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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______________________ TO ______________________
COMMISSION FILE NUMBER 1-7558
LAWTER INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (847) 498-4700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ----------------------------- -----------------------------
<S> <C>
COMMON STOCK, $1.00 PAR
VALUE PER SHARE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
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 ____
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. /X/
AS OF FEBRUARY 14, 1997, 45,354,035 COMMON SHARES WERE OUTSTANDING. THE
AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE FEBRUARY 14, 1997
CLOSING PRICE OF THESE SHARES ON THE NEW YORK STOCK EXCHANGE) OF LAWTER
INTERNATIONAL, INC. HELD BY NON-AFFILIATES WAS APPROXIMATELY $368 MILLION.
DOCUMENTS INCORPORATED BY REFERENCE
ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1996 -- PARTS I
AND II.
PROXY STATEMENT TO STOCKHOLDERS FOR THE 1997 ANNUAL MEETING -- PART III.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
FORM 10-K
ITEM NO. NAME OF ITEM PAGE
- ---------- -------------------------------------------------------------------------------------------- -----
<S> <C> <C>
Part I
Item 1. Business.................................................................................... 2
Item 2. Properties.................................................................................. 4
Item 3. Legal Proceedings........................................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders......................................... 5
Item 4A. Executive Officers of the Registrant........................................................ 5
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................... 5
Item 6. Selected Financial Data..................................................................... 5
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 8
Item 8. Financial Statements and Supplementary Data................................................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 11
Part III
Item 10. Directors and Executive Officers of the Registrant.......................................... 11
Item 11. Executive Compensation...................................................................... 11
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 11
Item 13. Certain Relationships and Related Transactions.............................................. 11
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 12
Report of Independent Public Accountants on Schedule and Consent of
Independent Public Accountants........................................................................ 26
Signatures.............................................................................................. 28
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS--
INDUSTRY SEGMENTS.
The Company is engaged predominantly in a single industry, specialty
polymers.
NARRATIVE DESCRIPTION OF BUSINESS--
PRINCIPAL PRODUCTS.
Reference is made to the information set forth under the caption "About
Lawter International, Inc." on the inside front cover of the Company's 1996
Annual Report to Stockholders (hereby incorporated by reference) for this
information.
Information with respect to sales by product group is as follows:
<TABLE>
<CAPTION>
(PERCENT OF NET SALES) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Printing Ink Vehicles and Slip Additives................................ 43.3 44.7 47.5
Synthetic and Hydrocarbon Resins........................................ 52.2 50.2 46.7
Other................................................................... 4.5 5.1 5.8
</TABLE>
No material part of the business of the Company is dependent upon a single
product for any customer or a small group of customers.
The Company manufactures and warehouses its products in four plants in the
United States and in eight plants in foreign countries (Belgium, China, Denmark,
England, Germany, Ireland, Singapore and Spain). Products are sold primarily by
Company employed salesmen.
RAW MATERIALS.
The basic ingredients of the Company's products are purchased from others,
including larger chemical firms. Such ingredients are normally in adequate
supply. A portion of the Company's resin production is used by it in the
manufacture of printing ink vehicles.
PATENTS.
The Company owns certain patents on its products, but no single patent is
considered to be materially important to its business.
SEASONAL INFLUENCES.
The business of the Company is not in any material respect subject to
seasonal influences.
BACKLOG.
Since the Company generally fills orders for its products out of current
inventories, there is no significant backlog of orders at any time.
CUSTOMERS.
The Company sells the majority of 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 the larger ink
companies around the world. The Company believes the five largest ink companies
are, in alphabetical order, Coates/Lorilleux, Dianippon Ink and Chemicals, Flint
Ink, Sakata and Toyo. Lawter sells a variety of specialized products to each of
their numerous companies, subsidiaries or branches in various countries, where
the purchasing decisions normally are made. Dianippon Ink and
2
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Chemicals is Lawter's largest multilocation customer with nineteen percent of
consolidated net sales for the most recently completed fiscal year.
COMPETITION.
The Company encounters keen competition in the conduct of its business.
Industry data indicating the relative ranking of competitive companies is not
available. The Company competes with several other independent producers of
printing ink vehicles and slip additives. The larger printing ink manufacturers
produce some of the vehicles required in their own operations, although
generally they do not sell vehicles in competition with the Company. The Company
is considered to be one of the medium sized to smaller producers of synthetic
and hydrocarbon resins. Several other producers of synthetic and hydrocarbon
resins are large chemical companies with much greater total sales and resources
than those of the Company. The Company is one of several manufacturers of
fluorescent pigments and one of numerous manufacturers of fluorescent coatings
which compete in the world market with numerous large and small producers of
organic pigments and coatings.
In the sale of its principal products, printing ink vehicles, slip
additives, and synthetic and hydrocarbon resins, the Company's principal methods
of meeting competition are in the areas of product performance and service. The
Company specializes in products prepared primarily for specific end uses such as
vehicles used in printing inks having particular characteristics, including fast
setting and mar resistant inks, ink systems designed to produce less waste and
resins used in the production of specialty inks, plastics and protective
coatings. The Company is capable of fulfilling the requirements of customers
either from inventories or from production runs on relatively short notice.
The Company has approximately 25 competitors in the sale of its line of
printing ink vehicles and slip additives, and approximately 50 competitors in
the sale of its synthetic and hydrocarbon resins.
RESEARCH.
During the fiscal years ended December 31, 1996, 1995 and 1994, the Company
spent approximately $5,049,000, $5,320,000 and $4,821,000, respectively, on
research activities relating to the development of new products and the
improvement of existing products.
ENVIRONMENTAL MATTERS.
Environmental laws regulate the discharge of materials into the environment
and may require the Company to remove or minimize the environmental effects of
the disposal of waste. Environmental expenditures are expensed or capitalized
depending upon their future economic benefit. Expenditures that relate to an
existing condition caused by past operations and that have no future economic
benefits are expensed. Liabilities are recorded when environmental assessment
and/or remediation is probable and the costs can be reasonably estimated.
Expenditures for environmental matters during the fiscal years ended December
31, 1996, 1995 and 1994 were not material to the consolidated financial
statements of the Company.
It has been and is the Company's policy to voluntarily install equipment
deemed necessary to control the discharge of pollutants into the environment.
The Company has voluntarily installed numerous in-line
incinerators/after-burners at its major manufacturing facilities in order to
minimize the generation of vapor, liquid or solid waste. The Company believes
that its facilities and products comply in all material respects with applicable
environmental regulations and standards.
The Company believes that compliance with the Federal, state and local
environmental laws has had no material effect upon the capital expenditures or
competitive position of the Company. Environmental capital expenditures in 1997
are not anticipated to be material. The Company does not believe, based on
information available at this time, that the level of future expenditures for
environmental matters will have a material effect on its consolidated financial
position.
3
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EMPLOYEES.
At December 31, 1996, the Company had 502 employees.
FOREIGN SALES--
Reference is made to Note 9 in the Consolidated Financial Statements which
are included in this Form 10-K Annual Report as indicated in Item 14.
ITEM 2. PROPERTIES.
Information with respect to the principal properties, all of which are of
masonry and metal clad construction, in which the Company's operations are
conducted is as follows:
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR AREA
(SQUARE PRINCIPAL PRODUCTS OWNED OR
LOCATION FEET) OR ACTIVITIES LEASED
- --------------------------------------- ------------ ----------------------------------------------- ---------
<S> <C> <C> <C>
Northbrook, Illinois 16,000 Corporate headquarters Owned
Bell, California 15,000 Warehouse Leased
La Vergne, Tennessee 27,000 Printing ink vehicles Owned
Warehouse
South Kearny, New Jersey 42,000 Warehouse Owned
Pleasant Prairie, Wisconsin 232,000 Printing ink vehicles and slip additives Owned
Synthetic and hydrocarbon resins
Research facilities
Warehouse
Moundville, Alabama 250,000 Synthetic and hydrocarbon resins (1)
Warehouse
Skokie, Illinois 66,000 Fluorescent pigments and coatings Owned
Research facilities
Warehouse
Kallo, Belgium 230,000 Printing ink vehicles and slip additives Owned
Synthetic and hydrocarbon resins
Research facilities
Warehouse
Rexdale, Ontario, Canada 66,000 Warehouse Owned
Tanggu, Peoples Republic of China 40,000 Printing ink vehicles Owned
Synthetic resins
Warehouse
Koge, Denmark 14,000 Warehouse Owned
Printing ink vehicles
Bicester, Oxon, England 38,000 Printing ink vehicles Owned
Fluorescent pigments
Warehouse
Frechen, Germany 17,000 Printing ink vehicles Leased
Warehouse
Waterford, Ireland 97,000 Synthetic resins Owned
Cremona, Italy 72,000 Warehouse Owned
Jurong Town, Singapore 10,000 Printing ink vehicles Owned
Warehouse
Barcelona, Spain 12,000 Printing ink vehicles Leased
Warehouse
</TABLE>
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(1) The Moundville, Alabama plant is leased as described in Note 7 in the
Consolidated Financial Statements which are included in this Form 10-K
Annual Report as indicated in Item 14.
4
<PAGE>
ITEM 3. 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 U.S. EPA and is conducting a
TSCA compliance audit. The Company decided to settle this matter in order to
avoid protracted litigation and related costs. The outcome of this compliance
audit has not been determined, however, any potential liability related to this
matter has been fully accrued.
Reference is made to Note 8 in the Consolidated Financial Statements which
are included in this Form 10-K Annual Report as indicated in Item 14 for
additional information.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders in the fourth
quarter of the year ended December 31, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the executive officers of the Company, all of
whose terms will expire at the annual meeting of the Board of Directors in April
1997, is as follows:
<TABLE>
<CAPTION>
YEAR
NAME POSITION AGE ELECTED
- ---------------------- ----------------------------------------------------------------- --- ---------
<S> <C> <C> <C>
John P. O'Mahoney..... Chairman of the Board and Chief Executive Officer 40 1996
John P. Jilek......... President and Chief Operating Officer 45 1996
Mark W. Joslin........ Chief Financial Officer, Treasurer and Secretary 37 1996
Ludwig P. Horn........ Vice President 67 1980
</TABLE>
Mr. O'Mahoney served as Vice President, 1993-1995 and as European General
Manager, 1990-1993 of the Company. Mr. Jilek served as Vice President of the
Company, 1989-1995. Mr. Joslin served as the Corporate Controller for ANGUS
Chemical Company, 1991-1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Reference is made to the information listed under "Common Stock Prices" and
"Dividends Per Common Share" on the inside back cover of the Company's 1996
Annual Report to Stockholders (hereby incorporated by reference ) for this
information.
ITEM 6. SELECTED FINANCIAL DATA.
Information with respect to selected financial data is as follows. This
information should be read in conjunction with the Consolidated Financial
Statements which are included in this Form 10-K Annual Report as indicated in
Item 14.
5
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TEN YEAR FINANCIAL SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------
1996(1) 1995(1) 1994(1) 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales........................................... $ 193,814 $ 204,835 $ 191,056 $ 172,249 $ 167,568
---------- ---------- ---------- ---------- ----------
Gross Profit........................................ 57,014 42,193 56,162 43,833 51,395
Selling, General and Administrative Expenses........ 21,374 25,154 20,970 18,700 20,103
---------- ---------- ---------- ---------- ----------
Operating Income.................................... 35,640 17,039 35,192 25,133 31,292
Investment Income................................... 4,914 6,170 4,470 4,318 5,271
---------- ---------- ---------- ---------- ----------
Earnings Before Income Taxes and Cumulative Effect
of Accounting Change.............................. 40,554 23,209 39,662 29,451 36,563
Provision for Income Taxes.......................... 11,779 6,931 10,257 28,449(5) 9,548
---------- ---------- ---------- ---------- ----------
Earnings Before Cumulative Effect of Accounting
Change............................................ 28,775 16,278 29,405 1,002 27,015
Cumulative Effect of Change in Accounting for Income
Taxes............................................. -- -- -- 4,025(4) --
---------- ---------- ---------- ---------- ----------
Net Earnings........................................ $ 28,775 $ 16,278 $ 29,405 $ 5,027 $ 27,015
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Depreciation and Amortization....................... $ 5,499 $ 5,447 $ 4,344 $ 4,291 $ 4,179
Cash Provided by Operating Activities............... 25,253 13,766 23,047 23,811 34,440
Cash Dividends...................................... 18,077 17,989 17,951 17,909 17,556
Capital Expenditures, net........................... 25,925 21,928 10,613 12,940 7,548
Gross Property, Plant and Equipment................. 141,346 126,406 102,788 87,856 78,491
Net Working Capital................................. 74,410 71,722 88,993 87,523 96,082
Total Assets........................................ 293,123 261,474 231,827 209,477 187,334
Long-term Obligations............................... 29,050 4,100 4,152 4,206 4,858
Stockholders' Equity................................ 145,615 133,189 131,185 114,025 129,659
Average Shares Outstanding(2)....................... 45,175 45,018 44,874 44,772 43,913
Earnings per Share(2):
Earnings Before Cumulative Effect of Accounting
Change............................................ $ .64 $ .36 $ .66 $ .02 $ .62
Cumulative Effect of Change in Accounting for Income
Taxes............................................. -- -- -- .09(4) --
---------- ---------- ---------- ---------- ----------
Net Earnings........................................ $ .64 $ .36 $ .66 $ .11 $ .62
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash Dividends per Share(2)......................... .40 .40 .40 .40 .40
Stockholders' Equity per Share(2)................... 3.22 2.96 2.92 2.55 2.95
Cash Dividends to Net Earnings...................... 62.8% 110.5% 61.0% 356.3% 65.0%
Net Earnings to Average Equity...................... 20.6% 12.3% 24.0% 4.1% 21.9%
</TABLE>
- ------------
(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) Restated to reflect the effects of SFAS No. 95 which was adopted in 1988.
(4) Represents cumulative effect on prior years' earnings of adopting SFAS No.
109 which was adopted January 1, 1993.
(5) Includes additional tax provision of $21.6 million for future repatriation
of foreign earnings.
6
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TEN YEAR FINANCIAL SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------
1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales............................................ $ 152,893 $ 150,005 $ 136,006 $ 125,818 $ 112,018
---------- ---------- ---------- ---------- ----------
Gross Profit......................................... 48,396 46,362 38,624 38,949 34,556
Selling, General and Administrative Expenses......... 18,254 18,682 16,122 14,751 11,960
---------- ---------- ---------- ---------- ----------
Operating Income..................................... 30,142 27,680 22,502 24,198 22,596
Investment Income.................................... 6,221 4,963 3,929 3,173 1,952
---------- ---------- ---------- ---------- ----------
Earnings Before Income Taxes and Cumulative Effect of
Accounting Change.................................. 36,363 32,643 26,431 27,371 24,548
Provision for Income Taxes........................... 9,893 9,223 6,963 6,520 7,847
---------- ---------- ---------- ---------- ----------
Earnings Before Cumulative Effect of Accounting
Change............................................. 26,470 23,420 19,468 20,851 16,701
Cumulative Effect of Change in Accounting for Income
Taxes.............................................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net Earnings......................................... $ 26,470 $ 23,420 $ 19,468 $ 20,851 $ 16,701
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Depreciation and Amortization........................ $ 3,900 $ 3,521 $ 3,550 $ 3,410 $ 3,193
Cash Provided by Operating Activities................ 23,192 34,240 20,388 15,796 22,726(3)
Cash Dividends....................................... 14,947 12,582 12,561 12,403 9,820
Capital Expenditures, net............................ 8,902 6,198 3,073 4,524 1,405(3)
Gross Property, Plant and Equipment.................. 74,022 66,271 57,421 54,282 49,503
Net Working Capital.................................. 87,075 82,560 70,200 62,807 59,719
Total Assets......................................... 178,218 153,500 133,988 125,210 109,917
Long-term Obligations................................ 5,238 5,137 5,083 4,810 4,682
Stockholders' Equity................................. 117,315 105,090 87,752 79,521 69,458
Average Shares Outstanding(2)........................ 43,318 43,011 42,940 42,267 41,673
Earnings per Share(2):
Earnings Before Cumulative Effect of Accounting
Change............................................. $ .61 $ .54 $ .45 $ .49 $ .40
Cumulative Effect of Change in Accounting for Income
Taxes.............................................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net Earnings......................................... $ .61 $ .54 $ .45 $ .49 $ .40
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash Dividends per Share(2).......................... .35 .29 .29 .29 .24
Stockholders' Equity per Share(2).................... 2.71 2.44 2.04 1.88 1.67
Cash Dividends to Net Earnings....................... 56.5% 53.7% 64.5% 59.5% 58.8%
Net Earnings to Average Equity....................... 23.8% 24.3% 23.3% 28.0% 26.8%
</TABLE>
7
<PAGE>
ITEM 7. 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
$7,700,000 from $23,700,000 at December 31, 1995 to $16,000,000 at December 31,
1996. The decrease was due primarily to expenditures for the new resin and
printing ink vehicle facility in Belgium, the purchase of a resin division from
Hercules Inc. and the purchase of a resin division from Wolstenholme
International Limited, partially offset by a $25,000,000 increase in long-term
obligations. 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 to satisfy these requirements.
In 1996 and 1995, the Company used external financing in connection with the
new manufacturing facility in Belgium. In 1994, the majority of Lawter's capital
expansion program was financed with internally generated funds. The revised
capital expenditures budget for 1996 was $26,500,000. Actual expenditures were
9% higher than budgeted due primarily to additional expenditures at the new
manufacturing facility which were not included in the budget. Lawter's capital
expenditures for 1997 are estimated at $7,500,000. These expenditures include
the construction of a new corporate headquarters in Pleasant Prairie, Wisconsin
as well as additions to existing facilities elsewhere. The Company currently
anticipates using internally generated funds for the majority of these capital
expenditures.
RESULTS OF OPERATIONS
1996 VERSUS 1995
NET SALES. The Company experienced softness in the major markets for its
products in 1996. Consolidated net sales decreased by 5% when compared to 1995.
Record high paper prices in the second half of 1995 brought about a tightening
in certain markets for printed material. These markets are the principal outlets
for the Company's products. Paper prices have since subsided.
By region, net sales decreased 3% domestically, 10% in Europe and increased
5% in other regions when compared to 1995. In addition to paper prices, European
sales were also impacted by a downturn in major European economies; a stronger
U.S. dollar versus most European currencies; more intensive competition; a
disruption in supply caused by an extended shutdown of the Company's production
facility in Ireland during the year; and by the Company's decision not to renew
participation in certain low margin business.
GROSS PROFIT. Gross profit as a percent of sales was 29.4% and 20.6% for
1996 and 1995, respectively. Excluding the charges listed below, the gross
profit for 1995 would have been 25.8%. The higher gross profit in 1996 when
compared to 1995 excluding the charges listed below was the result of the
accounting for business interruption insurance claims (see "Insurance" below), a
favorable LIFO inventory adjustment, decreased operating costs as a result of
the restructuring plan described in "Restructuring Charges" below and lower raw
material costs domestically, partially offset by the startup costs of the new
polymer facility in Belgium. The 1995 gross margin was decreased by $5,658,000
for restructuring charges (see "Restructuring Charges" below) and $4,904,000 for
other charges. Other charges include: 1) Write down of inventory to net
realizable value - $1,215,000. This charge was the result of a review made
during the fourth quarter of 1995 which disclosed that certain inventory would
have to be reprocessed or sold at a price below the recorded book value; 2)
Write off of the book value of a previously decommissioned manufacturing
facility - $1,235,000. During the fourth quarter of 1995, the Company determined
it may not be able to sell this property and therefore its book value was
written off; 3) Disputed charges on a raw material - $1,100,000. This represents
disputed charges on a specific raw material which the Company determined, in the
fourth quarter of 1995, it may be responsible for; 4) Disputed utility charges -
$900,000. This was due to a dispute of utility charges at one location; 5) Other
smaller items - $454,000.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $25,154,000 in 1995 to $21,374,000 in
1996. The 1995 selling, general and administrative expenses included
restructuring costs (see "Restructuring Charges" below) of $2,791,000. Excluding
these charges, selling, general and administrative expenses decreased by
$989,000 as a result of the implementation of the restructuring plan in 1996,
lower 1996 sales and a favorable foreign exchange impact.
INVESTMENT INCOME. Investment income decreased in 1996 when compared to
1995 as cash and marketable securities were used to finance capital expenditures
and acquisitions and interest expense was incurred on borrowings to finance the
new plant in Belgium. Also included in 1995, was the benefit of favorable market
value adjustments on securities held. These favorable impacts were partially
offset by increased equity earnings in the Hach Company investment.
INCOME TAXES. The effective tax rates for 1996 and 1995 were 29.0% and
29.9%, respectively. The 1995 tax rate included the effect of the restructuring
charges discussed below. Without this charge, the 1995 effective tax rate would
have been 26.1%. The higher 1996 rate compared to the 1995 rate, excluding
theses charges, was due to a shift in earnings from lower to higher taxed
entities.
1995 VERSUS 1994
NET SALES. Consolidated net sales increased 7% in 1995 when compared to
1994. Domestic average selling prices increased 3%, while sales volume decreased
7%, resulting in a 4% decrease in domestic net sales. The decreased volume was
brought about by record high paper prices causing a softness in demand in the
printing ink market. Reportable European net sales increased 25% as a result of
a 5% increase from the sales of Cremona Resine during the first six months of
1995 (the acquisition took place on June 30, 1994), a 5% increase in sales
volume, an 8% increase caused by higher exchange rates and a 6% increase in
average selling prices.
GROSS PROFIT. Gross profit as a percent of sales was 20.6% and 29.4% for
1995 and 1994, respectively. Excluding the charges listed above, the gross
profit for 1995 would have been 25.8%. The lower gross margin for 1995 when
compared to 1994, excluding the restructuring and other charges listed above,
was caused principally by higher raw material costs not fully offset by selling
price increases, an unfavorable LIFO inventory adjustment and startup costs
associated with the new U.S. resin plant.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $20,970,000 in 1994 to $25,154,000 in
1995. The 1995 selling, general and administrative expenses included
restructuring costs (see "Restructuring Charges" below) of $2,791,000. Excluding
these charges, selling, general and administrative expenses increased by
$1,393,000 from 1994 to 1995. This was primarily a result of the 7% increase in
sales in 1995 and $500,000 in certain personnel costs and other smaller items.
INVESTMENT INCOME. Investment income in 1995 increased from 1994 due
primarily to $2,002,000 in net gains on marketable securities in 1995 compared
to $349,000 in net losses in 1994 along with increased equity earnings in Hach
Company, partially offset by increased interest expense from borrowings to
finance the new U.S. resin plant and to satisfy U.S. working capital
requirements. The net gains in marketable securities in 1995 versus the net
losses in 1994 was primarily the result of a market swing in the value of the
marketable securities held by the Company during these periods.
INCOME TAXES. The effective tax rates for 1995 and 1994 were 29.9% and
25.9%, respectively. The 1995 tax rate included the effect of the restructuring
charges discussed below. Without this charge, the 1995 effective tax rate would
have been 26.1%, which was comparable to the 1994 rate.
OTHER MATTERS
RESTRUCTURING CHARGES.
In the fourth quarter of 1995, a new management team was formed. The new
management, taking into account a change in market conditions, developed a new
corporate strategy. Part of the decision making
9
<PAGE>
process included an evaluation of the feasibility of continuing to utilize older
manufacturing facilities. With the anticipated completion of construction of the
new ink vehicle and resin facility in Belgium combined with the new ink vehicle
and resin facility in the U. S., the Company decided to implement a
restructuring plan. This plan included the decommissioning of older ink vehicle
and resin plants. This resulted in a pretax charge in the fourth quarter of 1995
of $8,449,000, of which $2,791,000 was charged to selling, general and
administrative expenses for personnel redundancy and $5,658,000 was charged to
Cost of Products Sold for site decommissioning. These restructuring activities
commenced in the fourth quarter of 1995 and will continue through the middle of
1997.
The personnel redundancy costs relate to cash outlays for benefits to be
paid to the manufacturing and office employees at the older plants in Europe and
North America. The labor force will be reduced by approximately 100 positions
when the restructuring plan is completed, of which 73 positions have already
been eliminated. As of December 31, 1996, employee headcount was down to 502
employees from a high of 604 employees in 1995. Redundancy payments charged
against the reserve through December 31, 1996 were $2,278,000 including
$2,003,000 utilized in 1996.
The site decommissioning costs represent demolition, cleanup and asset write
down costs for older facilities, mainly in Europe and North America. Included in
the $5,658,000, is $4,461,000 for non-cash items which relate to the write down
of the net book value of the assets at these locations. As of December 31, 1996,
three manufacturing facilities in North America were shut down and two
manufacturing facilities in Europe were in the final stages of being shut down.
The costs charged against the reserve related to these facilities were
$3,652,000 comprised of $3,738,000 for the write down of net book value of the
assets, $153,000 for cleanup costs and $191,000 for relocation costs partially
offset by the proceeds of $430,000 from the sale of the assets of one of the
North American facility.
INSURANCE. In April 1996, there was an explosion and fire at the Company's
resin facility in Ireland. The facility was shut down for several months. The
Company was adequately insured and, therefore, recorded business interruption
insurance proceeds of $4,000,000 for lost sales and additional expenses
incurred. This was recorded as a reduction to Cost of Products Sold. This
facility is now operating at full capacity.
The Company also received proceeds of $1,864,000 for the final settlement of
claims arising from an explosion and fire at its U.S. resin facility in 1994.
This is in addition to the $1,675,000 and $1,300,000 recorded in 1995 and 1994,
respectively, for these claims. These amounts were also recorded as a reduction
to Cost of Products Sold.
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 1996. During 1995 and 1994, there was a tightening of
supply of some important raw materials and their prices increased. These
increases had been difficult to fully pass on, in a timely fashion, to Lawter
customers.
LOOKING FORWARD. Lawter management believes that the Company's prospects
for growth of future sales and earnings are promising. While our markets
continue to be highly competitive, development of new markets, selective
acquisitions, continued emphasis on research and development, and cost effective
utilization of our new production facilities, combined with the present program
of streamlining operations, will position the Company for both medium and
long-term gains in our strategic markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data are included in this Form 10-K
Annual Report as indicated in item 14.
10
<PAGE>
OPERATING RESULTS BY QUARTERS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
NET EARNINGS/(LOSS)
GROSS ------------------------
1995 NET SALES PROFIT AMOUNT PER SHARE
- --------------------------------------------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C>
March 31..................................... $ 52,489 $ 14,997 $ 8,090 $ .18
June 30...................................... 50,009 13,319 7,050 .16
September 30................................. 50,971 13,172 7,155 .16
December 31 (1).............................. 51,366 705 (6,017) (.14)
---------- ----------- --------- ---
$ 204,835 $ 42,193 $ 16,278 $ .36
---------- ----------- --------- ---
---------- ----------- --------- ---
<CAPTION>
1996
- ---------------------------------------------
<S> <C> <C> <C> <C>
March 31..................................... $ 49,366 $ 12,740 $ 6,165 $ .14
June 30...................................... 46,247 13,377 7,360 .16
September 30................................. 47,157 14,994 7,644 .17
December 31.................................. 51,044 15,903 7,606 .17
---------- ----------- --------- ---
$ 193,814 $ 57,014 $ 28,775 $ .64
---------- ----------- --------- ---
---------- ----------- --------- ---
</TABLE>
- ------------
(1) Fourth quarter 1995 earnings were reduced by restructuring and other
charges. See Management's Discussion and Analysis and Note 5 to the
Consolidated Financial Statements which are included in this Form 10-K
Annual Report as indicated in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with independent auditors on
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is made to the Company's 1997 Proxy Statement under the heading
"Election Of Directors" (hereby incorporated by reference) and Item 4A
"Executive Officers of the Registrant" in Part I of this Form 10-K for this
information.
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the Company's 1997 Proxy Statement under the heading
"Executive Compensation" (hereby incorporated by reference) for this
information.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the Company's 1997 Proxy Statement under the headings
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" (hereby incorporated by reference) for this information.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the Company's 1997 Proxy Statement under the headings
"Indebtedness of Management" and "Certain Relationships and Related
Transactions" (hereby incorporated by reference) for this information.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)1. Consolidated Financial Statements--
<TABLE>
<CAPTION>
PAGE
NUMBER
---------
<S> <C>
Balance Sheets as of December 31, 1996 and 1995.................................................. 14
Statements of Earnings for the years ended December 31, 1996, 1995 and 1994...................... 15
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.................... 16
Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994.......... 17
Notes to the Consolidated Financial Statements December 31, 1996, 1995 and 1994.................. 18
Report of Independent Public Accountants......................................................... 26
</TABLE>
(a)2. Financial Statement Schedules--
<TABLE>
<CAPTION>
PAGE NUMBER
-------------
<C> <S> <C>
Report of Independent Public Accountants on Schedule................................................ 26
II. Valuation and Qualifying Accounts........................................................ 27
</TABLE>
All other schedules are not submitted because they are not applicable, not
required or the required information is included in the consolidated financial
statements or notes thereto.
(a)3. Exhibits--
<TABLE>
<S> <C>
(3)(a) Certificate of Incorporation, as amended through April 27, 1993 (incorporated by
reference to Exhibit I of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993) (File No. 1-7558).
(b) Bylaws of the Company, as amended through November 9, 1995 (incorporated by
reference to Exhibit (3)(b) of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995) (File No. 1-7558).
(4) Private Shelf Agreement between Lawter International, Inc. and The Prudential
Insurance Company of America (incorporated by reference to Exhibit 99.2 of the
Company's Form 8-K dated January 9, 1996) (File No. 1-7558).
(10)(a) Lawter International, Inc. Growth Sharing Plan for Salaried and Office Clerical
Hourly Employees, as amended through January 1, 1989 (incorporated by reference
to Exhibit (10)(a) of the Company's Annual Report on Form 10-K for the year
ended December 31, 1989) (File No. 1-7558).*
(b) 1983 Incentive Stock Option Plan (incorporated by reference to Exhibit 2 of
Registration Statement No. 2-84421).*
(c) 1992 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit
(10)(d) of the Company's Annual Report on Form 10-K for the year ended December
31, 1992) (File No. 1-7558).*
(d) The 1994 Amendment to the 1992 Non-Qualified Stock Option Plan (incorporated by
reference to Appendix A of the Company's Definitive Proxy Statement dated April
28, 1994) (File No. 1-7558).*
(e) The 1995 Amendment to the 1992 Non-Qualified Stock Option Plan (incorporated by
reference to the Company's Definitive Proxy Statement dated April 24, 1995)
(File No. 1-7558).*
(f) 1995 Non-Qualified Stock Option Plan for Non-Employee Directors (incorporated by
reference to Appendix A of the Company's Definitive Proxy Statement dated April
24, 1995) (File No. 1-7558).*
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
(g) Employment Agreement, dated February 1, 1992, between the Company and Ludwig P.
Horn (incorporated by reference to Exhibit (10)(e) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1992) (File No. 1-7558).*
(h) Form of Employment Agreement, dated September 26, 1987, between the Company and
John P. Jilek (incorporated by reference to Exhibit (10)(h) of the Company's
Annual Report on Form 10-K for the year ended December 31, 1987) (File No.
1-7558).*
(i) Employment Agreement, dated October 24, 1996, between the Company and John P.
O'Mahoney.*
(j) Employment Agreement, dated October 24, 1996, between the Company and Mark W.
Joslin.*
(k) Consulting Agreement, effective January 1, 1996, between the Company and Richard
D. Nordman (incorporated by reference to Exhibit (10)(j) of the Company's Annual
Report on 10-K for the year ended December 31, 1995) (File No. 1-7558).*
(l) Put Option Agreement, dated January 9, 1996, between the Company and Daniel J.
Terra (incorporated by reference to Exhibit (10)(j) of the Company's Annual
Report on 10-K for the year ended December 31, 1995) (File No. 1-7558).
(m) Put Option Agreement, dated April 25, 1996, between the Company and Daniel J.
Terra.
(13) Those portions of the Lawter International, Inc. and Subsidiaries' 1996 Annual
Report to Stockholders which are incorporated by reference in this Form 10-K
Annual Report.
(21) Principal Subsidiaries of the Company.
(23) Consent of Independent Public Accountants (included in this Form 10-K on page
26).
</TABLE>
* These documents constitute all of the management contracts, compensatory
plans or arrangements in which any director or executive officer
participates.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The foregoing undertaking is made in compliance with Form S-8, as amended as
of July 13, 1990, and shall be incorporated by this reference into each Form S-8
of the registrant, including Registration Statements Nos. 33-24859, 33-61506 and
2-84421.
13
<PAGE>
LAWTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share figures)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash (Note 1)............................................................................. $ 8,221 $ 9,865
Time Deposits, Interest Bearing (Note 1).................................................. 46,710 53,815
Marketable Securities (Note 1)............................................................ 2,400 6,481
Accounts Receivable -- less allowance for doubtful accounts of $743 in 1996 and $636 in
1995..................................................................................... 47,671 42,557
Inventories (Note 1)...................................................................... 49,611 45,177
Prepaid Expenses.......................................................................... 1,974 2,222
---------- ----------
Total Current Assets...................................................................... $ 156,587 $ 160,117
---------- ----------
Property, Plant and Equipment (Notes 1 and 7):
Land...................................................................................... $ 7,670 $ 7,639
Buildings................................................................................. 40,022 26,085
Machinery and Equipment................................................................... 92,810 79,661
Construction in Progress.................................................................. 844 13,021
---------- ----------
$ 141,346 $ 126,406
Less Accumulated Depreciation............................................................. 49,229 55,505
---------- ----------
Net Property, Plant and Equipment......................................................... $ 92,117 $ 70,901
Equity Investment (Note 6)................................................................ 24,833 22,312
Other Assets (Note 1)..................................................................... 19,586 8,144
---------- ----------
Total..................................................................................... $ 293,123 $ 261,474
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable.......................................................................... $ 20,162 $ 24,105
Accrued Expenses.......................................................................... 21,682 19,920
Short-term Borrowings (Note 8)............................................................ 38,962 39,983
Income Taxes Payable...................................................................... 1,371 4,387
---------- ----------
Total Current Liabilities................................................................. $ 82,177 $ 88,395
---------- ----------
Long-term Obligations (Note 7)............................................................ $ 29,050 $ 4,100
Deferred Income Taxes (Note 4)............................................................ 36,281 35,790
---------- ----------
Total Liabilities......................................................................... $ 147,508 $ 128,285
---------- ----------
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 45,348,535
shares................................................................................... 45,349 45,066
Additional Paid-in Capital................................................................ 14,711 11,864
Retained Earnings (Note 1)................................................................ 89,917 79,218
Cumulative Translation Adjustments (Note 1)............................................... (3,826) (2,914)
Other..................................................................................... (536) (45)
---------- ----------
Total Stockholders' Equity................................................................ $ 145,615 $ 133,189
---------- ----------
Total..................................................................................... $ 293,123 $ 261,474
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
14
<PAGE>
LAWTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share figures)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales.................................................................... $ 193,814 $ 204,835 $ 191,056
Cost of Products Sold........................................................ 136,800 162,642 134,894
---------- ---------- ----------
Gross Profit................................................................. $ 57,014 $ 42,193 $ 56,162
Selling, General and Administrative Expenses................................. 21,374 25,154 20,970
---------- ---------- ----------
Operating Income............................................................. $ 35,640 $ 17,039 $ 35,192
Investment Income............................................................ 4,914 6,170 4,470
---------- ---------- ----------
Earnings Before Income Taxes................................................. $ 40,554 $ 23,209 $ 39,662
Provision for Income Taxes (Notes 1 and 4)................................... 11,779 6,931 10,257
---------- ---------- ----------
Net Earnings................................................................. $ 28,775 $ 16,278 $ 29,405
---------- ---------- ----------
---------- ---------- ----------
Net Earnings per Share (Note 1):............................................. $ .64 $ .36 $ .66
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
15
<PAGE>
LAWTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings.................................................................. $ 28,775 $ 16,278 $ 29,405
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating
Activities--
Depreciation and Amortization............................................... 5,499 5,447 4,344
Deferred Income Taxes....................................................... 433 425 (1,130)
Undistributed Equity Income................................................. (2,583) (2,236) (2,125)
Deferred Exchange Gain (Loss)............................................... (1,327) (575) (145)
Purchase of Marketable Securities........................................... (23,202) (3,179) (2,299)
Proceeds from Sales of Marketable Securities................................ 27,828 3,173 3,069
Net (Gain) Loss from Marketable Securities.................................. (605) (2,002) 349
(Increase) Decrease in Current Assets--
Accounts Receivable......................................................... (4,983) 1,733 (7,658)
Inventories................................................................. 43 (11,484) (4,345)
Prepaid Expenses............................................................ 220 585 (1,112)
Increase (Decrease) in Current Liabilities--
Accounts Payable............................................................ (1,663) 3,266 (1,381)
Accrued Expenses............................................................ (367) 6,914 1,638
Income Taxes Payable........................................................ (2,815) (4,579) 4,437
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................................... $ 25,253 $ 13,766 $ 23,047
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Expenditures for Property, Plant and Equipment, net......................... $ (25,925) $ (21,928) $ (10,613)
Purchase of Business, net of cash........................................... (17,161) -- (6,344)
Loans to Officers........................................................... (478) (200) (83)
Repayment of Officers' Loans................................................ 47 155 3,422
---------- ---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES........................................ $ (43,517) $ (21,973) $ (13,618)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Exercise of Stock Options................................................... $ 2,929 $ 1,223 $ 808
Principal Payments on Long-term Obligations................................. (50) (52) (54)
Proceeds from Long-term Borrowings.......................................... 25,000 -- --
Payment of Short-term Borrowings............................................ (26,177) (1,055) (3,328)
Proceeds from Short-term Borrowings......................................... 26,013 22,468 --
Cash Dividends Paid......................................................... (18,077) (17,989) (17,951)
---------- ---------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES.......................... $ 9,638 $ 4,595 $ (20,525)
Effect of Exchange Rate Changes on Cash..................................... (123) 505 395
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS................................... $ (8,749) $ (3,107) $ (10,701)
Cash and Equivalents, Beginning of Year..................................... 63,680 66,787 77,488
---------- ---------- ----------
Cash and Equivalents, End of Year........................................... $ 54,931 $ 63,680 $ 66,787
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
16
<PAGE>
LAWTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share figures)
<TABLE>
<CAPTION>
COMMON ADDITIONAL CUMULATIVE
STOCK $1 PAID-IN RETAINED TRANSLATION
PAR VALUE CAPITAL EARNINGS ADJUSTMENTS OTHER
----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Years Ended December 31, 1994, 1995 and 1996
Balance, January 1, 1994.............................. $ 44,811 $ 9,534 $ 69,475 $ (6,456) $ (3,339)
Add (deduct):
Net Earnings........................................ -- -- 29,405 -- --
Cash Dividends Declared--$.40 per share............. -- -- (17,951) -- --
Exercise of Stock Options........................... 113 813 -- -- --
Loans to Officers (Note 3).......................... -- -- -- -- 3,339
Foreign Currency Translation Adjustments............ -- -- -- 1,441 --
----------- ----------- ---------- ----------- ---------
Balance, December 31, 1994............................ $ 44,924 $ 10,347 $ 80,929 $ (5,015) $ --
Add (deduct):
Net Earnings........................................ -- -- 16,278 -- --
Cash Dividends Declared--$.40 per share............. -- -- (17,989) -- --
Exercise of Stock Options........................... 142 1,517 -- -- --
Loans to Officers (Note 3).......................... -- -- -- -- (45)
Foreign Currency Translation Adjustments............ -- -- -- 2,101 --
----------- ----------- ---------- ----------- ---------
Balance, December 31, 1995............................ $ 45,066 $ 11,864 $ 79,218 $ (2,914) $ (45)
Add (deduct):
Net Earnings........................................ -- -- 28,775 -- --
Cash Dividends Declared--$0.40 per share............ -- -- (18,076) -- --
Exercise of Stock Options........................... 283 2,847 -- -- --
Loans to Officers (Note 3).......................... -- -- -- -- (431)
Unrealized Loss on Investments...................... -- -- -- -- (60)
Foreign Currency Translation Adjustments............ -- -- -- (912) --
----------- ----------- ---------- ----------- ---------
Balance, December 31, 1996............................ $ 45,349 $ 14,711 $ 89,917 $ (3,826) $ (536)
----------- ----------- ---------- ----------- ---------
----------- ----------- ---------- ----------- ---------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
17
<PAGE>
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 $93,000
in 1996, $169,000 in 1995 and $(85,000) in 1994. Revenues and expenses are also
affected by fluctuations of currency rates from year to year. The effect of
these rate fluctuations in 1996 when compared to 1995 resulted in an unfavorable
impact on operating results in addition to the transaction gains or losses
reflected in net earnings. For 1995, the effect of rate changes when compared to
1994 resulted in a favorable 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
$3,778,000 in 1996, $2,154,000 in 1995 and $990,000 in 1994.
EARNINGS PER SHARE
Earnings per share of common stock are computed on the weighted average
shares outstanding during the respective years (45,175,000 shares in 1996,
45,018,000 shares in 1995 and 44,874,000 shares in 1994). Net earnings per share
would not be materially different from reported earnings per share if all
outstanding stock options were exercised.
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.
RESEARCH AND DEVELOPMENT
Research and development costs ($5,049,000 in 1996, $5,320,000 in 1995 and
$4,821,000 in 1994) are charged to expense as incurred.
18
<PAGE>
NOTE 1--STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
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.
Undistributed earnings reinvested indefinitely in foreign subsidiaries totaled
$24,288,000 at December 31, 1996. Income taxes paid during 1996, 1995 and 1994
amounted to $13,595,000, $9,419,000 and $7,220,000, respectively.
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, 1996, all of Lawter's marketable securities were classified
as available-for-sale securities, which are reported at fair value. Unrealized
gains and losses are charged or credited to Stockholders' Equity. In 1996,
proceeds from the sale of these securities was $7,333,000, the realized (loss)
included in income was $(183,000) and the unrealized (loss) charged to
Stockholders' Equity (net of the tax effect) was $(60,000).
At December 31, 1995, 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. The net unrealized holding
gain/(loss) included in income was $(1,699,000), $2,206,000 and $7,000 in 1996,
1995 and 1994, respectively.
For the purpose of determining realized gains and losses, the cost of
securities sold is based upon specific identification.
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's other inventories aggregating $30,608,000 and $24,511,000 at December
31, 1996 and 1995, 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:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995
--------- ---------
<S> <C> <C>
Finished Goods.......................................................... $ 25,517 $ 22,362
Raw Materials........................................................... 24,094 22,815
--------- ---------
$ 49,611 $ 45,177
--------- ---------
--------- ---------
</TABLE>
If the FIFO inventory valuation method had been used for all inventories,
they would have been $4,839,000 and $6,019,000 higher than reported at December
31, 1996 and 1995, respectively.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions. The reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the amount of revenues and expenses reported during the period are affected by
these assumptions and estimates. Actual results could differ from these
estimates.
19
<PAGE>
NOTE 1--STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
BALANCE SHEET PRESENTATION
Certain prior year amounts have been reclassified to conform with current
year presentation.
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 $494,000 in
1996, $530,000 in 1995 and $545,000 in 1994 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
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits either recording the
estimated value of stock-based compensation over the applicable vesting period
or continued application of APB Opinion No. 25 with disclosure on a pro forma
basis of information for the unrecorded cost and related effect on earnings per
share in the Notes to the Financial Statements. The Company will apply the new
standard on a pro forma basis. Had compensation costs for the Company's stock
option plans been determined based on the fair value at the grant dates for
awards consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been adjusted to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995
--------- ---------
<S> <C> <C>
Net earnings--as reported............................................... $ 28,775 $ 16,278
Net earnings--pro forma................................................. 28,292 16,042
Earnings per share--as reported......................................... $ .64 $ .36
Earnings per share--pro forma........................................... .63 .36
</TABLE>
The Company has two fixed stock option plans for officers, directors and
other key employees. Options may be granted at prices not less than the fair
market value at the date of grant. Options expire ten years from the date of
grant and are exercisable one year after the date of grant.
The fair value of each option granted is estimated on the grant date using
the Black-Scholes option-pricing model. The following weighted average
assumptions were made in estimating the fair value: dividend yield of 3.6% in
1996 and 3.5% in 1995; expected volatility of 18.1% in both 1996 and 1995; risk-
free interest rate of 5.8% in 1996 and 6.4% in 1995; and expected lives of 5
years.
20
<PAGE>
NOTE 3--COMMON STOCK (CONTINUED)
A summary of the status and activity in the stock option plans is shown in
the tables below.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES PRICE
---------- -----------
<S> <C> <C>
Outstanding January 1,1995............................................. 1,870,331 $ 11.71
Granted................................................................ 388,500 11.38
Exercised.............................................................. (142,657) 8.58
Forfeited or Expired................................................... (95,861) 12.20
----------
Outstanding December 31, 1995.......................................... 2,020,313 11.85
Granted................................................................ 233,250 11.29
Exercised.............................................................. (282,149) 10.38
Forfeited or Expired................................................... (160,864) 11.91
----------
Outstanding December 31, 1996.......................................... 1,810,550 12.00
----------
----------
Exercisable December 31, 1995.......................................... 1,631,813 11.96
Exercisable December 31, 1996.......................................... 1,608,550 12.08
</TABLE>
<TABLE>
<CAPTION>
1996 1995
----------------- ----------------
<S> <C> <C>
Price range at end of year............................... $ 11.00 to 14.38 $ 9.29 to 14.38
Price range for exercised shares......................... $ 9.29 to 10.41 $ 6.62 to 12.25
Options available for grant at end of year............... 992,950 1,075,700
Weighted average remaining contractual life at the end of
the year............................................... 8 Years 7 Years
</TABLE>
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.
NOTE 4--PROVISION FOR INCOME TAX
The Company uses the asset and liability method to account for income taxes.
Pre-tax earnings were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
United States................................................ $ 25,483 $ 13,393 $ 20,188
Foreign...................................................... 15,071 9,816 19,474
--------- --------- ---------
$ 40,554 $ 23,209 $ 39,662
--------- --------- ---------
--------- --------- ---------
</TABLE>
21
<PAGE>
NOTE 4--PROVISION FOR INCOME TAX (CONTINUED)
The provisions (benefits) for income taxes were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Currently payable:
United States:
Federal.................................................... $ 8,667 $ 4,082 $ 7,655
State...................................................... 1,180 1,060 1,083
Foreign...................................................... 1,481 1,353 2,622
--------- --------- ---------
Total Current................................................ 11,328 6,495 11,360
--------- --------- ---------
Deferred (principally U.S.):
Excess of tax over book depreciation......................... 1,556 442 220
Undistributed earnings of the equity investment.............. 904 782 744
Undistributed earnings of foreign subsidiaries............... (2,560) (1,485) (2,917)
Environmental expenditures................................... 278 138 486
Other........................................................ 273 559 364
--------- --------- ---------
Total Deferred............................................... 451 436 (1,103)
--------- --------- ---------
$ 11,779 $ 6,931 $ 10,257
--------- --------- ---------
--------- --------- ---------
</TABLE>
Temporary differences that gave rise to the deferred tax liability at
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Undistributed earnings of foreign subsidiaries................................. $ 26,100
Undistributed earnings of equity investments................................... 6,148
Excess of tax over book depreciation........................................... 5,130
Environmental expenditures..................................................... (827)
Other.......................................................................... (270)
-------------
36$,281.....
-------------
-------------
</TABLE>
The Company's earnings from manufacturing operations in Waterford, Ireland
were tax exempt until 1990 and will have a 10% tax rate through 2010.
The total "Provision for Income Taxes" represents an effective tax rate of
29.0% for 1996, 29.9% for 1995 and 25.9% for 1994. The differences from the U.S.
statutory rate for 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Computed tax provision at 35%................................ $ 14,194 $ 8,123 $ 13,882
Increase (decrease) in tax provision resulting from:
Waterford, Ireland operation................................. (1,884) (1,947) (2,604)
Inclusion of state & local income taxes (net of Federal
income taxes).............................................. 787 689 679
Other foreign operations..................................... (710) 1,009 (581)
Other........................................................ (608) (943) (1,119)
--------- --------- ---------
Provision for Income Taxes................................... $ 11,779 $ 6,931 $ 10,257
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 5--RESTRUCTURING CHARGES
In the fourth quarter of 1995, a new management team was formed. The new
management, taking into account a change in market conditions, developed a new
corporate strategy. Part of the decision making
22
<PAGE>
NOTE 5--RESTRUCTURING CHARGES (CONTINUED)
process included an evaluation of the feasibility of continuing to utilize older
manufacturing facilities. With the anticipated completion of construction of the
new ink vehicle and resin facility in Europe combined with the new ink vehicle
and resin facility in the U. S., the Company decided to implement a
restructuring plan. This plan included the decommissioning of older ink vehicle
and resin plants. This resulted in a fourth quarter pretax charge of $8,449,000,
of which $2,791,000 was charged to selling, general and administrative expenses
for personnel redundancy and $5,658,000 was charged to Cost of Products Sold for
site decommissioning. These restructuring activities commenced in the fourth
quarter of 1995 and will continue through the middle of 1997.
The personnel redundancy costs relate to cash outlays for benefits to be
paid to the manufacturing and office employees at the older plants in Europe and
North America. The labor force will be reduced by approximately 100 positions
when the restructuring plan is completed, of which 73 positions have already
been eliminated. As of December 31, 1996, employee headcount was down to 502
employees from a high of 604 employees in 1995. Redundancy payments charged
against the reserve through December 31, 1996 were $2,278,000 including
$2,003,000 utilized in 1996.
The site decommissioning costs represent demolition, cleanup and asset write
down costs for older facilities, mainly in Europe and North America. Included in
the $5,658,000, is $4,461,000 for non-cash items which relate to the write down
of the net book value of the assets at these locations. As of December 31, 1996,
three manufacturing facilities in North America were shut down and two
manufacturing facilities in Europe were in the final stages of being shut down.
The costs charged against the reserve related to these facilities were
$3,652,000 comprised of $3,738,000 for the write down of net book value of the
assets, $153,000 for cleanup costs and $191,000 for relocation costs partially
offset by the proceeds of $430,000 from the sale of the assets of one of the
North American facilities.
NOTE 6--EQUITY INVESTMENTS
At December 31, 1996, 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, 1996 was $18.50 per share.
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:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995
--------- ---------
<S> <C> <C>
Series 1993-LI IDB Bond.................................................. $ 4,000 $ 4,000
Series 1978-A IDB Bond................................................... 100 150
Less--Current portion in accounts payable................................ (50) (50)
Net long-term bonds payable.............................................. 4,050 4,100
Prudential Shelf Agreement............................................... 25,000 --
--------- ---------
Total long-term obligations.............................................. $ 29,050 $ 4,100
--------- ---------
--------- ---------
</TABLE>
In December of 1995, the Company entered into a private shelf agreement with
Prudential Capital Group under which it may borrow up to $125,000,000. The shelf
agreement provides for promissory notes to mature no more than 15 years after
the original date of issuance, which was December 6, 1995. The
23
<PAGE>
NOTE 7--LONG-TERM OBLIGATIONS (CONTINUED)
interest is payable semi-annually at 6.33%. There are various covenants related
to this agreement. At December 31, 1996, the Company was in compliance with
these covenants.
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, 1996 and 1995, 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, 6.75% Industrial Revenue Bond, Series 1993-LI to the
Company. 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 7.25%. Remaining principal of $100,000 is payable in two
installments of $50,000 on September 1, 1997 and 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, 1996
and 1995. The capitalized costs are being depreciated over the estimated useful
lives of the individual assets.
At December 31, 1996, the future lease payments under the capitalized leases
relating to the Industrial Revenue Bonds were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................................................... $ 327
1998........................................................................... 270
1999........................................................................... 270
2000........................................................................... 270
2001........................................................................... 270
Later years.................................................................... 6,130
-------------
Total minimum lease payments................................................... 7,537
Less interest.................................................................. (3,437)
-------------
Present value of minimum lease payments........................................ $ 4,100
-------------
-------------
</TABLE>
Operating leases are not significant.
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company has unsecured lines of credit for borrowings of $255,000,000 at
December 31, 1996. During 1996, average borrowings were $36,370,000 against
these lines of credit and the weighted average interest rate was 4.48%. In 1995,
average borrowings were $30,765,000 and the weighted average interest rate was
6.23%. In 1994, average borrowings were $20,536,000 and the weighted average
interest rate was 4.77%. There are no commitment fees or compensating balance
requirements relating to these lines 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.
24
<PAGE>
NOTE 9--SEGMENT INFORMATION
A dominant portion of Lawter's operations is in a single industry-specialty
polymers. Within this industry, Lawter is principally engaged in the production
and marketing of printing ink vehicles, slip additives, synthetic and
hydrocarbon resins, 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 Canada, China, Japan, Singapore and Taiwan which, individually,
are not considered to be significant as defined by SFAS No. 14. The Company
sells the majority of 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 whose purchases are made for a wide variety of specialized
products at multiple locations through numerous companies in various countries
approximated nineteen percent of sales in 1996, eighteen percent of sales in
1995 and nineteen percent of sales in 1994.
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,
1996, 1995 and 1994 is shown in the table below.
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
Domestic..................................................................... $ 92,139 $ 94,657 $ 98,628
Europe....................................................................... 84,841 94,071 74,974
Other Foreign................................................................ 16,834 16,107 17,454
---------- ---------- ----------
Total........................................................................ $ 193,814 $ 204,835 $ 191,056
---------- ---------- ----------
---------- ---------- ----------
Earnings Before Tax:
Domestic..................................................................... $ 25,462 $ 12,206 $ 20,263
Europe....................................................................... 11,113 4,687 13,887
Other Foreign................................................................ 853 1,959 2,746
Corporate.................................................................... 3,126 4,357 2,766
---------- ---------- ----------
Total........................................................................ $ 40,554 $ 23,209 $ 39,662
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets:
Domestic..................................................................... $ 64,333 $ 69,176 $ 62,724
Europe....................................................................... 116,320 83,812 58,514
Other Foreign................................................................ 18,147 17,091 17,675
Corporate.................................................................... 94,323 91,395 92,914
---------- ---------- ----------
Total........................................................................ $ 293,123 $ 261,474 $ 231,827
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
25
<PAGE>
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,
1996 and 1995, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
The schedule listed in the index on page 12 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 10, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated February 10, 1997, included (or incorporated by
reference) in this Annual Report of Lawter International, Inc. and Subsidiaries
on Form 10-K for the year ended December 31, 1996, into the Company's previously
filed Registration Statements on Forms S-3 (File No. 33-24165), S-8 (File No.
33-24859), S-8 (File No. 33-61506) and S-8 (File No. 2-84421).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
26
<PAGE>
Chicago, Illinois,
March 24, 1997
27
<PAGE>
LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
ALLOWANCES FOR DOUBTFUL ACCOUNTS 1996 1995 1994
- ------------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year.............................................................. $ 636 $ 415 $ 319
Additions (credited)/charged to earnings................................................ 166 327 (30)
Additions/(deductions) for accounts written off, net of recoveries...................... (59) (106) 126(1)
--------- --------- ---------
Balance at end of year.................................................................... $ 743 $ 636 $ 415
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Includes approximately $179,000 of Cremona Resine allowance for doubtful
accounts which was acquired June 30, 1994.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/ JOHN P. O'MAHONEY
--------------------------------------
John P. O'Mahoney
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ MARK W. JOSLIN
--------------------------------------
Mark W. Joslin
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
Date: March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C>
/s/ WILLIAM P. CLARK /s/ RICHARD D. NORDMAN
- -------------------------------------------- --------------------------------------------
William P. Clark, March 24, 1997 Richard D. Nordman, March 24, 1997
Director Director
/s/ ARTHUR A. HARTMAN /s/ JOHN P. O'MAHONEY
- -------------------------------------------- --------------------------------------------
Arthur A. Hartman, March 24, 1997 John P. O'Mahoney, March 24, 1997
Director Director
/s/ JOHN P. JILEK /s/ FRED G. STEINGRABER
- -------------------------------------------- --------------------------------------------
John P. Jilek, March 24, 1997 Fred G. Steingraber, March 24, 1997
Director Director
/s/ LEONARD P. JUDY
- --------------------------------------------
Leonard P. Judy, March 24, 1997
Director
</TABLE>
Registrant's 1996 Annual Report
to Stockholders, some portions
of which have been incorporated
by reference in this Form 10-K,
has been sent to each
stockholder and was included
with this report to the
Securities and Exchange
Commission.
28
<PAGE>
Exhibit 10(i)
EMPLOYMENT AGREEMENT
This Agreement, dated as of October 24, 1996, between Lawter
International, Inc., a Delaware corporation (hereinafter referred to as the
"Company"), and John P. O'Mahoney (hereinafter referred to as the
"Employee").
RECITALS
The Employee has been employed by the Company for a substantial period of
time and currently serves as its Chairman and Chief Executive Officer and as a
member of its board of directors. Because of the Employee's extensive
experience and his familiarity with the affairs of the Company, the Company
wishes to assure that, in the event of a "Change in Control," as hereinafter
defined, it will continue to have the Employee available to perform duties
substantially similar to those currently being performed by him and to continue
to contribute to the Company's growth and success as he has in the past. The
Employee is willing to commit to continue in the performance of his services for
the Company upon the terms and conditions set forth herein.
COVENANTS
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees that, effective upon a "Change
in Control" and provided that Employee is still serving as an employee of the
Company at that time, it will continue to employ Employee as the Chairman and
Chief Executive Officer of the Company to perform the duties described herein,
and Employee hereby accepts such employment on the terms and conditions stated
herein. It is understood that prior to such "Change in Control," this Agreement
shall confer no rights of employment or other benefits (or obligations)
whatsoever upon Employee, and that Employee shall remain subject to termination
at will.
2. TERM OF EMPLOYMENT. Subject to provisions for termination set forth
herein, the term of Employee's employment hereunder shall commence on the date
of a "Change in Control" (if any) and shall extend until three years after the
date of such "Change in Control." For purposes of this Agreement a "Change in
Control" shall mean a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934; provided that, without limitation,
such a Change in Control shall be deemed to have occurred if during any period
of two consecutive years individuals who at the beginning of such period
constitute members of the board of directors cease for any reason to constitute
at least a majority thereof, unless the nomination or election of each director
who was not a director at the beginning of the period was approved by a vote of
a majority of the directors still in office at the time of such nomination or
election who were directors at the beginning of the period.
3. DUTIES OF EMPLOYEE. Employee shall be the Chairman and Chief
Executive Officer of the Company and shall perform such duties and
responsibilities for the Company as may be assigned to him by the board of
directors of the Company and which are not unreasonably inconsistent with the
duties of the Chairman
<PAGE>
and Chief Executive Officer, including such duties as are currently being
performed by the Employee. During the term of his employment, Employee shall
devote substantially all of his business time, attention and energy, and his
reasonable best efforts, to the interests and business of the Company and to
the performance of his duties and responsibilities on behalf of the Company.
During the term of Employee's employment hereunder, the Company will use its
best efforts to cause the Employee to be elected a director of the Company
and will cause the Employee to be included as a nominee for director in any
proxy solicitation by management.
4. COMPENSATION. Throughout the term of Employee's employment hereunder,
the Company shall pay Employee, for services to be rendered by him hereunder, a
guaranteed minimum salary at an annual rate equal to that being paid on the date
the term of employment hereunder commences, less all applicable federal and
state income tax withholding, FICA taxes and other payroll taxes. The
guaranteed minimum salary shall be reviewed by the Company on a yearly basis to
ascertain if any upward adjustment in the annual rate is in order, and if any
increase is made, the new annual rate shall become the guaranteed minimum salary
under this Section 4. Such compensation shall be payable semi-monthly.
5. WORKING FACILITIES AND FRINGE BENEFITS. The Employee shall be
furnished with office space, secretarial assistance and such other facilities
and services as are appropriate to his position and adequate for the performance
of his duties. The Company also shall provide to Employee during the term of
employment fringe benefits and perquisites at least equal to those provided to
Employee immediately prior to the date thereof, and the Company shall not
discriminate against Employee with respect to any vacation or holiday plan,
medical, hospital, life and disability insurance programs, pension programs and
other similar welfare benefit programs from time to time made available to the
Company's officers and key employees.
6. EXPENSES. The Company shall pay or reimburse Employee for all
reasonable expenses actually incurred or paid by him in the performance of
services rendered by him pursuant to this Agreement. Such expenses shall be
supported by the documentary evidence required to substantiate them as income
tax deductions.
7. COVENANT RESTRICTING COMPETITION; NONDISCLOSURE OF CONFIDENTIAL
INFORMATION.
(a) Employee acknowledges that his services are special and unique,
and of an unusual and extraordinary character which gives them peculiar
value, the loss of which cannot adequately be compensated in damages.
Therefore, Employee agrees that he will not, except with the written consent
of the Company, for a continuous period of eighteen (18) months commencing
immediately following termination of Employee's employment hereunder,
directly or indirectly engage or become interested in, as a partner,
director, officer, principal, agent or employee, any business which competes
with products produced, marketed or in development by the Company at the time
of such termination.
(b) Employee acknowledges that in his employment he is or will be
making use of, acquiring or adding to, confidential information of the
Company, and is or will be familiar with the Company's business, activities,
employees, customers and suppliers. Therefore, in order to protect the
Company's confidential information and to protect other employees who depend
upon the Company for regular employment, Employee agrees that, except in
connection with his employment by the Company, or with the consent of the
Company, he will not during or after the term of his employment hereunder in
any way utilize any of said confidential information and he will not copy,
reproduce, or take with him the original or any copies of said confidential
information and will not disclose any of said confidential information to
anyone.
In the event of a breach of the covenants contained in this Section 7,
the Company shall be entitled to an injunction restraining such breach in
addition to any other remedies provided by law.
<PAGE>
If any provision of this Section 7 is adjudged by a court to be invalid
or unenforceable, the same will in no way affect any other provision of this
Section 7 or any other part of this Agreement, the application of such
provision in any other circumstances or the validity or enforceability of
this Agreement. If any such provision, or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination will have
the power to reduce the duration and/or area of such provision, and/or to
delete specific words or phrases, and in its reduced form such provision will
then be enforceable and will be enforced.
8. TERMINATION BY COMPANY.
(a) DISABILITY. The Company may terminate the active employment of
the Employee if, in the reasonable judgment of the board of directors of the
Company, he becomes unable to satisfactorily perform his duties and
responsibilities hereunder during the term of his employment because of
mental or physical disability. Upon such termination, the Employee shall be
relieved of all further obligations hereunder except obligations pursuant to
Section 7. In the event of such termination, the Company shall continue to
pay to the Employee, until the end of the term of his employment hereunder, a
salary at a rate equal to the annual rate in effect on the date of such
termination (as set forth in Section 4). Notwithstanding the foregoing, the
amounts so payable shall be reduced by any amounts payable to the Employee
during the term of his employment hereunder pursuant to any disability
benefit or wage continuation plan of the Company in effect.
(b) DEATH. In the event of the death of the Employee during the
term, the Company shall make, until the end of the term of employment
hereunder, payments at a rate equal to the annual rate in effect on the date
of death. The payments to be made under this Section 8(b) shall not be
reduced by reason of any insurance proceeds payable directly to the
Employee's beneficiaries or estate pursuant to insurance carried or provided
by the Company, and shall be made to such beneficiary as the Employee may
designate for that purpose by written notice given to the Secretary of the
Company prior to his death, or if the Employee has not so designated, then to
the personal representative of his Estate.
(c) TERMINATION FOR CAUSE. In the event fraud, defalcation, or other
similar dishonesty of the Employee involving the operations, funds or other
assets of the Company is established, or Employee is convicted of a crime
involving moral turpitude, or Employee breaches the terms of this Agreement in
any material respect, then the Company may terminate this Agreement upon giving
written notice to the Employee and thereafter, neither the Employee, his
surviving spouse or his estate shall be entitled to any further salary or
compensation from the Company pursuant to this Agreement, but the Employee's
obligations under Section 7 shall remain in effect. The parties agree that the
provisions of this Section 8(c) shall not be utilized in any manner by the
Company to avoid, negate or frustrate application of the provisions of Section 9
of this Agreement.
9. TERMINATION BY EMPLOYEE.
(a) IF LOCATION OF OFFICE CHANGES. In the event that, at any time
during the term of employment, the Company, without Employee's consent,
changes the location of the Company's offices at which Employee works to a
city more than 150 miles from its present location, the Employee may
terminate his employment with the Company by giving to the Secretary of the
Company notice in writing within three months after this right to termination
arises.
(b) IF POSITION CHANGES. It is the intention of the parties that the
Employee will be the Chairman and Chief Executive Officer of the Company
during the entire term of employment hereunder. In the event that, at any
time during the term hereunder, Employee, without his consent, does not hold
the position of Chairman and Chief Executive Officer of the Company and have
the duties and responsibilities that would normally be
<PAGE>
expected of the Chairman and Chief Executive Officer of the Company (except
by reason of termination under Section 8), Employee may terminate his
employment with the Company hereunder by giving to the Secretary of the
Company written notice of such termination within three months after this
right to terminate arises.
(c) FOLLOWING CHANGE IN CONTROL. Employee may terminate his employment
under this Agreement in the event of a Change in Control, as defined in Section
2 hereof, by giving written notice of such termination to the Secretary of the
Company not less than six months nor more than twelve months following such
Change in Control. Without limiting the generality of the definition of Change
in Control as set forth in Section 2, the failure of the Employee to be re-
elected a director of the Company shall be deemed a Change in Control unless
such failure is due to the Employee's voluntary act or the Employee's employment
has been terminated by the Company for Cause.
(d) LUMP SUM PAYMENT. In the event of termination pursuant to subsection
(a), (b) or (c) of this Section 9, the Company shall pay to the Employee, in a
lump sum and within 30 days of such termination, an amount equal to the
aggregate balance (based on the annual rate in effect at the time of such
termination) which would have been payable to the Employee during the remaining
portion of the term hereunder had such termination not occurred, including any
benefits payable to Employee.
(e) REIMBURSEMENT. If a tax is imposed pursuant to Section 4999 of the
Internal Revenue Code, or successor provision of like import, upon payments due
under this Agreement or upon other payments to the Employee by the Company, the
Employee shall be paid an additional amount calculated so as to provide the
Employee, after he has paid the tax (including any related interest and/or
penalty) imposed by Section 4999 of the Code, with the same compensation he
would have received had not tax (including any related interest and/or penalty)
been imposed by Section 4999. For purposes of this subsection (e), the term
"Company" shall include any parent, subsidiary, affiliate, assignee, or
successor in interest of the Company or of such assignee or successor in
interest.
10. ASSIGNMENT. This Agreement is binding upon and shall be for the
benefit of the successors and assigns of the Company, including any corporation
or any other form of business organization with which the Company may merge or
consolidate, or to which it may transfer substantially all of its assets.
Employee shall not assign his interest in this Agreement or any part thereof.
11. CONSENT OF THE COMPANY. Any act, request, approval, consent or
opinion of the Company under this Agreement must be in writing and may be
authorized, given or expressed only by resolution of the board of directors of
the Company, or by such other person as the board of directors of the Company
may designate.
12. NOTICES. Any notice required hereunder to be given shall be in
writing and if:
(a) by the Company to Employee shall be directed to him at his address
set forth below, or to such other address as he shall have furnished in
writing to the Company; or
(b) by Employee to the Company shall be directed to Lawter International,
Inc., 990 Skokie Blvd., Northbrook, Illinois 60062, Attn: Secretary, or to such
designee or other address as the board of directors shall name and have
furnished in writing to Employee.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to contracts made
and to be performed therein.
14. ENFORCEMENT EXPENSES AND ARBITRATION. The Company agrees to reimburse
the Employee for all costs and expenses incurred by him (including the
reasonable fees of his counsel) in successfully enforcing any
<PAGE>
of his rights under this Agreement or any claim arising out of the breach
thereof. In addition, the parties acknowledge the relative economic power of
the Company versus the Employee, and the ability of the Company to resist the
conclusion of litigation should the Employee institute legal proceedings to
enforce this Agreement or to recover damages for the breach thereof. In
recognition of this, any controversy or claim arising out of or relating to
this Agreement, including any dispute over or interpretation of the
occurrence of a "Change in Control," as previously defined, shall be settled
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, at the sole election of the Employee;
provided, however, that an action by the Company to enforce its rights under
Section 7 hereof shall be excluded from the arbitration provisions of this
Section 14. Any such election by Employee shall be made by written notice
given to the Company any time after such controversy or claim arises, and in
the event Employee is served with process relating to any court proceeding
concerning any such claim or controversy commenced by the Company, such
election, to be effective, shall be made by written notice within 15 days of
the time Employee is served with such process. Commencement of court
proceedings by Employee shall be deemed an election not to arbitrate. In the
event the Company commences court proceedings (other than an action by the
Company solely to enforce its rights under Section 7 hereof) and is given
notice of the election to arbitrate by the Employee within the time period
set forth above, the Company agrees to promptly dismiss such court
proceedings and submit to arbitration. In the event of such arbitration,
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LAWTER INTERNATIONAL, INC.
By: ___________________________________
Title: ________________________________
_______________________________________
John P. O'Mahoney
_______________________________________
Address
<PAGE>
Exhibit 10(j)
EMPLOYMENT AGREEMENT
This Agreement, dated as of October 24, 1996, between Lawter
International, Inc., a Delaware corporation (hereinafter referred to as the
"Company"), and Mark W. Joslin (hereinafter referred to as the "Employee").
RECITALS
The Employee has been employed by the Company and currently serves as
its Chief Financial Officer and Treasurer. Because of the Employee's
extensive experience and his familiarity with the affairs of the Company, the
Company wishes to assure that, in the event of a "Change in Control," as
hereinafter defined, it will continue to have the Employee available to
perform duties substantially similar to those currently being performed by
him and to continue to contribute to the Company's growth and success as he
has in the past. The Employee is willing to commit to continue in the
performance of his services for the Company upon the terms and conditions set
forth herein.
COVENANTS
NOW, THEREFORE, in consideration of the mutual promises herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT. The Company hereby agrees that, effective upon a "Change
in Control" and provided that Employee is still serving as an employee of the
Company at that time, it will continue to employ Employee as the Chief Financial
Officer and Treasurer of the Company to perform the duties described herein, and
Employee hereby accepts such employment on the terms and conditions stated
herein. It is understood that prior to such "Change in Control," this Agreement
shall confer no rights of employment or other benefits (or obligations)
whatsoever upon Employee, and that Employee shall remain subject to termination
at will.
2. TERM OF EMPLOYMENT. Subject to provisions for termination set forth
herein, the term of Employee's employment hereunder shall commence on the date
of a "Change in Control" and shall extend until two years after the date of such
"Change in Control." For purposes of this Agreement a "Change in Control" shall
mean a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934; provided that, without limitation, such a
Change in Control shall be deemed to have occurred if during any period of two
consecutive years individuals who at the beginning of such period constitute
members of the board of directors cease for any reason to constitute at least a
majority thereof, unless the nomination or election of each director who was not
a director at the beginning of the period was approved by a vote of a majority
of the directors still in office at the time of such nomination or election who
were directors at the beginning of the period.
3. DUTIES OF EMPLOYEE. Employee shall be the Chief Financial Officer and
Treasurer of the Company and shall perform such duties and responsibilities for
the Company as may be assigned to him by the board of directors of the Company
and which are not unreasonably inconsistent with the duties currently being
performed by the Employee. During the term of his employment, Employee shall
devote substantially all of his business time, attention and energy, and his
reasonable best efforts, to the interests and business of the Company and to the
performance of his duties and responsibilities on behalf of the Company.
4. COMPENSATION. Throughout the term of Employee's employment hereunder,
the Company shall pay Employee, for services to be rendered by him hereunder, a
guaranteed minimum salary at an annual rate equal to that being paid on the date
the term of employment hereunder commences, less all applicable federal and
state income tax withholding, FICA taxes and other payroll taxes. The
guaranteed minimum salary shall be reviewed by the Company on a yearly basis to
ascertain if any upward adjustment in the annual rate is in order, and if any
increase is made, the new annual rate shall become the guaranteed minimum salary
under this Section 4. Such compensation shall be payable semi-monthly.
<PAGE>
5. WORKING FACILITIES AND FRINGE BENEFITS. The Employee shall be
furnished with office space, secretarial assistance and such other facilities
and services as are appropriate to his position and adequate for the performance
of his duties. The Company also shall provide to Employee during the term of
employment fringe benefits and perquisites at least equal to those provided to
Employee immediately prior to the date thereof, and the Company shall not
discriminate against Employee with respect to any vacation or holiday plan,
medical, hospital, life and disability insurance programs, pension programs and
other similar welfare benefit programs from time to time made available to the
Company's officers and key employees.
6. EXPENSES. The Company shall pay or reimburse Employee for all
reasonable expenses actually incurred or paid by him in the performance of
services rendered by him pursuant to this Agreement. Such expenses shall be
supported by the documentary evidence required to substantiate them as income
tax deductions.
7. COVENANT RESTRICTING COMPETITION; NONDISCLOSURE OF CONFIDENTIAL
INFORMATION.
(a) Employee acknowledges that his services are special and unique, and
of an unusual and extraordinary character which gives them peculiar value,
the loss of which cannot adequately be compensated in damages. Therefore,
Employee agrees that he will not, except with the written consent of the
Company, for a continuous period of eighteen (18) months commencing
immediately following termination of Employee's employment hereunder,
directly or indirectly engage or become interested in, as a partner,
director, officer, principal, agent or employee, any business which competes
with products produced, marketed or in development by the Company at the time
of such termination.
(b) Employee acknowledges that in his employment he is or will be
making use of, acquiring or adding to, confidential information of the
Company, and is or will be familiar with the Company's business, activities,
employees, customers and suppliers. Therefore, in order to protect the
Company's confidential information and to protect other employees who depend
upon the Company for regular employment, Employee agrees that, except in
connection with his employment by the Company, or with the consent of the
Company, he will not during or after the term of his employment hereunder in
any way utilize any of said confidential information and he will not copy,
reproduce, or take with him the original or any copies of said confidential
information and will not disclose any of said confidential information to
anyone.
In the event of a breach of the covenants contained in this Section
7, the Company shall be entitled to an injunction restraining such breach in
addition to any other remedies provided by law.
If any provision of this Section 7 is adjudged by a court to be invalid or
unenforceable, the same will in no way affect any other provision of this
Section 7 or any other part of this Agreement, the application of such provision
in any other circumstances or the validity or enforceability of this Agreement.
If any such provision, or any part thereof, is held to be unenforceable
because of the duration of such provision or the area covered thereby, the
parties agree that the court making such determination will have the power to
reduce the duration and/or area of such provision, and/or to delete specific
words or phrases, and in its reduced form such provision will then be
enforceable and will be enforced.
8. TERMINATION BY COMPANY.
(a) DISABILITY. The Company may terminate the active employment of the
Employee if, in the reasonable judgment of the board of directors of the
Company, he becomes unable to satisfactorily perform his duties and
responsibilities hereunder during the term of his employment because of mental
or physical disability. Upon such termination, the Employee shall be relieved
of all further obligations hereunder except obligations pursuant to Section 7.
In the event of such termination, the Company shall continue to pay to the
<PAGE>
Employee, until the end of the term of his employment hereunder, a salary at a
rate equal to three-quarters of the annual rate in effect on the date of such
termination (as set forth in Section 4). Notwithstanding the foregoing, the
amounts so payable shall be reduced by any amounts payable to the Employee
during the term of his employment hereunder pursuant to any disability benefit
or wage continuation plan of the Company in effect.
(b) DEATH. In the event of the death of the Employee during the term, the
Company shall make, until the end of the term of employment hereunder, payments
at a rate equal to one-half of the annual rate in effect on the date of death.
The payments to be made under this Section 8(b) shall not be reduced by reason
of any insurance proceeds payable directly to the Employee's beneficiaries or
estate pursuant to insurance carried or provided by the Company, and shall be
made to such beneficiary as the Employee may designate for that purpose by
written notice given to the Secretary of the Company prior to his death, or if
the Employee has not so designated, then to the personal representative of his
Estate.
(c) TERMINATION FOR CAUSE. In the event fraud, defalcation, or other
similar dishonesty of the Employee involving the operations, funds or other
assets of the Company is established, or Employee is convicted of a crime
involving moral turpitude, or Employee breaches the terms of this Agreement in
any material respect, then the Company may terminate this Agreement upon giving
written notice to the Employee and thereafter, neither the Employee, his
surviving spouse or his estate shall be entitled to any further salary or
compensation from the Company pursuant to this Agreement, but the Employee's
obligations under Section 7 shall remain in effect. The parties agree that the
provisions of this Section 8(c) shall not be utilized in any manner by the
Company to avoid, negate or frustrate application of the provisions of Section 9
of this Agreement.
9. TERMINATION BY EMPLOYEE.
(a) IF LOCATION OF OFFICE CHANGES. In the event that, at any time during
the term of employment, the Company, without Employee's consent, changes the
location of the Company's offices at which Employee works to a city more than
150 miles from its present location, the Employee may terminate his employment
with the Company by giving to the Secretary of the Company notice in writing
within three months after this right to termination arises.
(b) IF POSITION CHANGES. It is the intention of the parties that the
Employee will have the positions specified in Section 1 hereof during the entire
term of employment. In the event that, at any time during the term hereunder,
Employee, without his consent, does not hold such positions with the Company and
have the duties and responsibilities that would normally be expected of an
officer of the Company with these positions (except by reason of termination
under Section 8), Employee may terminate his employment with the Company
hereunder by giving to the Secretary of the Company written notice of such
termination within three months after this right to terminate arises.
(c) LUMP SUM PAYMENT. In the event of termination pursuant to subsection
(a) or (b) of this Section 9, the Company shall pay to the Employee, in a lump
sum and within 30 days of such termination, an amount equal to the aggregate
balance (based on the annual rate in effect at the time of such termination)
which would have been payable to the Employee during the remaining portion of
the term hereunder had such termination not occurred, including any benefits
payable to Employee.
(d) REIMBURSEMENT. If a tax is imposed pursuant to Section 4999 of the
Internal Revenue Code, or successor provision of like import, upon payments due
under this Agreement or upon other payments to the Employee by the Company, the
Employee shall be paid an additional amount calculated so as to provide the
Employee, after he has paid the tax (including any related interest and/or
penalty) imposed by Section 4999 of the Code, with the same compensation he
would have received had not tax (including any related interest and/or
<PAGE>
penalty) been imposed by Section 4999. For purposes of this subsection (d),
the term "Company" shall include any parent, subsidiary, affiliate, assignee,
or successor in interest of the Company or of such assignee or successor in
interest.
10. ASSIGNMENT. This Agreement is binding upon and shall be for the
benefit of the successors and assigns of the Company, including any corporation
or any other form of business organization with which the Company may merge or
consolidate, or to which it may transfer substantially all of its assets.
Employee shall not assign his interest in this Agreement or any part thereof.
11. CONSENT OF THE COMPANY. Any act, request, approval, consent or
opinion of the Company under this Agreement must be in writing and may be
authorized, given or expressed only by resolution of the board of directors of
the Company, or by such other person as the board of directors of the Company
may designate.
12. NOTICES. Any notice required hereunder to be given shall be in
writing and if:
(a) by the Company to Employee shall be directed to him at his address set
forth below, or to such other address as he shall have furnished in writing to
the Company; or
(b) by Employee to the Company shall be directed to Lawter International,
Inc., 990 Skokie Blvd., Northbrook, Illinois 60062, Attn: Secretary, or to such
designee or other address as the board of directors shall name and have
furnished in writing to Employee.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to contracts made
and to be performed therein.
14. ENFORCEMENT EXPENSES AND ARBITRATION. The Company agrees to
reimburse the Employee for all costs and expenses incurred by him (including
the reasonable fees of his counsel) in successfully enforcing any of his
rights under this Agreement or any claim arising out of the breach thereof.
In addition, the parties acknowledge the relative economic power of the
Company versus the Employee, and the ability of the Company to resist the
conclusion of litigation should the Employee institute legal proceedings to
enforce this Agreement or to recover damages for the breach thereof. In
recognition of this, any controversy or claim arising out of or relating to
this Agreement, including any dispute over or interpretation of the
occurrence of a "Change in Control," as previously defined, shall be settled
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, at the sole election of the Employee;
provided, however, that an action by the Company to enforce its rights under
Section 7 hereof shall be excluded from the arbitration provisions of this
Section 14. Any such election by Employee shall be made by written notice
given to the Company any time after such controversy or claim arises, and in
the event Employee is served with process relating to any court proceeding
concerning any such claim or controversy commenced by the Company, such
election, to be effective, shall be made by written notice within 15 days of
the time Employee is served with such process. Commencement of court
proceedings by Employee shall be deemed an election not to arbitrate. In the
event the Company commences court proceedings (other than an action by the
Company solely to enforce its rights under Section 7 hereof) and is given
notice of the election to arbitrate by the Employee within the time period
set forth above, the Company agrees to promptly dismiss such court
proceedings and submit to arbitration. In the event of such arbitration,
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LAWTER INTERNATIONAL, INC.
By:___________________________________
Title:________________________________
______________________________________
Mark W. Joslin
______________________________________
Address
<PAGE>
Exhibit 13
Common Stock Prices
Quarter 1996 1995
First $12 1/8-10 3/8 $13 3/8-11 1/2
Second 12 1/2-10 1/2 14 3/8-11 3/4
Third 12 1/2-11 12 1/8-10 7/8
Fourth 13-11 1/8 12- 10 1/4
Dividends Per Common Share
Quarter 1996 1995
First $.10 $.10
Second .10 .10
Third .10 .10
Fourth .10 .10
Principal Products
Lawter International, Inc. is the world's leading developer and manufacturer
of specialty polymers that form the backbone of printing ink. We make it
possible to apply inks and coatings to paper, plastic, metal and other
surfaces more quickly and accurately, with faster drying, so presses can run
at higher speeds using inks that require less pigment, produce less waste,
and offer better performance characteristics such as gloss, brightness, and
rub or scratch-resistance.
Lawter products include printing ink vehicles, slip additives and resins as
well as fluorescent pigments, and additives for coatings, adhesives and
rubber compounding.
Printing ink vehicles are fluid gelled compositions which provide to
lithographic and letterpress printing inks the ability to carry color onto a
variety of printing surfaces. They influence 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.
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.
We develop, produce and market products for ink manufacturers and other
customers using proprietary technologies and modern manufacturing facilities
in North America, Europe and the Pacific Rim. Lawter was founded in 1940.
<PAGE>
Exhibit 21
Principal Subsidiaries of the Company (Jurisdiction of Incorporation)
Lawter International FSC, Limited (Jamaica)
Kingston, Jamaica
Lawter International (Belgium) N.V. (Belgium)
Lokeren, Belgium
Kallo, 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, 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
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