 172,249
Earnings Before Tax:
Domestic 12,206 20,263 12,142
Europe 4,687 13,887 12,460
Other Foreign 1,959 2,746 2,260
Corporate 4,357 2,766 2,589
Total 23,209 39,662 29,451
Identifiable Assets:
Domestic 69,176 62,724 53,782
Europe 83,812 58,514 40,078
Other Foreign 17,091 17,675 15,833
Corporate 91,395 92,914 99,784
Total $261,474 $231,827 $209,477
Note 10-Commitments and Contingencies
The Company has unsecured lines of credit for borrowings of $225,000,000 at
December 31, 1995. During 1995, average borrowings were $30,765,000 against
these lines of credit and the weighted average interest rate was 6.23%. In 1994,
average borrowing s were $20,536,000 and the weighted average interest rate was
4.77%. In 1993, average borrowings were $5,442,000 and the weighted average
interest rate was 3.78%. There are no commitment fees or compensating balance
requirements relating to these lines of credit.
The Company from time to time is subject to claims brought on behalf of both
private persons and governmental agencies. Management and the Company's general
counsel are not aware of any claim where the disposition of such claim will have
a material adverse effect upon the Company's consolidated financial position.
-19-
Report of Independent Public Accountants
To the Board of Directors and Stockholders of Lawter International, Inc.:
We have audited the accompanying consolidated balance sheets of Lawter
International, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statement s 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As explained in Note 4 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois,
February 8, 1996.
-20-
Directory
International Headquarters
Lawter International, Inc.
990 Skokie Boulevard, Northbrook, Illinois 60062
(847) 498-4700, Facsimile (847) 498-0066
Principal Companies and Locations (Incorporated In)
Lawter International, Inc. (Delaware)
Bell, California
Norcross, Georgia
Northbrook, Illinois
Skokie, Illinois
South Kearny, New Jersey
Cincinnati, Ohio
La Vergne, Tennessee
Pleasant Prairie, Wisconsin
Ampac Products and
Dyall Products Division
Skokie, Illinois
Pleasant Prairie, Wisconsin
Krumbhaar Division and
Southern Resins Division
Moundville, Alabama
Japanese Branch
Saitama, Japan
Taiwanese Branch
Taipei, Taiwan, R.O.C.
Ecovar, Inc. (Delaware)
La Vergne, Tennessee
Virkotype Corporation (Delaware)
Skokie, Illinois
Plainfield, New Jersey
Lawter International FSC,
Limited (Jamaica)
Kingston, Jamaica
Lawter International (Australasia)
Pty. Limited (Australia)
Melbourne, Australia
Lawter International, N.V. (Belgium)
Lokeren, Belgium
Lawter International (Canada)Inc. (Canada)
Rexdale, Ontario, Canada
Lawter International, Ltd.
(Tianjin)P.R.C. (Peoples Republic of China)
Tanggu, Peoples Republic of China
Lawter International, A.p.S. (Denmark)
Koge, Denmark
Lawter International, Sarl (France)
Charenton-le-Pont, France
Lawter International, GmbH (Germany)
Frechen, Germany
Lawter International (Hong Kong) Ltd. (Hong Kong)
Hong Kong, Hong Kong
Lawter International, Limited (Great Britain)
Bicester, Oxon, England
Lawter International (Italia), Srl (Italy)
Cremona Resine Division
Cremona, Italy
Lawter International, B.V. (Netherlands)
Waterford, Ireland
Lawter Antilles, N.V. (Netherlands Antilles)
Curacao, Netherlands Antilles
Lawter International Products
Pte. Ltd. (Singapore)
Jurong Town, Singapore
Lawter International (Proprietary)
Limited (South Africa)
Ndabeni, South Africa
Lawter International, S.A. (Spain)
Barcelona, Spain
-21-