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 March 31, 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 - 44,834,361 shares outstanding as
of April 30, 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 March 31, 1994 and December 31, 1993
and the results of their operations for the three months ended March 31, 1994
and 1993, and the statements of cash flows for the three months ended March 31,
1994 and 1993, have been included. It should be noted that these interim
statements are based on certain annual estimates such as the final level of LIFO
inventories and the provision for income taxes. These and other similar items
may be subject to year end adjustments. The results of operations for such
interim periods are not necessarily indicative of the results for the full year.
Lawter International, Inc. and Subsidiaries
Condensed Statements of Earnings
(Shown in thousands)
Three Months Ended March 31
---------------------------
1994 1993
-------- --------
Net Sales $ 42,614 $ 42,070
Cost of Products Sold 29,741 28,771
-------- --------
$ 12,873 $ 13,299
Selling, General and Administrative Expenses 4,476 4,275
-------- --------
$ 8,397 $ 9,024
Investment Income 703 1,110
-------- --------
Earnings before Income Taxes and
Cumulative Effect of Accounting Change $ 9,100 $ 10,134
Provision for Income Taxes 2,375 2,534
-------- --------
Earnings before Cumulative Effect of
Accounting Change $ 6,725 $ 7,600
Cumulative Effect of Change in Accounting
for Income Taxes (Note 3) --- 4,025
-------- --------
Net Earnings $ 6,725 $ 11,625
======== ========
Earnings per Share of Common Stock: (Note 2)
Earnings before Cumulative Effect of
Accounting Change $ .15 $ .17
Cumulative Effect of Change in
Accounting for Income Taxes (Note 3) --- .09
-------- --------
Net Earnings $ .15 $ .26
======== ========
Dividends per Share of Common Stock $ .10 $ .10
Weighted Average Shares Outstanding 44,819 44,718
The accompanying notes to the condensed financial statements are an integral
part of these statements.
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<PAGE>
Lawter International, Inc. and Subsidiaries
Condensed Balance Sheets
(Shown in thousands)
March 31 December 31
-------- -----------
Assets 1994 1993
- - -------- -------- --------
Current Assets
Cash $ 5,057 $ 6,701
Time Deposits 69,342 70,787
Marketable Securities 6,439 5,591
Accounts Receivable (net) 33,296 31,317
Inventories (Note 1)
Raw Materials 10,569 11,151
Finished Goods 18,593 15,102
Prepaid Expenses 1,651 1,662
-------- --------
Total Current Assets $144,947 $142,311
-------- --------
Property, Plant and Equipment $ 89,863 $ 87,856
Less Accumulated Depreciation (44,503) (43,661)
-------- --------
Net Property $ 45,360 $ 44,195
-------- --------
Investment in Affiliates $ 18,496 $ 18,077
-------- --------
Intangibles and Other Assets $ 4,718 $ 4,894
-------- --------
Total Assets $213,521 $209,477
======== ========
Liabilities and Stockholders' Equity
- - ------------------------------------
Current Liabilities
Accounts Payable and Accrued Expenses $ 25,372 $ 29,822
Short-Term Borrowings 25,017 20,044
Income Taxes Payable 10,187 8,196
-------- --------
Total Current Liabilities $ 60,576 $ 58,062
-------- --------
Deferred Income Taxes $ 36,458 $ 36,458
-------- --------
Long-Term Obligations $ 4,205 $ 4,206
-------- --------
Total Liabilities $101,239 $ 98,726
-------- --------
Stockholders' Equity
Preferred Stock (None Issued) $ --- $ ---
Common Stock 44,833 44,811
Additional Paid-in Capital 6,387 6,260
Retained Earnings 71,719 69,475
Cumulative Translation Adjustments (7,289) (6,456)
Other (3,368) (3,339)
-------- --------
Net Stockholders' Equity $112,282 $110,751
-------- --------
Total Liabilities and Equity $213,521 $209,477
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these balance sheets.
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<PAGE>
Lawter International, Inc. and Subsidiaries
Condensed Statements of Cash Flows
(Shown in thousands)
Three Months Ended March 31
---------------------------
1994 1993
-------- --------
Cash Flow from Operating Activities:
Net Earnings $ 6,725 $ 11,625
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities-
Depreciation and Amortization 963 1,049
Deferred Income Taxes --- (3,937)
Undistributed Equity Income (419) (306)
Deferred Exchange Gain (Loss) (430) (935)
Purchase of Marketable Securities (1,091) (4,747)
Proceeds from Sales of Marketable Securities --- 2,969
Net (Gain)/Loss from Marketable Securities 244 (298)
(Increase) Decrease in Current Assets-
Accounts Receivable (1,453) (3,882)
Inventories (2,917) (1,236)
Prepaid Expenses 62 (77)
Increase (Decrease) in Current Liabilities-
Accounts Payable and Accrued Expenses (4,532) 893
Income Taxes Payable 1,858 2,995
Deferred Income Taxes --- (1,531)
-------- --------
Net Cash Provided by Operating Activities $ (990) $ 2,582
-------- --------
Cash Flow from Investing Activities:
Expenditures for Property, Plant
& Equipment - Net $ (2,797) $ (3,462)
Loans to Officers (29) (27)
Repayment of Officers' Loans --- 36
-------- --------
Net Cash Used for Investing Activities $ (2,826) $ (3,453)
-------- --------
Cash Flow from Financing Activities:
Exercise of Stock Options $ 149 $ 504
Proceeds from Short-Term Borrowings 4,972 1,578
Cash Dividends Paid (4,482) (4,472)
-------- --------
Net Cash Used for Financing Activities $ 639 $ (2,390)
-------- --------
Effect of Exchange Rate Changes on Cash $ 88 $ 168
-------- --------
Increase (Decrease) in Cash and Equivalents $ (3,089) $ (3,093)
Cash and Equivalents, Beginning of Period 77,488 72,903
-------- --------
Cash and Equivalents, End of Period $ 74,399 $ 69,810
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these statements.
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<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 March 31, 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
$8,000,000 from $57,400,000 at December 31, 1993 to $49,400,000 at March 31,
1994. The decrease in cash and equivalents was due primarily to an increase in
other working capital along with 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.
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<PAGE>
Results of Operations
SALES. The Company's consolidated net sales increased 1.3% in the first quarter
of 1994 when compared to the first quarter of 1993. Domestic sales volume
increased 2% while average selling prices remained constant, resulting in a 2%
increase in domestic net sales. While European sales volume increased 6%, net
reportable European sales decreased 2% as a result of a 5% decrease in average
exchange rates and a 3% decrease in average selling prices due primarily to
product mix.
GROSS MARGINS. Gross margins as a percent of net sales were 30.2% and 31.6% for
the quarters ended March 31, 1994 and 1993, respectively. The lower gross
margin percentage in 1994 was principally due to higher raw material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include net foreign transaction exchange gains of
$327,000 and $466,000 for the three months ended March 31, 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 comparable at 11.3% for the three months
ended March 31, 1994 and 1993.
INVESTMENT INCOME. Investment income in the quarter ended March 31, 1994
decreased from the quarter ended March 31, 1993 due primarily to a $244,000
write down of marketable securities to the lower of cost or market in the first
quarter of 1994 versus $298,000 in gains on the sale of marketable securities in
the first quarter of 1993.
INCOME TAXES. The effective tax rates were 26.1% and 25.0% for the three months
ended March 31, 1994 and 1993, respectively. The higher effective tax rate in
1994 was primarily the result of the increase in the U.S. federal statutory tax
rate from 34% to 35% which was changed in the third quarter of 1993.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on April 28, 1994, shareholders voted
to approve an amendment to the 1992 Non-Qualified Stock Option Plan as proposed
in the Company's 1994 Proxy Statement to Stockholders. The results of the vote
were 34,699,128 affirmative votes; 1,055,842 negative votes; and 768,012
abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) On January 11, 1994, the Company filed a Form 8-K to report a press release
on January 7, 1994 which announced that the Company had provided a $22,000,000
tax charge for undistributed earnings in foreign subsidiaries and $6,000,000 in
other charges.
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<PAGE>
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)
May 13, 1994 /s/ Richard D. Nordman
- - ------------ --------------------------
Richard D. Nordman
President
May 13, 1994 /s/ William S. Russell
- - ------------ --------------------------
William S. Russell
Vice President, Finance
and Secretary
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