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, 1996
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)
(847) 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 - 45,075,719 shares outstanding as
of April 30, 1996.
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, 1996 and December 31, 1995
and the results of their operations for the three months ended March 31, 1996
and 1995, and the statements of cash flows for the three months ended March 31,
1996 and 1995, 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
---------------------------
1996 1995
-------- --------
Net Sales $ 49,366 $ 52,489
Cost of Products Sold 36,626 37,492
-------- --------
$ 12,740 $ 14,997
Selling, General and Administrative Expenses 5,470 5,534
-------- --------
$ 7,270 $ 9,463
Investment Income 1,171 1,466
-------- --------
Earnings before Income Taxes $ 8,441 $ 10,929
Provision for Income Taxes 2,276 2,839
-------- --------
Net Earnings $ 6,165 $ 8,090
======== ========
Earnings per Share of Common Stock (Note 2) $ .14 $ .18
Dividends per Share of Common Stock $ .10 $ .10
Weighted Average Shares Outstanding 45,071 44,945
The accompanying notes to the condensed financial statements are an integral
part of these statements.
-2-
Lawter International, Inc. and Subsidiaries
Condensed Balance Sheets
(Shown in thousands)
March 31 December 31
-------- -----------
Assets 1996 1995
- -------- -------- --------
Current Assets
Cash $ 9,058 $ 9,865
Time Deposits 56,533 53,815
Marketable Securities 23,198 6,481
Accounts Receivable (net) 41,743 42,557
Inventories (Note 1)
Raw Materials 21,291 22,815
Finished Goods 21,247 22,362
Prepaid Expenses 2,470 2,222
-------- --------
Total Current Assets $175,540 $160,117
-------- --------
Property, Plant and Equipment $134,541 $126,406
Less Accumulated Depreciation (56,414) (55,505)
-------- --------
Net Property $ 78,127 $ 70,901
-------- --------
Investment in Affiliates $ 22,911 $ 22,312
-------- --------
Intangibles and Other Assets $ 8,109 $ 8,144
-------- --------
Total Assets $284,687 $261,474
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts Payable and Accrued Expenses $ 42,065 $ 44,025
Short-Term Borrowings 39,568 39,983
Income Taxes Payable 8,156 8,215
-------- --------
Total Current Liabilities $ 89,789 $ 92,223
-------- --------
Deferred Income Taxes $ 35,627 $ 35,790
-------- --------
Long-Term Obligations $ 29,100 $ 4,100
-------- --------
Total Liabilities $154,516 $132,113
-------- --------
Stockholders' Equity
Preferred Stock (None Issued) $ --- $ ---
Common Stock 45,076 45,066
Additional Paid-in Capital 8,124 8,036
Retained Earnings 80,876 79,218
Cumulative Translation Adjustments (3,860) (2,914)
Other (45) (45)
-------- --------
Net Stockholders' Equity $130,171 $129,361
-------- --------
Total Liabilities and Equity $284,687 $261,474
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these balance sheets.
-3-
Lawter International, Inc. and Subsidiaries
Condensed Statements of Cash Flows
(Shown in thousands)
Three Months Ended March 31
---------------------------
1996 1995
-------- --------
Cash Flow from Operating Activities:
Net Earnings $ 6,165 $ 8,090
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities-
Depreciation and Amortization 1,407 1,193
Deferred Income Taxes (152) 113
Undistributed Equity Income (614) (527)
Deferred Exchange Gain (Loss) 271 (51)
Purchase of Marketable Securities (19,623) ---
Proceeds from Sales of Marketable Securities 2,959 1,000
Net (Gain) Loss from Marketable Securities (53) (418)
(Increase) Decrease in Current Assets-
Accounts Receivable 442 (832)
Inventories 2,091 (14,624)
Prepaid Expenses (276) (380)
Increase (Decrease) in Current Liabilities-
Accounts Payable and Accrued Expenses (1,620) (471)
Income Taxes Payable (58) (1,935)
-------- --------
Net Cash Used for Operating Activities $ (9,061) $ (8,842)
-------- --------
Cash Flow from Investing Activities:
Expenditures for Property, Plant
& Equipment - Net $ (9,456) $ (1,704)
Loans to Officers --- (43)
-------- --------
Net Cash Used for Investing Activities $ (9,456) $ (1,747)
-------- --------
Cash Flow from Financing Activities:
Exercise of Stock Options $ 98 $ 326
Proceeds from Long-Term Borrowings 25,000 ---
Payment of Short-Term Borrowings (6,000) ---
Proceeds from Short-Term Borrowings 5,949 9,243
Cash Dividends Paid (4,507) (4,494)
-------- --------
Net Cash Provided by Financing Activities $ 20,540 $ 5,075
-------- --------
Effect of Exchange Rate Changes on Cash $ (112) $ 351
-------- --------
Increase (Decrease) in Cash and Equivalents $ 1,911 $ (5,163)
Cash and Equivalents, Beginning of Period 63,680 66,787
-------- --------
Cash and Equivalents, End of Period $ 65,591 $ 61,624
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these statements.
-4-
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, 1996, 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. Restructuring Charges
In the fourth quarter of 1995, the Company implemented a restructuring plan that
resulted in a fourth quarter pretax charge of $8,449,000, of which $7,321,000 is
remaining as of March 31, 1996. The charge was taken to cover the one-time
costs of consolidating manufacturing facilities (primarily in Europe), reduction
of personnel and disposal of certain assets. In the first quarter of 1996,
$853,000 of these charges were utilized in connection with the personnel
reductions.
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, increased
$2,300,000 from $23,700,000 at December 31, 1995 to $26,000,000 at March 31,
1996. The increase in net cash and equivalents was due primarily to a
$25,000,000 increase in long-term obligations, partially offset by a $16,700,000
increase in marketable securities and expenditures for the new plant in Belgium.
Lawter anticipates maintaining a strong liquid position.
The capital expenditures planned for the near future include continued
construction of a new polymer facility in Europe, as well as additions to and
modernization of existing facilities elsewhere. The Company currently
anticipates using externally generated funds for the majority of these capital
expenditures.
-5-
Results of Operations
SALES. The Company's consolidated net sales decreased 6% in the first quarter
of 1996 when compared to the first quarter of 1995. Domestic net sales
decreased 5% as a result of average selling prices decreasing 8% due primarily
to product mix, while sales volume increased 3%. Reportable European net sales
decreased 4% as a result of a 5% decrease in sales volume, partially offset by a
1% increase caused by higher exchange rates.
GROSS MARGINS. Gross margins as a percent of net sales were 25.8% and 28.6% for
the quarters ended March 31, 1996 and 1995, respectively. The lower gross
margin percentage in 1996 was principally due to lower sales, as indicated
above, reflecting soft demand for printing ink.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include net foreign transaction exchange gains/(losses)
of $(338,000) and $64,000 for the three months ended March 31, 1996 and 1995,
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 10.4% and 10.7% for the three
months ended March 31, 1996 and 1995, respectively. The lower percentage in
1996 resulted primarily from tight controls and reduced costs achieved as part
of the 1995 restructuring plan.
INVESTMENT INCOME. Investment income in the quarter ended March 31, 1996
decreased from the quarter ended March 31, 1995 due primarily to $53,000 in net
gains on marketable securities in the first quarter of 1996 versus $418,000 in
net gains in the first quarter of 1995.
INCOME TAXES. The effective tax rates were 27.0% and 26.0% for the three months
ended March 31, 1996 and 1995, respectively. The higher rate in 1996 was the
result of lower foreign earnings taxed at a lower rate.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) On January 12, 1996, the Company filed a Form 8-K to report a news release
on January 9, 1996 which announced that the Company had provided approximately
$11 million after tax for consolidation of facilities, employee reduction and
other charges to 1995 fourth quarter earnings.
The Company also reported in the 8-K that it had entered into an
uncommitted Private Shelf Agreement with The Prudential Insurance Company of
America providing for potential sales of senior notes of the Company of up to
$125,000,000 in aggregate principal amount.
-6-
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 14, 1996 /s/ John P. O'Mahoney
- ------------ --------------------------
John P. O'Mahoney
Vice Chairman and
Chief Executive Officer
May 14, 1996 /s/ William S. Russell
- ------------ --------------------------
William S. Russell
Vice President, Finance
and Secretary
-7-
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