UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission File Number: 1-7558
LAWTER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-1370818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
990 Skokie Boulevard; Northbrook, Illinois 60062
(Address of principal executive offices)
(708) 498-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock $1.00 par value per share - 44,917,786 shares outstanding as
of October 31, 1994.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that disclosures are adequate to make
the information presented not misleading. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position of Lawter
International, Inc. and Subsidiaries as of September 30, 1994 and December 31,
1993 and the results of their operations for the three months ended September
30, 1994 and 1993, and the nine months ended September 30, 1994 and 1993, and
the statements of cash flows for the nine months ended September 30, 1994 and
1993, have been included. It should be noted that these interim statements are
based on certain annual estimates such as the final level of LIFO inventories
and the provision for income taxes. These and other similar items may be
subject to year end adjustments. The results of operations for such interim
periods are not necessarily indicative of the results for the full year.
Lawter International, Inc. and Subsidiaries
Condensed Statements of Earnings
(Shown in thousands)
<TABLE>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
<S> <C> <C> <C> <C>
1994 1993 1994 1993
-------- -------- -------- --------
Net Sales $ 48,844 $ 43,625 $135,873 $127,775
Cost of Products Sold 34,322 30,143 94,807 88,155
-------- -------- -------- --------
$ 14,522 $ 13,482 $ 41,066 $ 39,620
Selling, General and Administrative Expenses 5,148 4,577 14,943 12,438
-------- -------- -------- --------
$ 9,374 $ 8,905 $ 26,123 $ 27,182
Investment Income 991 1,689 2,826 3,930
-------- -------- -------- --------
Earnings before Income Taxes and
Cumulative Effect of Accounting Change $ 10,365 $ 10,594 $ 28,949 $ 31,112
Provision for Income Taxes 2,710 3,179 7,544 8,432
-------- -------- -------- --------
Earnings before Cumulative Effect of
Accounting Change $ 7,655 $ 7,415 $ 21,405 $ 22,680
Cumulative Effect of Change in Accounting
for Income Taxes (Note 3) --- --- --- 4,025
-------- -------- -------- --------
Net Earnings $ 7,655 $ 7,415 $ 21,405 $ 26,705
======== ======== ======== ========
Earnings per Share of Common Stock: (Note 2)
Earnings before Cumulative Effect of
Accounting Change $ .17 $ .17 $ .48 $ .51
Cumulative Effect of Change in
Accounting for Income Taxes (Note 3) --- --- --- .09
-------- -------- -------- --------
Net Earnings $ .17 $ .17 $ .48 $ .60
======== ======== ======== ========
Dividends per Share of Common Stock $ .10 $ .10 $ .30 $ .30
Weighted Average Shares Outstanding 44,902 44,801 44,860 44,761
</TABLE>
The accompanying notes to the condensed financial statements are an integral
part of these statements.
-2-
<PAGE>
Lawter International, Inc. and Subsidiaries
Condensed Balance Sheets
(Shown in thousands)
September 30 December 31
------------ -----------
Assets 1994 1993
- -------- -------- --------
Current Assets
Cash $ 7,920 $ 6,701
Time Deposits 58,257 70,787
Marketable Securities 7,527 5,591
Accounts Receivable (net) 39,433 31,317
Inventories (Note 1)
Raw Materials 13,336 11,151
Finished Goods 20,168 15,102
Prepaid Expenses 1,948 1,662
-------- --------
Total Current Assets $148,589 $142,311
-------- --------
Property, Plant and Equipment $100,079 $ 87,856
Less Accumulated Depreciation (50,276) (43,661)
-------- --------
Net Property $ 49,803 $ 44,195
-------- --------
Investment in Affiliates $ 19,609 $ 18,077
-------- --------
Intangibles and Other Assets $ 9,104 $ 4,894
-------- --------
Total Assets $227,105 $209,477
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts Payable and Accrued Expenses $ 29,535 $ 29,822
Short-Term Borrowings 22,221 20,044
Income Taxes Payable 10,930 8,196
-------- --------
Total Current Liabilities $ 62,686 $ 58,062
-------- --------
Deferred Income Taxes $ 36,489 $ 36,458
-------- --------
Long-Term Obligations $ 4,153 $ 4,206
-------- --------
Total Liabilities $103,328 $ 98,726
-------- --------
Stockholders' Equity
Preferred Stock (None Issued) $ --- $ ---
Common Stock 44,912 44,811
Additional Paid-in Capital 6,857 6,260
Retained Earnings 77,421 69,475
Cumulative Translation Adjustments (4,370) (6,456)
Other (1,043) (3,339)
-------- --------
Net Stockholders' Equity $123,777 $110,751
-------- --------
Total Liabilities and Equity $227,105 $209,477
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these balance sheets.
-3-
<PAGE>
Lawter International, Inc. and Subsidiaries
Condensed Statements of Cash Flows
(Shown in thousands)
Nine Months Ended September 30
------------------------------
1994 1993
-------- --------
Cash Flow from Operating Activities:
Net Earnings $ 21,405 $ 26,705
Adjustments to Reconcile Net Earnings to
Net Cash Provided/(Used) by Operating Activities-
Depreciation and Amortization 3,123 3,167
Deferred Income Taxes --- (3,937)
Undistributed Equity Income (1,579) (1,580)
Deferred Exchange Gain (Loss) (353) (802)
Purchase of Marketable Securities (2,299) (14,214)
Proceeds from Sales of Marketable Securities --- 9,469
Net (Gain)/Loss from Marketable Securities 364 (929)
(Increase) Decrease in Current Assets-
Accounts Receivable (3,222) (4,333)
Inventories (4,877) 200
Prepaid Expenses 131 (808)
Increase (Decrease) in Current Liabilities-
Accounts Payable and Accrued Expenses (4,276) 2,672
Income Taxes Payable 2,536 3,032
Deferred Income Taxes --- (1,531)
-------- --------
Net Cash Provided/(Used) by Operating Activities $ 10,953 $ 17,111
-------- --------
Cash Flow from Investing Activities:
Expenditures for Property, Plant
& Equipment - Net $ (6,691) $(10,388)
Loans to Officers (73) (407)
Repayment of Officers' Loans 2,369 37
Purchase of Business-Net of Cash (6,369) ---
-------- --------
Net Cash Provided/(Used) by Investing Activities $(10,764) $(10,758)
-------- --------
Cash Flow from Financing Activities:
Exercise of Stock Options $ 698 $ 931
Principal Payments on Long-Term Obligations (53) (53)
Proceeds from Short-Term Borrowings 314 ---
Payment of Short-Term Borrowings --- (8,011)
Cash Dividends Paid (13,459) (13,428)
-------- --------
Net Cash Provided/(Used) by Financing Activities $(12,500) $(20,561)
-------- --------
Effect of Exchange Rate Changes on Cash $ 1,000 $ (312)
-------- --------
Increase (Decrease) in Cash and Equivalents $(11,311) $(14,520)
Cash and Equivalents, Beginning of Period 77,488 72,903
-------- --------
Cash and Equivalents, End of Period $ 66,177 $ 58,383
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these statements.
-4-
<PAGE>
Lawter International, Inc. and Subsidiaries
Notes to the Condensed Financial Statements
Note 1. Inventories
At year end, the Company takes a complete physical inventory to determine
inventory values. During interim periods, the Company uses a combination of
perpetual inventory records, physical inventories and the gross profit method to
determine inventory values.
The Company values the majority of its domestic inventories at last-in, first-
out (LIFO) cost which is not in excess of net realizable value. The Company's
other inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
Because the inventory determination under the LIFO method can only be made at
the end of each fiscal year based on the inventory levels and costs at that
point, interim LIFO determinations, including that at September 30, 1994, must
necessarily be based on management's estimates of expected year end inventory
levels and costs. Such future estimates of inventory levels and prices are
subject to many forces beyond the control of management.
Note 2. Earnings per Share
Earnings per share of common stock are computed on the weighted average shares
outstanding during the respective periods. Net earnings per share would not be
materially different from reported earnings per share if all outstanding stock
options were exercised.
Note 3. Change in Accounting Principle
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS
No. 109 changed the Company's method of accounting for income taxes from the
deferred method to the asset and liability method.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity and Capital Resources
Lawter's cash and equivalents, net of short-term borrowings, decreased
$13,400,000 from $57,400,000 at December 31, 1993 to $44,000,000 at
September 30, 1994. The decrease in cash and equivalents was due primarily to
the purchase of Cremona Resine, an increase in other working capital and
expenditures for the new U.S. resin facility. Lawter anticipates maintaining a
strong liquid position.
The capital expenditures planned for the near future include construction of a
new synthetic resin and printing ink vehicle facility in Europe, as well as
additions to and modernization of existing facilities elsewhere. The Company
currently anticipates using internally generated funds for the majority of these
capital expenditures.
-5-
<PAGE>
Results of Operations
SALES. The Company's consolidated net sales increased 12.0% in the third
quarter of 1994 when compared to the third quarter of 1993. Domestic sales
volume increased 3% while average selling prices remained constant, resulting in
a 3% increase in domestic net sales. Reportable European net sales, which
included the sales of Cremona Resine that was acquired on June 30, 1994,
increased 26% as a result of a 27% increase in sales volume and a 6% increase in
average exchange rates, partially offset by a 6% decrease in average selling
prices. Excluding Cremona Resine sales, the European sales volume would have
shown an increase of 13% and average selling prices a decrease of 2%.
Consolidated net sales for the first nine months of 1994 increased 6.3% over
consolidated net sales for the first nine months of 1993. Domestic sales volume
increased 4% while average selling prices decreased 1%, resulting in a 3%
increase in domestic net sales. While European sales volume, which included the
sales of Cremona Resine, increased 13%, average exchange rates decreased 1% and
average selling prices decreased 3% resulting in an 8% increase in reportable
European net sales. Excluding Cremona Resine sales, the European sales volume
would have shown an increase of 8% and average selling prices a decrease of 2%.
GROSS MARGINS. Gross margins as a percent of net sales were at 29.7% and 30.9%
for the quarters ended September 30, 1994 and 1993, respectively, and 30.2% and
31.0% for the nine months ended September 30, 1994 and 1993, respectively. The
lower percentages in both 1994 periods were primarily the result of higher raw
material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include net foreign transaction exchange gains of
$146,000 and $50,000 for the three months ended September 30, 1994 and 1993,
respectively, and $169,000 and $624,000 for the nine months ended September 30,
1994 and 1993, respectively. Transaction gains and losses result mainly from
the effect of the exchange rate fluctuations on transactions of the foreign
subsidiaries which are denominated in currencies other than the subsidiaries'
functional currencies. Excluding these net transaction gains, selling, general
and administrative expenses as a percent of sales were 10.8% and 11.1% for the
three months and nine months ended September 30, 1994, respectively, and 10.6%
and 10.2% for the three months and nine months ended September 30, 1993,
respectively. The lower percentage in the nine months ended September 30, 1993
was due primarily to $840,000 of gains on the sales of two properties due to
the consolidation of U.S. manufacturing facilities.
INVESTMENT INCOME. Investment income decreased in the third quarter of 1994
when compared to the third quarter of 1993 primarily due to $579,000 in gains on
the sales of marketable securities in 1993 versus a $166,000 write down of
marketable securities to market in 1994. Investment income in the first nine
months of 1994 decreased from the same period in 1993 due primarily to $929,000
in gains on the sales of marketable securities in 1993 versus a $364,000 write
down of marketable securities to market in 1994.
INCOME TAXES. The effective tax rates were 26.1% and 30.0% for the three months
ended September 30, 1994 and 1993, respectively. The higher effective tax rate
in 1993 was due to an increase in the U.S. statutory tax rate from 34% to 35%,
which was changed in the third quarter of 1993 retroactive to January 1, 1993.
For the nine months ended September 30, 1994 and 1993, the effective tax rates
were 26.1% and 27.1%, respectively. The higher effective tax rate in 1993 was
primarily due to additional deferred taxes provided as a result of the increase
in the U.S. statutory tax rate and higher taxes on the disposition of U.S.
property.
-6-
<PAGE>
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.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
As reported in the second quarter 10-Q, a portion of the warehouse of the
Company's new resin manufacturing plant in Pleasant Prairie, Wisconsin
experienced an explosion/fire accident on July 15. The adjacent plant
producing ink vehicles and additives was not affected.
It is now possible to predict that the new resin facility will be restored to
productive use by January 1995. The Company is properly insured and no
significant costs related to the accident are reflected in earnings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAWTER INTERNATIONAL, INC.
--------------------------
(Registrant)
November 11, 1994 /s/ Richard D. Nordman
- ----------------- --------------------------
Richard D. Nordman
President
November 11, 1994 /s/ William S. Russell
- ----------------- --------------------------
William S. Russell
Vice President, Finance
and Secretary
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 66,177
<SECURITIES> 7,527
<RECEIVABLES> 39,433
<ALLOWANCES> 0
<INVENTORY> 33,504
<CURRENT-ASSETS> 148,589
<PP&E> 100,079
<DEPRECIATION> 50,276
<TOTAL-ASSETS> 227,105
<CURRENT-LIABILITIES> 62,686
<BONDS> 4,153
<COMMON> 44,912
0
0
<OTHER-SE> 78,865
<TOTAL-LIABILITY-AND-EQUITY> 227,105
<SALES> 135,873
<TOTAL-REVENUES> 135,873
<CGS> 94,807
<TOTAL-COSTS> 94,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 28,949
<INCOME-TAX> 7,544
<INCOME-CONTINUING> 21,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,405
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
