Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS--
INDUSTRY SEGMENTS.
The Company is engaged predominantly in a single industry--specialty chemicals. Reference is made to Note 8 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference) for information on the amounts of revenue, operating profit and identifiable assets for the industry segment.
NARRATIVE DESCRIPTION OF BUSINESS--
PRINCIPAL PRODUCTS.
Reference is made to the General Nature and Scope of Business on page 4 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference) for information on the description of the principal products.
The Company manufactures and warehouses its products in seven plants in the United States and in ten plants in foreign countries, i.e. Belgium, Canada, China, Denmark, England, Germany, Ireland, Italy, Singapore and Spain. Products are sold primarily by Company employed salesmen.
Reference is made to the Sales by Product Group on page 5 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference) for information with respect to the approximate percentages of total sales of the Company during the three fiscal years ended December 31, 1994, attributable to each principal product category.
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. During 1994, certain ingredients were in tighter supply than normal, thus causing their prices to rise. The Company was able to purchase these or alternative ingredients in sufficient quantities and expects to be able to continue to do so. A portion of the Company's resin production is used by it in the manufacture of 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 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, BASF, Coates/Lorilleux, Dianippon Ink and Chemicals, Sicpa 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 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 thermographic products and rota-matic machines, the Company encounters competition from producers of all types of printing equipment, from engravers and from other producers of thermographic and rota-matic equipment and printing supplies.
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, and ink systems designed to reduce air pollution 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 150 competitors in the sale of its line of printing ink vehicles and slip additives, and approximately 100 competitors in the sale of its synthetic and hydrocarbon resins.
RESEARCH.
During the fiscal years ended December 31, 1994, 1993 and 1992, the Company spent approximately $4,821,000, $4,423,000 and $4,093,000, 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, 1994 and 1992 were not material to the consolidated financial statements of the Company. During 1993, the Company expensed $3,405,000 for voluntary waste disposal and $3,145,000 for refurbishing and cleaning waste water treatment facilities. Reference is made to the Gross Margin section in the Results of Operation of Management's Discussion and Analysis on Page 6 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference).
It has been and is the Company's policy voluntarily to install equipment deemed necessary to control the discharge of pollutants into the environment. The Company has voluntarily installed or is in the process of installing 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 environmental, Federal, state and local laws has had no material effect upon the capital expenditures or competitive position of the Company. Environmental capital expenditures in 1995 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.
EMPLOYEES.
At December 31, 1994, the Company had 577 employees.
FOREIGN SALES--
Reference is made to Note 8 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference) for this information.
ITEM 2.



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:
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
Reference is made to Note 9 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference) for this information.
ITEM 4.

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, 1994.
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 1995, is as follows:
Mr. O'Mahoney served as European General Manager with the Company from 1990-1993.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Reference is made to the Market Price and Quarterly Dividend Statistics for Common Stock on page 1 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference) for this information.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
Reference is made to the Ten Year Financial Summary (1985-1994) on pages 8 and 9 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference) for information on selected financial data. This referenced section should be read in conjunction with the Consolidated Financial Statements and Notes (hereby incorporated by reference) in the Company's 1994 Annual Report to Stockholders, pages 10 to 19.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Reference is made to the Management's Discussion and Analysis on pages 6 and 7 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference) for this information.
ITEM 8.


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 on pages 6 and 7. Those portions of the Lawter International, Inc. and Subsidiaries' 1994 Annual Report to Stockholders listed under the caption "Consolidated Financial Statements" in Item 14 are hereby incorporated by reference. Reference is also made to the Operating Results by Quarters on page 4 in the Company's 1994 Annual Report to Stockholders (hereby incorporated by reference) for this information.
ITEM 9.

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.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is made to the Company's 1995 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.

ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the Company's 1995 Proxy Statement under the heading "Executive Compensation" (hereby incorporated by reference) for this information.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the Company's 1995 Proxy Statement under the headings "Principal Holders of Common Stock" and "Security Ownership of Management" (hereby incorporated by reference) for this information.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the Company's 1995 Proxy Statement under the heading "Indebtedness of Management" (hereby incorporated by reference) for this information.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)1. Consolidated Financial Statements--
(a)2. Financial Statement Schedules--
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--
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.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Lawter International, Inc.:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Lawter International, Inc. and Subsidiaries' 1994 Annual Report to Stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 8, 1995. Our audit was made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. The schedule listed in the index on page 7 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 8, 1995
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 8, 1995, 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, 1994, 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
Chicago, Illinois, March 27, 1995
LAWTER INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (in thousands)
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/ DANIEL J. TERRA -------------------------------------- Daniel J. Terra Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
/s/ WILLIAM S. RUSSELL -------------------------------------- William S. Russell Vice President, Treasurer and Secretary (Principal Financial and Accounting Officer)
Date: March 27, 1995
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:
/s/ LEONARD P. JUDY -------------------------------------- Leonard P. Judy, March 27, 1995 Director
/s/ RICHARD D. NORDMAN -------------------------------------- Richard D. Nordman, March 27, 1995 Director
/s/ FRED G. STEINGRABER -------------------------------------- Fred G. Steingraber, March 27, 1995 Director
/s/ DANIEL J. TERRA -------------------------------------- Daniel J. Terra, March 27, 1995 Director
Registrant's 1994 Annual Report to Stockholders, some portions of which have been incorporated by reference in this Form 10-K, has been previously sent to each stockholder and was included with this report to the Securities and Exchange Commission.