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, 1995
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 - 45,066,386 shares outstanding as
of October 31, 1995.
<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, 1995 and December 31,
1994 and the results of their operations for the three months ended September
30, 1995 and 1994, and the nine months ended September 30, 1995 and 1994, and
the statements of cash flows for the nine months ended September 30, 1995 and
1994, 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 Nine Months Ended
September 30 September 30
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
Sales $ 50,971 $ 48,844 $153,469 $135,873
Cost of Products Sold 37,799 34,322 111,981 94,807
-------- -------- -------- --------
13,172 14,522 41,488 41,066
Selling, General and
Administrative Expenses 5,109 5,148 15,928 14,943
-------- -------- -------- --------
8,063 9,374 25,560 26,123
Investment Income 1,607 991 4,565 2,826
-------- -------- -------- --------
Earnings before Income Taxes 9,670 10,365 30,125 28,949
Provision for Income Taxes 2,515 2,710 7,830 7,544
-------- -------- -------- --------
Net Earnings $ 7,155 $ 7,655 $ 22,295 $ 21,405
======== ======== ======== ========
Earnings per Share of Common
Stock (Note 2) $ .16 $ .17 $ .50 $ .48
Dividends per Share of Common
Stock $ .10 $ .10 $ .30 $ .30
Weighted Average Shares
Outstanding 45,051 44,902 45,003 44,860
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)
September 30 December 31
------------ -----------
Assets 1995 1994
- -------- -------- --------
Current Assets
Cash $ 8,307 $ 8,063
Time Deposits 55,857 58,724
Marketable Securities 8,192 4,473
Accounts Receivable (net) 47,399 43,327
Inventories (Note 1)
Raw Materials 23,554 14,366
Finished Goods 25,850 18,437
Prepaid Expenses 2,463 2,739
-------- --------
Total Current Assets 171,622 150,129
-------- --------
Property, Plant and Equipment 118,599 102,788
Less Accumulated Depreciation (54,490) (50,323)
-------- --------
Net Property 64,109 52,465
-------- --------
Investment in Affiliates 21,669 20,139
-------- --------
Intangibles and Other Assets 8,405 9,094
-------- --------
Total Assets $265,805 $231,827
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts Payable and Accrued Expenses $ 31,110 $ 33,217
Short-Term Borrowings 44,443 18,504
Income Taxes Payable 10,790 12,807
-------- --------
Total Current Liabilities 86,343 64,528
-------- --------
Deferred Income Taxes 35,410 35,354
-------- --------
Long-Term Obligations 4,102 4,152
-------- --------
Total Liabilities 125,855 104,034
-------- --------
Stockholders' Equity
Preferred Stock (None Issued) --- ---
Common Stock 45,066 44,924
Additional Paid-in Capital 8,036 6,955
Retained Earnings 89,743 80,929
Cumulative Translation Adjustments (2,698) (5,015)
Other (197) ---
-------- --------
Net Stockholders' Equity 139,950 127,793
-------- --------
Total Liabilities and Equity $265,805 $231,827
======== ========
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)
Nine Months Ended
September 30
-----------------------
1995 1994
-------- --------
Cash Flow from Operating Activities:
Net Earnings $ 22,295 $ 21,405
Adjustments to Reconcile Net Earnings to Net
Cash Provided by (Used for) Operating Activities-
Depreciation and Amortization 4,071 3,123
Deferred Income Taxes 35 ---
Undistributed Equity Income (1,577) (1,579)
Deferred Exchange Gain (Loss) (859) (353)
Purchase of Marketable Securities (3,179) (2,299)
Proceeds from Sales of Marketable Securities 1,000 ---
Net (Gain) Loss from Marketable Securities (1,540) 363
(Increase) Decrease in Current Assets-
Accounts Receivable (3,097) (3,222)
Inventories (15,567) (4,877)
Prepaid Expenses 349 131
Increase (Decrease) in Current Liabilities-
Accounts Payable and Accrued Expenses (2,723) (4,276)
Income Taxes Payable (2,067) 2,536
-------- --------
Net Cash Provided by (Used for) Operating Activities (2,859) 10,952
-------- --------
Cash Flow from Investing Activities:
Expenditures for Property, Plant
& Equipment - Net (13,764) (6,691)
Loans to Officers (197) (73)
Repayment of Officers' Loans --- 2,369
Purchase of Business-Net of Cash --- (6,369)
-------- --------
Net Cash Provided by (Used for) Investing Activities (13,961) (10,764)
-------- --------
Cash Flow from Financing Activities:
Exercise of Stock Options 1,223 698
Principal Payments on Long-Term Obligations (50) (53)
Payment of Short-Term Borrowings (1,063) ---
Proceeds from Short-Term Borrowings 26,978 314
Cash Dividends Paid (13,481) (13,459)
-------- --------
Net Cash Provided by (Used for) Financing Activities 13,607 (12,500)
-------- --------
Effect of Exchange Rate Changes on Cash 590 1,001
-------- --------
Increase (Decrease) in Cash and Equivalents (2,623) (11,311)
Cash and Equivalents, Beginning of Period 66,787 77,488
-------- --------
Cash and Equivalents, End of Period $ 64,164 $ 66,177
======== ========
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, 1995, 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.
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
$28,600,000 from $48,300,000 at December 31, 1994 to $19,700,000 at
September 30, 1995. The decrease in cash and equivalents was due primarily to
an increase in inventory of some important raw materials due to a tightening of
their supply, along with expenditures for the new synthetic resin and printing
ink vehicle facility in Europe. 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 externally generated funds for the majority of these
capital expenditures.
Results of Operations
SALES. The Company's consolidated net sales increased 4.4% in the third quarter
of 1995 when compared to the third quarter of 1994. Domestic average selling
prices increased 3%, while sales volume decreased 8%, resulting in a 5% decrease
in domestic net sales. Reportable European net sales increased 23% as a result
-5-
<PAGE>
of a 9% increase in sales volume, a 6% increase in average selling prices
and a 7% increase caused by higher exchange rates. Consolidated net sales for
the first nine months of 1995 increased 13.0% over consolidated net sales for
the first nine months of 1994. Domestic average selling prices increased 6%,
while sales volume decreased 5%, resulting in a 1% increase in domestic net
sales. Reportable European net sales increased 36%, as the result of an 8%
increase from the sales of Cremona Resine during the first six months of 1995
(the acquisition took place on June 30, 1994), a 10% increase in sales volume,
an 11% increase caused by higher exchange rates and a 6% increase in average
selling prices.
GROSS MARGINS. Gross margins as a percent of net sales were 25.8% and 29.7% for
the quarters ended September 30, 1995 and 1994, respectively, and 27.0% and
30.2% for the nine months ended September 30, 1995 and 1994, respectively. The
lower percentages in both 1995 periods were principally due to higher raw
material costs and startup costs associated with the new resin plant in Pleasant
Prairie, Wisconsin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include net foreign transaction exchange gains (losses)
of $(107,000) and $146,000 for the three months ended September 30, 1995 and
1994, respectively, and $(168,000) and $169,000 for the nine months ended
September 30, 1995 and 1994, respectively. Transaction gains and losses result
mainly from the effect of the exchange rate fluctuations on transactions of the
foreign subsidiaries which are denominated in currencies other than the
subsidiaries' functional currencies. Excluding these net transaction gains
(losses), selling, general and administrative expenses as a percent of sales
were 9.8% and 10.3% for the three months and nine months ended September 30,
1995, respectively, and 10.8% and 11.1% for the three months and nine months
ended September 30, 1994, respectively. The lower percentage in both periods of
1995 resulted primarily from increased sales along with tight controls on
selling, general and administrative expenses.
INVESTMENT INCOME. Investment income in the quarter ended September 30, 1995
increased from the same period in 1994 due principally to a $678,000 write up of
marketable securities to market in 1995 versus a $166,000 write down in 1994.
For the first nine months of 1995, investment income increased from the same
period of 1994 due primarily to a $1,521,000 write up of marketable securities
to market in 1995 versus a $364,000 write down in 1994.
INCOME TAXES. The effective tax rates were comparable at 26.0% and 26.1% for
the three months ended September 30, 1995 and 1994, respectively and 26.0 and
26.1% for the nine months ended September 30, 1995 and 1994, respectively.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On September 25, 1995, the U.S. EPA filed an administrative complaint alleging
record keeping violations under the Toxic Substance Control Act (TSCA).
Simultaneously, Lawter and the U.S. EPA entered into a consent order fully
settling the complaint. Pursuant to the consent order, and without admitting
any liability, the Company has paid $280,000 to the United States and will
conduct a TSCA compliance audit. The Company decided to settle this matter in
order to avoid protracted litigation and the related costs.
-6-
<PAGE>
Item 5. Other Information
On November 9, 1995, the Company issued a news release announcing top management
changes effective January 1, 1996, attached hereto as Exhibit A.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit A - News release dated November 9, 1995
(b) On August 30, 1995, the Company filed a Form 8-K to report that it had
delivered a letter to Kathryn Hach-Darrow, the Chairman of Hach Company
("Hach"), stating that Lawter was prepared to acquire the business of Hach
through a cash merger in which each of the shares of Hach common stock not
already owned by Lawter would be exchanged for $21.00 per share in cash.
On September 15, 1995, the Company filed a Form 8-K to report that it received a
letter from Kathryn Hach-Darrow, stating that Hach's Board had voted to decline
Lawter's offer to purchase the balance of Hach stock that Lawter does not
already own. In view of the response by Hach's Board, the acquisition of the
business of Hach would not be possible and, therefore, Lawter has terminated its
offer.
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 13, 1995 /s/ Richard D. Nordman
- ----------------- --------------------------
Richard D. Nordman
President
November 13, 1995 /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-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 64,164
<SECURITIES> 8,192
<RECEIVABLES> 47,399
<ALLOWANCES> 0
<INVENTORY> 49,404
<CURRENT-ASSETS> 171,622
<PP&E> 118,599
<DEPRECIATION> 54,490
<TOTAL-ASSETS> 265,805
<CURRENT-LIABILITIES> 86,343
<BONDS> 4,102
<COMMON> 45,066
0
0
<OTHER-SE> 94,884
<TOTAL-LIABILITY-AND-EQUITY> 265,805
<SALES> 153,469
<TOTAL-REVENUES> 153,469
<CGS> 111,981
<TOTAL-COSTS> 111,981
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 30,125
<INCOME-TAX> 7,830
<INCOME-CONTINUING> 22,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,295
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
Exhibit A
LAWTER INTERNATIONAL, INC.
990 Skokie Blvd.
Northbrook, IL 60062
NEWS RELEASE For further information, please contact:
Mr. Richard D. Nordman,President
LAWTER INTERNATIONAL ANNOUNCES
TOP MANAGEMENT CHANGES EFFECTIVE JANUARY 1, 1996
Northbrook, Illinois -- November 9, 1995 -- Lawter today announced
that Daniel J. Terra, Founder of the Company and currently Chairman and Chief
Executive Officer indicated that he was going to step down as Chief Executive
Officer effective January 1, 1996, but will continue as Chairman of the Board.
Mr. Terra and his family own approximately 33% of Lawter common stock. Also,
Richard D. Nordman, currently President and Chief Operating Officer, has
indicated his desire to step down effective January 1, 1996. He will remain as a
Director and will become a Consultant to the Company effective January 1, 1996.
Mr. Nordman stated that it has been a privilege to be part of the leadership of
Lawter over the past 21 years. His reasons for stepping down are to fulfill
personal and professional opportunities. He looks forward to continuing his
affiliation with the Company. Daniel Terra stated "I am pleased that Mr.
Nordman will continue his involvement with the Company's affairs."
The Board has elected John P. O'Mahoney, 39, Vice-Chairman and new Chief
Executive Officer, effective January 1, 1996. Mr. O'Mahoney has been with
Lawter for 19 years, and is currently Vice President/European Operations. Also,
John P. Jilek, 43, who has been with Lawter for 15 years and is currently Vice
President/Sales, has been elected President and Chief Operating Officer
effective January 1, 1996. At the same time, Peter Samuelson, who has been with
the Company for ten years and currently manages the U.S. West Coast operations
and Mexico, has been appointed to the position of General Manager/European
Operations, effective January 1, 1996.
The Chairman stated: "European operations have grown rapidly over the
past ten years with Mr. O'Mahoney's involvement and management. Europe accounts
for more than 40% of Lawter's consolidated business and this experience uniquely
qualifies Mr. O'Mahoney for this new role with the Company. Mr. Jilek, with
previous General Manager experience in Europe, has had a leadership role in
worldwide management and expansion, other than Europe, for the past five years."
Headquartered in Northbrook, Illinois, Lawter is a specialty chemical
manufacturer with 24 facilities in 15 countries. Major products are printing
ink vehicles, specialty additives, synthetic resins, fluorescent colors and
thermographic products and equipment. Major markets served are the graphic
arts, coatings, adhesives and rubber compounding industries.
