Exhibit 13
Lawter International, Inc. and Subsidiaries' 1994 Annual Report to Stockholders
Market Price and Quarterly Dividend Statistics for Common Stock
MARKET PRICE DIVIDENDS
(per share) 1994 1993 1994 1993
High Low High Low
First Quarter $13 3/4 $11 1/4 $14 1/8 $12 1/8 $.10 $.10
Second Quarter 12 1/4 10 3/4 15 1/2 12 5/8 .10 .10
Third Quarter 13 1/4 10 7/8 14 5/8 12 7/8 .10 .10
Fourth Quarter 13 1/4 11 14 1/2 12 5/8 .10 .10
Total Year $.40 $.40
The common stock of Lawter International, Inc. is traded on the New York Stock
Exchange (symbol, LAW). The continuation of dividend payments is expected. The
approximate number of holders of record of Lawter's common stock as of March 3,
1995 was 3,400.
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General Nature and Scope of Business
Lawter is engaged predominantly in a single industry - specialty chemicals. The
primary products produced and marketed by the Company within this industry
consist of: (1) printing ink vehicles and slip additives; (2) synthetic and
hydrocarbon resins; and (3) fluorescent pigments and coatings, and thermographic
compounds. In addition, the Company produces thermographic and rota-matic
machines.
Printing ink vehicles are fluid and gelled compositions which provide to
lithographic and letterpress printing inks the ability to carry color onto a
variety of printing surfaces. They influence printing quality, gloss, drying
speed, adhesion, rub resistance and press speed. Slip additives are used in
printing inks to provide additional surface slip and rub resistance to the ink
film. These products are sold to printing ink manufacturers.
Synthetic and hydrocarbon resins are used in the production of adhesives, liquid
printing inks and printing ink vehicles, rubber compounds, paints and various
coatings to improve durability, chemical resistance, appearance, adhesion and
speed of drying.
Fluorescent pigments and coatings are used in the manufacture of paints,
printing inks, paper coatings, plastic products, rubber compounds, textile inks
and other products where striking color properties are desired. Such fluorescent
products are used for greater visibility in safety marking applications. They
are also used in display advertising and in the plastic industry in toys and
bottles.
Thermographic machines and compounds are used in the production of thermographic
printing, a process which produces raised printing. Rota-matic machines are used
to cut, score or perforate paper products. The thermographic printing process
and rota-matic machines are used in the manufacture of greeting cards, specialty
printing, business cards, stationery and advertising material.
No material part of the business of the Company is dependent upon a single
product for any customer or a small group of customers.
Operating Results By Quarters (Unaudited)
(in thousands, except per share figures)
Earnings/(Loss) Before
Cumulative Effect of
Accounting Change Net Earnings/(Loss)
Gross ----------------- -------------------
1993 Net Sales Profit Amount Per Share Amount Per Share
March 31 $ 42,070 $13,299 $7,600 $0.17 $11,625(1) $0.26(1)
June 30 42,080 12,839 7,665 0.17 7,665 0.17
September 30 43,625 13,482 7,415 0.17 7,415 0.17
December 31(2) 44,474 4,213 (21,678) (0.49) (21,678) (0.49)
$172,249 $43,833 $1,002 $0.02 $ 5,027(1) $0.11(1)
1994
March 31 $ 42,614 $12,873 $6,725 $0.15 $6,725 $0.15
June 30 44,415 13,671 7,025 0.16 7,025 0.16
September 30 48,844 14,522 7,655 0.17 7,655 0.17
December 31 55,183 15,096 8,000 0.18 8,000 0.18
$191,056 $56,162 $29,405 $0.66 $29,405 $0.66
<FN>
(1) Includes $4,025,000 or $.09 per share for cumulative effect of change in
accounting for income taxes. See Note 4 to the consolidated financial
statements.
(2) Fourth quarter 1993 earnings were reduced primarily by a tax provision for
repatriation of foreign earnings - $21,600,000 (See Note 4 to the consolidated
financial statements) and other charges as follows: voluntary waste disposal,
refurbishing and cleaning waste water treatment facilities, write down of
marketable securities to market, inventory obsolescence, certain disputed
utility charges, costs incurred with the terminated Hach merger, and other
smaller items. The after tax effect of these other charges was $6,400,000.
-4-
Sales by Product Group
(percent of net sales) 1994 1993 1992
Printing Ink Vehicles and Slip Additives 47.5 47.0 49.4
Synthetic and Hydrocarbon Resins 46.7 46.7 44.1
Other 5.8 6.3 6.5
-5-
Management's Discussion and Analysis
Liquidity and Capital Resources
Lawter's cash and equivalents, net of short-term borrowing, decreased $9,100,000
from $57,400,000 at December 31, 1993 to $48,300,000 at December 31, 1994. The
decrease was due primarily to expenditures for the purchase of Cremona Resine
and completion of the new U.S. resin facility. The Company generally relies upon
internally generated funds from operations to satisfy working capital
requirements and to fund capital expenditures. However, in certain
circumstances, the Company finds it is more advantageous to borrow funds on a
short-term basis to satisfy U.S. working capital requirements. Lawter
anticipates maintaining a strong liquid position.
In 1994 and 1992, the majority of the Company's capital expansion program was
financed with internally generated funds. In 1993, Lawter used external
financing in connection with the new U.S. manufacturing facility. Capital
expenditures for 1994 were budgeted at $10,000,000, which approximated actual
expenditures. Lawter's capital expenditures for 1995 are estimated at
$17,000,000. These expenditures include the continuation of a multi-year
project for the new European synthetic resin and printing ink vehicle
facility as well as additions to and modernization of existing facilities
elsewhere. The Company currently anticipates using internally generated funds
for the majority of these capital expenditures.
Results of Operations
Net Sales. Consolidated net sales increased 11% in 1994 when compared to 1993.
Domestic net sales increased 6% due entirely to higher sales volume. Reportable
European net sales, which included the sales of Cremona Resine since the date of
its acquisition on June 30, 1994, increased 16% as a result of a 20% increase in
sales volume and a 2% increase in average exchange rates, partially offset by a
5% decrease in average selling prices due to product mix. Excluding Cremona
Resine sales, the European sales volume would have shown an increase of 13% and
average selling prices a decrease of 3% due to product mix. The Company's
consolidated net sales increased 3% in 1993 when compared to 1992. Domestic
sales volume increased 3% while average selling prices decreased 1%, due
primarily to product mix, resulting in a 2% increase in domestic net sales.
While European sales volume increased 14%, reportable European net sales
increased 1% as a result of an 11% decrease caused by adverse exchange rate
fluctuations and a 1% decrease in average selling prices.
Gross Margins. Gross margins as a percent of sales were 29.4%, 25.4% and 30.7%
for 1994, 1993 and 1992, respectively. The 1993 gross margin was lower than 1994
and 1992 due mainly to the following charges. 1) Voluntary waste disposal -
$3,405,000. These charges were due to the Company evaluating its current onsite
incineration cost and efficiency versus the cost of offsite waste disposal.
During the fourth quarter of 1993, a decision was made to transition waste
disposal to an approved offsite landfill. 2) Refurbishing and cleaning waste
water treatment facilities - $3,145,000. These charges were due to a detailed
review made of these facilities during the fourth quarter of 1993 which
disclosed that they were not as effective as desired. At that time, a decision
was made to refurbish and clean these facilities. 3) Inventory obsolescence -
$1,000,000. These charges were due to a review made during the fourth quarter
of 1993 which disclosed that certain inventory was not reworkable and would have
to be disposed. 4) Disputed utility charges - $865,000. This was due to a
dispute on utility meter readings at one location. 5) Other smaller items -
$350,000. There should be no material beneficial or adverse effect to future
operations as a result of these charges. Excluding the above charges, the gross
margin for 1993 would have been 30.5%. The lower gross margin in 1994 when
compared to 1993, excluding the above charges, and 1992 was caused primarily by
higher raw material costs not fully offset by selling price increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include foreign transaction exchange gains/(losses) of
$(85,000) in 1994, $411,000 in 1993 and $(839,000) in 1992. These transaction
gains and losses result mainly from the effect of the foreign exchange rate
fluctuations on transactions of the foreign subsidiaries that are denominated in
currencies other than the subsidiaries' functional currencies. Excluding these
transaction gains and losses, selling, general and administrative expenses as a
percent of sales were 10.9%, 11.1% and 11.5% in 1994, 1993 and 1992,
respectively. The lower percentage in 1994 when compared to 1993 was due to
sales volume increasing at a higher rate than general and administrative
expenses. The decreased percentage in 1993 when compared to 1992 was due
primarily to the $840,000 gain on the sale of two properties due to the
consolidation of U.S. manufacturing facilities and lower selling and
administrative costs offset somewhat by $400,000 of expenses incurred with the
terminated Hach merger and other smaller charges.
-6-
Investment Income. Investment income in 1994 increased slightly when compared to
1993 principally as a result of higher interest rates and increased equity
earnings from the investment in Hach Company offset by $356,000 in realized
losses on the sales of marketable securities in 1994 versus $929,000 in realized
gains on the sales of marketable securities offset by a $513,000 write down of
marketable securities to market in 1993. The decrease in 1993 when compared to
1992 was due primarily to $929,000 in realized gains on the sales of marketable
securities offset by a $513,000 write down of marketable securities to market in
1993 versus $775,000 in realized gains on the sales of marketable securities in
1992 along with lower interest rates and decreased funds available for
investment.
Income Taxes. The effective tax rates for 1994, 1993 and 1992 were 25.9%, 96.6%
and 26.1%, respectively. The 1993 tax provision includes an additional U.S. tax
provision of $21,600,000 for future repatriation of foreign earnings as more
fully described in Note 4 to the consolidated financial statements. Excluding
this additional provision, the 1993 effective tax rate would have been 23.3%.
This rate was lower than the 1994 and 1992 rates primarily as a result of lower
domestic earnings, caused by the charges mentioned above, which have a higher
tax rate and also higher foreign earnings which have a lower tax rate. The 1994
and 1992 rates were comparable.
Cumulative Effect of Change in Accounting for Income Taxes. Effective January 1,
1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." The adoption of SFAS No. 109 changed the
Company's method of accounting for income taxes from the deferred method to the
asset and liability method.
Other Matters. In July 1994, there was an explosion/fire in the warehouse at the
new U.S. resin facility. This new resin plant was designed to include the
production of a group of new synthetic resins. The accident delayed the
introduction of these new products. The Company is adequately insured and,
therefore, no significant costs related to the accident were reflected in
earnings.
Effects of Inflation. The Company attempts to minimize the effects of inflation
on sales and earnings by appropriately increasing selling prices and pursuing
ongoing cost control programs and productivity improvements. The effects of
inflation were minimized through increased manufacturing efficiencies and cost
controls in 1993. During 1994, there was a tightening of supply of some
important raw materials and their prices increased. These increases have been
difficult to fully pass on, in a timely fashion, to Lawter customers. It is felt
by management that, as in the past, the Company's new concepts and new products
should help stabilize the conditions that have been experienced in 1994. Lawter
has satisfactorily coped with these changes and challenges of 1994.
Looking Forward. Lawter management believes that prospects for the Company's
growth with respect to both sales and earnings are most encouraging. More
advanced new product development results and the highly sophisticated lower cost
manufacturing facilities place Lawter in a most effective competitive position
for both the near and longer term.
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Ten Year Financial Summary
(in thousands, except per share figures)
Years Ended December 31 1994(1) 1993(1) 1992(1) 1991 1990
Net Sales $191,056 $172,249 $167,568 $152,893 $150,005
Gross Profit 56,162 43,833 51,395 48,396 46,362
Selling, General and Administrative Expenses 20,970 18,700 20,103 18,254 18,682
Operating Income 35,192 25,133 31,292 30,142 27,680
Investment Income 4,470 4,318 5,271 6,221 4,963
Earnings Before Income Taxes and Cumulative Effect of
Accounting Change 39,662 29,451 36,563 36,363 32,643
Provision for Income Taxes 10,257 28,449(6) 9,548 9,893 9,223
Earnings (Loss) Before Cumulative Effect of Accounting Change 29,405 1,002 27,015 26,470 23,420
Cumulative Effect of Change in Accounting for
Income Taxes --- 4,025(5) --- --- ---
Net Earnings (Loss) $ 29,405 $ 5,027 $ 27,015 $ 26,470 $ 23,420
Depreciation and Amortization $ 4,344 $ 4,291 $ 4,179 $ 3,900 $ 3,521
Cash Provided by Operating Activities 23,047 23,811 34,440 23,192 34,240
Cash Dividends 17,951 17,909 17,556 14,947 12,582
Capital Expenditures, net 10,613 12,940 7,548 8,902 6,198
Gross Property, Plant and Equipment 102,788 87,856 78,491 74,022 66,271
Net Working Capital 85,601 84,249 93,079 86,448 82,560
Total Assets 231,827 209,477 187,334 178,218 153,500
Long-Term Obligations 4,152 4,206 4,858 5,238 5,137
Stockholders' Equity 127,793 110,751 126,656 116,688 105,090
Average Shares Outstanding(2) 44,874 44,772 43,913 43,318 43,011
Earnings (Loss) per Share(2):
Earnings (Loss) Before Cumulative Effect of
Accounting Change $ .66 $ .02 $ .62 $ .61 $ .54
Cumulative Effect of Change in Accounting for
Income Taxes --- .09(5) --- --- ---
Net Earnings (Loss) .66 .11 .62 .61 .54
Cash Dividends per Share(2) .40 .40 .40 .35 .29
Stockholders' Equity per Share(2) 2.85 2.47 2.88 2.69 2.44
Cash Dividends to Net Earnings 61.0% 356.3% 65.0% 56.5% 53.7%
Net Earnings to Year End Equity 23.0% 4.5% 21.3% 22.7% 22.3%
<FN>
* Not applicable due to net loss.
(1) See Management's Discussion and Analysis for analysis of changes between years.
(2) Average shares outstanding and per share amounts are adjusted to reflect the four-for-three stock splits in 1991, 1990 and 1988.
(3) Includes additional tax provision of $14 million for future repatriation of foreign earnings.
(4) Restated to reflect the effects of SFAS No. 95 which was adopted in 1988.
(5) Represents cumulative effect on prior years' earnings of adopting SFAS No. 109 which was adopted January 1, 1993. See Note 4 to
the consolidated financial statements.
(6) Includes additional tax provision of $21.6 million for future repatriation of foreign earnings. See Note 4 to the consolidated
financial statements.
-8-
Ten Year Financial Summary
(in thousands, except per share figures)
Years Ended December 31 1989 1988 1987 1986 1985
Net Sales $136,006 $125,818 $112,018 $103,515 $96,769
Gross Profit 38,624 38,949 34,556 30,332 24,221
Selling, General and Administrative Expenses 16,122 14,751 11,960 10,631 11,000
Operating Income 22,502 24,198 22,596 19,701 13,221
Investment Income 3,929 3,173 1,952 1,175 1,547
Earnings Before Income Taxes and Cumulative Effect of
Accounting Change 26,431 27,371 24,548 20,876 14,768
Provision for Income Taxes 6,963 6,520 7,847 7,931 20,181(3)
Earnings (Loss) Before Cumulative Effect of Accounting Change 19,468 20,851 16,701 12,945 (5,413)
Cumulative Effect of Change in Accounting for
Income Taxes --- --- --- --- ---
Net Earnings (Loss) $ 19,468 $ 20,851 $ 16,701 $ 12,945 $(5,413)
Depreciation and Amortization $ 3,550 $ 3,410 $ 3,193 $ 2,908 $ 2,763
Cash Provided by Operating Activities 20,388 15,796 22,726(4) 19,701(4) 10,411
Cash Dividends 12,561 12,403 9,820 9,791 9,758
Capital Expenditures, net 3,073 4,524 1,405(4) 1,581(4) 3,179
Gross Property, Plant and Equipment 57,421 54,282 49,503 45,560 42,534
Net Working Capital 70,200 62,807 59,719 45,087 37,687
Total Assets 133,988 125,210 109,917 93,392 84,039
Long-Term Obligations 5,083 4,810 4,682 4,738 4,794
Stockholders' Equity 87,752 79,521 69,458 55,191 47,588
Average Shares Outstanding(2) 42,940 42,267 41,673 41,444 41,301
Earnings (Loss) per Share(2):
Earnings (Loss) Before Cumulative Effect of
Accounting Change $ .45 $ .49 $ .40 $ .31 $ (.13)
Cumulative Effect of Change in Accounting for
Income Taxes --- --- --- --- ---
Net Earnings (Loss) .45 .49 .40 .31 (.13)
Cash Dividends per Share(2) .29 .29 .24 .24 .24
Stockholders' Equity per Share(2) 2.04 1.88 1.67 1.33 1.15
Cash Dividends to Net Earnings 64.5% 59.5% 58.8% 75.6% *
Net Earnings to Year End Equity 22.2% 26.2% 24.0% 23.5% *
<FN>
* Not applicable due to net loss.
(1) See Management's Discussion and Analysis of changes between years.
(2) Average shares outstanding and per share amounts are adjusted to reflect the four-for-three stock splits in 1991, 1990 and 1988.
(3) Includes additional tax provision of $14 million for future repatriation of foreign earnings.
(4) Restated to reflect the effects of SFAS No. 95 which was adopted in 1988.
(5) Represents cumulative effect on prior years' earnings of adopting SFAS No. 109 which was adopted January 1, 1993. See Note 4 to
the consolidated financial statements.
(6) Includes additional tax provision of $21.6 million for future repatriation of foreign earnings. See Note 4 to the consolidated
financial statements.
-9-
Consolidated Balance Sheets
Assets
(in thousands, except share and per share figures)
December 31 1994 1993
Current Assets:
Cash (Note 1) $ 8,063 $ 6,701
Time Deposits, Interest Bearing (Note 1) 58,724 70,787
Marketable Securities (Note 1) 4,473 5,591
Accounts Receivable - less allowance for
possible losses of $415 in 1994 and $319 in 1993 43,327 31,317
Inventories (Note 1) 32,803 26,253
Prepaid Expenses 2,739 1,662
Total Current Assets 150,129 142,311
Property, Plant and Equipment (Notes 1 and 7):
Land 2,943 2,060
Buildings 20,466 19,449
Machinery and Equipment 66,159 56,159
Construction in Progress 13,220 10,188
102,788 87,856
Less Accumulated Depreciation 50,323 43,661
Net Property, Plant and Equipment 52,465 44,195
Equity Investment (Note 6) 20,139 18,077
Other Assets (Note 1) 9,094 4,894
Total $231,827 $209,477
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
-10-
Liabilities and Stockholders' Equity
(in thousands, except share and per share figures)
December 31 1994 1993
Current Liabilities:
Accounts Payable and Accrued Expenses (Note 5) $ 33,217 $ 29,822
Short-Term Borrowings (Note 9) 18,504 20,044
Income Taxes Payable 12,807 8,196
Total Current Liabilities 64,528 58,062
Long-Term Obligations (Note 7) 4,152 4,206
Deferred Income Taxes (Note 4) 35,354 36,458
Total Liabilities 104,034 98,726
Stockholders' Equity (Note 3):
Preferred Stock - no par value, authorized 500,000
shares; none issued --- ---
Common Stock - $1.00 par value, authorized 120,000,000
shares; issued 44,923,729 shares 44,924 44,811
Additional Paid-in Capital 6,955 6,260
Retained Earnings (Note 1) 80,929 69,475
Cumulative Translation Adjustments (Note 1) (5,015) (6,456)
Other --- (3,339)
Total Stockholders' Equity 127,793 110,751
Total $231,827 $209,477
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
-11-
Consolidated Statements of Earnings
(in thousands, except per share figures)
Years Ended December 31 1994 1993 1992
Net Sales $191,056 $172,249 $167,568
Cost of Products Sold 134,894 128,416 116,173
Gross Profit 56,162 43,833 51,395
Selling, General and Administrative Expenses 20,970 18,700 20,103
Operating Income 35,192 25,133 31,292
Investment Income 4,470 4,318 5,271
Earnings Before Income Taxes and Cumulative
Effect of Accounting Change 39,662 29,451 36,563
Provision for Income Taxes (Notes 1 and 4) 10,257 28,449 9,548
Earnings Before Cumulative Effect of
Accounting Change 29,405 1,002 27,015
Cumulative Effect of Change in
Accounting for Income Taxes (Note 4) --- 4,025 ---
Net Earnings $ 29,405 $ 5,027 $ 27,015
Earnings per Share (Note 1):
Earnings Before Cumulative Effect of
Accounting Change $ 0.66 $ 0.02 $ 0.62
Cumulative Effect of Change in
Accounting for Income Taxes (Note 4) --- 0.09 ---
Net Earnings $ 0.66 $ 0.11 $ 0.62
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31 1994 1993 1992
Cash Flow from Operating Activities:
Net Earnings $29,405 $ 5,027 $27,015
Adjustments to Reconcile Net Earnings
to Net Cash Provided by Operating Activities-
Depreciation and Amortization 4,344 4,291 4,179
Deferred Income Taxes (1,130) 17,118 1,153
Undistributed Equity Income (2,125) (1,998) (2,031)
Deferred Exchange Gain (Loss) (145) (524) 675
Purchase of Marketable Securities (2,299) (14,214) (8,434)
Proceeds from Sales of Marketable Securities 3,069 9,469 11,136
Net (Gain) Loss from Marketable Securities 349 (416) (775)
(Increase) Decrease in Current Assets-
Accounts Receivable (7,658) (5,145) (1,527)
Inventories (4,345) 184 1,230
Prepaid Expenses (1,112) (616) 186
Increase (Decrease) in Current Liabilities-
Accounts Payable and Accrued Expenses 257 11,795 (1,943)
Income Taxes Payable 4,437 371 3,564
Deferred Income Taxes --- (1,531) 12
Net Cash Provided by Operating Activities 23,047 23,811 34,440
Cash Flow from Investing Activities:
Expenditures for Property, Plant
and Equipment, net (10,613) (12,940) (7,548)
Purchase of Business, net of cash (6,344) --- ---
Loans to Officers (83) (436) (3,038)
Repayment of Officers' Loans 3,422 37 400
Net Cash Used for Investing Activities (13,618) (13,339) (10,186)
Cash Flow from Financing Activities:
Exercise of Stock Options 808 995 7,264
Principal Payments on Long-Term Obligations (54) (4,656) (323)
Proceeds from Long-Term Borrowings --- 4,000 ---
Payment of Short-Term Borrowings (3,328) --- (2,446)
Proceeds from Short-Term Borrowings --- 12,033 ---
Cash Dividends Paid (17,951) (17,909) (17,556)
Net Cash Used for Financing Activities (20,525) (5,537) (13,061)
Effect of Exchange Rate Changes on Cash 395 (350) (616)
Increase (Decrease) in Cash and Equivalents (10,701) 4,585 10,577
Cash and Equivalents, Beginning of Year 77,488 72,903 62,326
Cash and Equivalents, End of Year $66,787 $77,488 $72,903
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-13-
Consolidated Statements of Stockholders' Equity
(in thousands, except per share figures)
Common Additional Retained Cumulative Treasury Other
Years Ended December 31, Stock Paid-in Earnings Translation Stock
1992, 1993 and 1994 $1 Par Value Capital Adjustments
Balance, January 1, 1992 $44,130 $ 385 $ 72,898 $ 1,280 $(1,703) $ (302)
Add (deduct):
Net Earnings --- --- 27,015 --- --- ---
Cash Dividends Declared
$0.40 per share --- --- (17,556) --- --- ---
Exercise of Stock Options 552 5,009 --- --- 1,703 ---
Loans to Officers (Note 3) --- --- --- --- --- (2,638)
Foreign Currency
Translation Adjustments --- --- --- (4,117) --- ---
Balance, December 31, 1992 44,682 5,394 82,357 (2,837) --- (2,940)
Add (deduct):
Net Earnings --- --- 5,027 --- --- ---
Cash Dividends Declared
$0.40 per share --- --- (17,909) --- --- ---
Exercise of Stock Options 129 866 --- --- --- ---
Loans to Officers (Note 3) --- --- --- --- --- (399)
Foreign Currency
Translation Adjustments --- --- --- (3,619) --- ---
Balance, December 31, 1993 44,811 6,260 69,475 (6,456) --- (3,339)
Add (deduct):
Net Earnings --- --- 29,405 --- --- ---
Cash Dividends Declared
$0.40 per share --- --- (17,951) --- --- ---
Exercise of Stock Options 113 695 --- --- --- ---
Loans to Officers (Note 3) --- --- --- --- --- 3,339
Foreign Currency
Translation Adjustments --- --- --- 1,441 --- ---
Balance, December 31, 1994 $44,924 $6,955 $80,929 $(5,015) $ --- $ ---
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-14-
Notes to the Consolidated Financial Statements
Note 1-Statement of Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include all of its wholly
owned subsidiaries. All material intercompany balances and transactions have
been eliminated in consolidation. The equity method is used for any investment
where ownership is from 20% to 50%.
Foreign Currency Translation
All assets and liabilities of operations denominated in foreign currencies are
translated at the rates of exchange in effect at the close of the year. Revenue
and expense accounts are translated at the average exchange rates which were in
effect during the year. Translation gains and losses are reported as a separate
component of stockholders' equity and are not included in net earnings.
Foreign currency transaction gains and losses continue to be an element in
determining net earnings for the period. Foreign currency transaction gains
(losses), included in selling, general and administrative expenses, were
$(85,000) in 1994, $411,000 in 1993 and $(839,000) in 1992. Revenues and
expenses are also affected by fluctuations of currency rates from year to year.
The effect of these rate fluctuations in 1994 when compared to 1993 resulted in
no significant impact on operating results in addition to the transaction gains
or losses reflected in net earnings. For 1993, the effect of rate changes when
compared to 1992 resulted in an unfavorable impact.
Consolidated Statement of Cash Flows
The Company considers time deposits, which are highly liquid with an original
maturity of three months or less, to be cash equivalents for purposes of the
consolidated statements of cash flows. The carrying amount of cash and time
deposits approximates fair market value. The Company paid interest of $990,000
in 1994, $925,000 in 1993 and $903,000 in 1992.
Research and Development
Research and development costs ($4,821,000 in 1994, $4,423,000 in 1993 and
$4,093,000 in 1992) are charged to expense as incurred.
Earnings per Share
Earnings per share of common stock are computed on the weighted average shares
outstanding during the respective years (44,874,000 shares in 1994, 44,772,000
shares in 1993 and 43,913,000 shares in 1992). Net earnings per share would not
be materially different from reported earnings per share if all outstanding
stock options were exercised.
Inventories
The majority of the Company's domestic inventories are valued at last-in, first-
out (LIFO) cost which is not in excess of net realizable value. The Company
believes the LIFO method more fairly presents its results of operations by
reducing the effect of inflationary cost increases in inventory and thus matches
current costs with current revenues. The Company's other inventories aggregating
$19,658,000 and $14,324,000 at December 31, 1994 and 1993, respectively, are
valued at the lower of first-in , first-out (FIFO) cost or market. The finished
goods inventories include the cost of raw materials and manufacturing labor and
overhead. Inventories are summarized as follows:
(in thousands) 1994 1993
Finished Goods $18,437 $15,102
Raw Materials 14,366 11,151
$32,803 $26,253
If the FIFO inventory valuation method had been used for all inventories, they
would have been $4,191,000 and $3,369,000 higher than reported at December 31,
1994 and 1993, respectively.
Income Taxes
The Company provides U.S. income taxes on earnings of those foreign subsidiaries
which are intended to be remitted to the parent company. In the fourth quarter
of 1993, U.S. income taxes were provided on all undistributed earnings of
foreign subsidiaries (See Note 4). Undistributed earnings reinvested
indefinitely in foreign subsidiaries totaled $11,698,000 at December 31, 1994.
Investments
Effective January 1, 1994, Lawter adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." At December 31, 1994, all of Lawter's marketable securities were
classified as trading securities. Trading securities are reported at fair value,
with changes in fair value included in earnings. For the purpose of determining
realized gains and losses, the cost of securities sold is based upon specific
identification. The change in net unrealized holding gain or loss during 1994
was not material.
-15-
Notes to the Consolidated Financial Statements Continued
Intangible Assets
The excess of cost over equity in net assets of acquisitions is being amortized
on a straight line basis over periods not exceeding 40 years. Subsequent to its
acquisition, the Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful life of
goodwill may warrant revision or that the remaining balance of goodwill may not
be recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the related business
segment's undiscounted net income over the remaining life of the goodwill in
measuring whether the goodwill is recoverable.
Property
Property, plant and equipment is stated at cost. Depreciation, computed using
the straight-line method for financial statement purposes, is provided over the
useful lives of the various classes of property, plant and equipment.
Note 2-Retirement Plans
The Company has contributory profit sharing plans and a non-contributory money
purchase pension plan. The majority of domestic and Canadian employees are
covered by one of these plans.
Company contributions to these plans charged to operations were $545,000 in
1994, $514,000 in 1993 and $516,000 in 1992 and are funded on a current basis.
There is no past service liability under these plans.
The Company has no material postretirement or postemployment benefit
obligations.
Note 3-Common Stock
Currently, the Company issues common stock when stock options are exercised. At
the time of exercise, officers may borrow funds from the Company in order to
exercise their stock options. These loans bear interest at the Company's
effective rate to borrow and are repayable within eighteen months. The unpaid
portion of the options exercised, evidenced by a note, has been deducted from
Stockholders' Equity in the accompanying Consolidated Balance Sheets. The par
value of the shares issued is credited to the common stock account and the
excess of the purchase price over the par value is credited to additional paid-
in capital.
Options may be granted at prices not less than the fair market value at the date
of grant. Options expire five or ten years from the date of grant and are
exercisable one or two years after the date of grant. A summary of changes in
the stock options is shown in the table to the above right.
Shares
----------------------------------------
Reserved Granted Available
Balance, January 1, 1993 3,191,824 733,087 2,458,737
Granted --- 342,050 (342,050)
Exercised (129,642) (129,642) ---
Cancelled or expired (7,316) (46,829) 39,513
Balance, December 31, 1993 3,054,866 898,666 2,156,200
Granted --- 1,101,500 (1,101,500)
Exercised (112,549) (112,549) ---
Cancelled or expired (1,286) (17,286) 16,000
Balance, December 31, 1994 2,941,031 1,870,331 1,070,700
Exercisable, December 31, 1994 463,031
Additional information under the stock option plans is shown below:
Option Price
---------------------------
Number of Per
Shares Share Total
Options outstanding 1,870,331 $ 6.62 to $21,903,780
December 31, 1994 14.38
Exercised 1993 129,642 6.18 to 994,931
10.69
Exercised 1994 112,549 6.62 to 857,533
10.41
Became exercisable 1993 12,250 12.38 to 156,719
13.25
Became exercisable 1994 31,500 12.38 to 414,750
13.75
Note 4-Provision for Income Tax
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS)No. 109, "Accounting for Income Taxes," as required by the
Financial Accounting Standards Board which resulted in a benefit of $4,025,000.
The adoption of SFAS No. 109 changed the Company's method of accounting for
income taxes from the deferred method to the asset and liability method.
In 1993, the Company provided taxes for past undistributed earnings of foreign
subsidiaries. The Company had, through the end of 1993, accumulated $70,500,000
of foreign earnings which were deemed permanently reinvested abroad. These
earnings have been exempt from local taxes or taxed at rates lower than the U.S.
tax rate and no additional tax provision had been required.
-16-
At a meeting held on January 7, 1994, the Board of Directors discussed this
issue at length and determined that it was now in the best interest of the
Company to make these funds available to the U.S. parent for working capital,
capital expenditures and potential U.S. acquisitions. As a result, the Company
reported an additional charge of $21.6 million for U.S. taxes in 1993. This
charge was equivalent to 48 cents per share. The Company is not required to pay
these taxes until the funds are actually remitted to the U.S. parent.
The provisions (benefits) for income taxes were as follows:
(in thousands) 1994 1993 1992
Currently payable:
United States:
Federal $ 7,655 $4,976 $5,064
State 1,083 344 1,189
Foreign 2,622 2,103 2,129
Total Current 11,360 7,423 8,382
Deferred (principally U.S.):
Excess of tax over
book depreciation 220 300 459
Undistributed earnings
of the equity investment 744 721 712
Undistributed earnings of
foreign subsidiaries (2,917) 21,600 ---
Environmental expenditures 486 (1,330) ---
Other 364 (265) (5)
Total Deferred (1,103) 21,026 1,166
$10,257 $28,449 $9,548
The Company's earnings from the manufacturing operation in Waterford, Ireland
were tax exempt until 1990 and will have a 10% tax rate through 2010.
Pre-tax earnings were as follows:
(in thousands) 1994 1993 1992
United States $20,188 $12,629 $20,809
Foreign 19,474 16,822 15,754
$39,662 $29,451 $36,563
Temporary differences that gave rise to the deferred tax liability at December
31, 1994 were as follows:
(in thousands)
Undistributed earnings of foreign subsidiaries $30,145
Undistributed earnings of the equity investment 4,462
Excess of tax over book depreciation 3,132
Environmental expenditures (1,242)
Other (1,143)
$35,354
Income taxes paid during 1994, 1993 and 1992 amounted to $7,220,000, $8,497,000
and $4,927,000, respectively.
The total "Provision for Income Taxes" represents an effective tax rate of 25.9%
for 1994, 96.6% for 1993 and 26.1% for 1992. The differences from the U.S.
statutory rate for 1994, 1993 and 1992 were as follows:
(in thousands) 1994 1993 1992
Computed tax provision at 35% in 1994 and 1993
and 34% in 1992 $13,882 $10,308 $12,431
Increase (decrease) in tax provision
resulting from:
Waterford, Ireland operation (2,604) (2,627) (2,314)
Inclusion of state & local income taxes
(net of Federal income taxes) 679 193 714
Other foreign operations (581) (533) (605)
Undistributed earnings of foreign subsidiaries --- 21,600 ---
Other (1,119) (492) (678)
Provision for Income Taxes $10,257 $28,449 $ 9,548
-17-
Notes to the Consolidated Financial Statements Continued
Note 5-Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses were as follows:
(in thousands) 1994 1993
Trade Accounts Payable $19,972 $19,976
Accrued Environmental Expenditures 4,838 5,405
Accrued Compensation and Benefits 2,867 1,317
Accrued Taxes, Other 1,920 1,353
Other Accrued Liabilities 3,620 1,771
$33,217 $29,822
Note 6-Equity Investment
At December 31, 1994, the Company owned 3,157,223 shares, representing
approximately 27% of the outstanding shares, of the Common Stock of Hach Company
(Hach). The closing price on NASDAQ at December 31, 1994 was $14.50 per share.
The share and per share amounts reported have been adjusted to reflect the five-
for-four stock split of Hach Company Common Stock of April 1994.
The investment in Hach is accounted for under the equity method. Income and
other transactions in this investment were not material to the consolidated
financial statements of the Company.
Hach is a leading international manufacturer of instruments and test kits that
analyze the chemical content and other properties of water and other aqueous
solutions. In addition, Hach sells analytical reagents which are used in
connection with the instruments and test kits.
Note 7-Long-Term Obligations
Long-term obligations were as follows:
(in thousands) 1994 1993
Series 1993-LIIDB Bond $4,000 $4,000
Series 1978-A IDB Bond 200 250
Less - Current portion in
accounts payable (50) (50)
Net long-term bonds payable 4,150 4,200
Other long-term obligations 2 6
Total long-term obligations $4,152 $4,206
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosures about the Fair Value of Financial
Instruments." SFAS No. 107 requires disclosure of the fair value of significant
financial instruments, including long-term obligations. At December 31, 1994,
the fair value of Lawter's long-term obligations was not materially different
than cost.
During 1993, the Industrial Development Board of the Town of Moundville (IDB)
issued a $4,000,000, 6 3/4% Industrial Revenue Bond, Series 1993-LI. Interest is
payable semi-annually. Principal is due in six annual installments of various
amounts beginning December 1, 2006 with the final payment due December 1, 2011.
The Series 1978-A Industrial Revenue Bond was originally issued in 1978 by the
IDB for $1,000,000. Interest is payable semi-annually at 7 1/4%. Principal of
$50,000 is payable annually through 1997 with the final payment due September 1,
2003.
In connection with the issuance of these Industrial Revenue Bonds by the IDB,
the Company entered into capital lease agreements with the IDB with future
minimum lease payments sufficient to amortize the principal and interest on each
series of the Industrial Revenue Bonds.
Costs capitalized under these leases were $8,500,000 as of December 31, 1994 and
1993. The capitalized costs are being depreciated over the estimated useful
lives of the individual assets.
At December 31, 1994, the future lease payments under the capitalized leases
relating to the Industrial Revenue Bonds are as follows:
(in thousands)
1995 $ 334
1996 331
1997 327
1998 270
1999 270
Later years 6,670
Total minimum
lease payments 8,202
Less interest (4,002)
Present value of minimum
lease payments $4,200
Operating leases are not significant.
-18-
Note 8-Segment Information
A dominant portion of Lawter's operations is in a single industry-specialty
chemicals. Within this industry, Lawter is principally engaged in the production
and marketing of printing ink vehicles, slip additives, synthetic and
hydrocarbon resins, thermographic compounds, and fluorescent pigments and
coatings.
Lawter's total business is broken down into three geographical areas: Domestic,
Europe and Other Foreign. Other Foreign includes the Company's operations in
Australia, Canada, China, Japan, Singapore and Taiwan which, individually, are
not considered to be significant as defined by SFAS No. 14. The Company sells
its products to both large and small ink companies. Lawter is a major supplier
of printing ink vehicles and resins for printing inks and, therefore, sells
substantial quantities to larger ink companies around the world. One customer
approximated nineteen percent of sales in 1994 and eighteen percent of sales in
1993, whose purchases are made for a wide variety of specialized products at
multiple locations through numerous companies in various countries.
Transfers between geographic areas are not material. Corporate earnings before
tax is the net of investment income and corporate expenses. Identifiable assets
are those assets used exclusively in the operations of each geographic area.
Corporate assets are principally comprised of time deposits, marketable
securities, the equity investment and other assets. The contribution of European
operations to net earnings is greater than their contribution to earnings before
tax principally due to the Waterford, Ireland operation discussed in Note 4.
Information about the Company's operations for the years ended December 31,
1994, 1993 and 1992 is shown in the table to the above right.
(in thousands) 1994 1993 1992
Net Sales:
Domestic $ 98,628 $93,649 $ 92,078
Europe 74,974 64,008 63,501
Other Foreign 17,454 14,592 11,989
Total 191,056 172,249 167,568
Earnings Before Tax:
Domestic 20,263 12,142 20,046
Europe 13,887 12,460 11,478
Other Foreign 2,746 2,260 1,749
Corporate 2,766 2,589 3,290
Total 39,662 29,451 36,563
Identifiable Assets:
Domestic 62,724 53,782 46,490
Europe 58,514 40,078 39,243
Other Foreign 17,675 15,833 12,295
Corporate 92,914 99,784 89,306
Total $231,827 $209,477 $187,334
Note 9-Commitments and Contingencies
The Company has an unsecured line of credit for bank borrowings of $40,000,000
at December 31, 1994. During 1994, average borrowings were $20,536,000 against
this line of credit and the weighted average interest rate was 4.77%. In 1993,
average borrowings were $5,442,000 against this line of credit and the weighted
average interest rate was 3.78%. In 1992, average borrowings were $5,355,000 and
the weighted average interest rate was 4.96%. There are no commitment fees or
compensating balance requirements relating to this line of credit.
The Company from time to time is subject to claims brought on behalf of both
private persons and governmental agencies. Management and the Company's general
counsel are not aware of any claim where the disposition of such claim will have
a material adverse effect upon the Company's consolidated financial position.
-19-
Report of Independent Public Accountants
To the Board of Directors and Stockholders of Lawter International, Inc.:
We have audited the accompanying consolidated balance sheets of Lawter
International, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lawter
International, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As explained in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois,
February 8, 1995.
-20-
Directory
International Headquarters
Lawter International, Inc.
990 Skokie Boulevard, Northbrook, Illinois 60062
(708) 498-4700, Facsimile (708) 498-0066
Principal Companies and Locations (Incorporated In)
Lawter International, Inc. (Delaware)
Bell, California
Norcross, Georgia
Northbrook, Illinois
Skokie, Illinois
South Kearny, New Jersey
Cincinnati, Ohio
La Vergne, Tennessee
Pleasant Prairie, Wisconsin
Ampac Products and
Dyall Products Division
Skokie, Illinois
Pleasant Prairie, Wisconsin
Krumbhaar Division and
Southern Resins Division
Moundville, Alabama
Japanese Branch
Tokyo, Japan
Taiwanese Branch
Taipei, Taiwan, R.O.C.
Ecovar, Inc. (Delaware)
La Vergne, Tennessee
Virkotype Corporation (Delaware)
Skokie, Illinois
Plainfield, New Jersey
Lawter International FSC,
Limited (Jamaica)
Kingston, Jamaica
Lawter International (Australasia)
Pty. Limited (Australia)
Melbourne, Australia
Lawter International, N.V. (Belgium)
Lokeren, Belgium
Lawter International (Canada)Inc. (Canada)
Rexdale, Ontario, Canada
Lawter International, Ltd.
(Tianjin)P.R.C. (Peoples Republic of China)
Tanggu, Peoples Republic of China
Lawter International, A.p.S. (Denmark)
Koge, Denmark
Lawter International, Sarl (France)
Charenton-le-Pont, France
Lawter International, GmbH (Germany)
Frechen, Germany
Lawter International, Limited (Great Britain)
Bicester, Oxon, England
Lawter International (Italia), Srl (Italy)
Cremona Resine Division
Cremona, Italy
Lawter International, B.V. (Netherlands)
Waterford, Ireland
Lawter Antilles, N.V. (Netherlands Antilles)
Curacao, Netherlands Antilles
Lawter International Products
Pte. Ltd. (Singapore)
Jurong Town, Singapore
Lawter International (Proprietary)
Limited (South Africa)
Ndabeni, South Africa
Lawter International, S.A. (Spain)
Barcelona, Spain
-21-