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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 1-13879
OCTEL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 98-0181725
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Global House
Bailey Lane
Manchester
United Kingdom M90 4AA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 011-44-161-498-8889
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock, $0.01 par value New York Stock Exchange
Securities registered persuant to Section 12 (g) of the Act: None
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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, and (2) has been subject to the filing requirements for
the past 90 days.
Yes X
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No
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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.
[_]
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As of March 10, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $130,712,166.
As of March 10, 2000, 13,406,376 shares of the registrant's stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Stockholders are incorporated by reference
into Parts I, II, III and IV. Certain portions of Octel Corp.'s proxy statement
to be mailed to stockholders on or about March 27, 2000 for the annual meeting
of Stockholders to be held on May 9, 2000 are incorporated in Part III hereof by
reference.
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PART 1
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Item 1 Business
General
Octel Corp., a Delaware corporation (the "Company") is a major manufacturer and
distributor of fuel additives and other specialty chemicals. Its primary
manufacturing operation is located at Ellesmere Port, South Wirral, United
Kingdom. The Company's products are sold globally, primarily to oil refineries.
Principal product lines are lead alkyl antiknock compound ("TEL"), other
petroleum additives and performance chemicals.
Until May 22, 1998, the Company was a wholly owned subsidiary of Great Lakes
Chemical Corporation, a Delaware corporation ("GLCC"). On May 22, 1998, GLCC
consummated the spin-off of its petroleum additives business by distributing
shares in the Company to the stockholders of GLCC in a ratio of one Company
share for every four GLCC shares held. In connection with the spin-off the
Company issued 14,762,417 shares of common stock on May 26, 1998. A further 969
shares were subsequently issued in respect of late notified changes in GLCC
stockholders at the record date of the spin-off issue.
The term "Octel" as used herein means Octel Corp. and its subsidiaries unless
the context indicates otherwise.
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 14 through 21 of the 1999 Annual Report to Stockholders (the
"Report") are incorporated herein by reference.
Segmental Information
The Company presently has one dominant industry segment, petroleum additives.
Note 2 on the Financial Statements included in the Report (the "Financial
Statements") on pages 31 and 32 of the Report, is incorporated herein by
reference.
Description of the Business
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 14 through 21 of the Report, is incorporated herein by
reference.
Overview
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The Associated Octel Company Limited was formed in 1938 to manufacture and
market TEL as an antiknock additive for gasoline. The Company is an
international chemical company specialising in the manufacture, distribution and
marketing of fuel additives. The Company is organised into two Strategic
Business Units - TEL and Specialty Chemicals. The TEL business, which accounted
for approximately 77% of the Company's 1999 sales, is the world's leading
producer of TEL that is used by oil refineries world-wide to boost the octane
levels in gasoline which allows fuel to burn more efficiently and prevents
engine knock during the fuel cycle. The Specialty Chemicals business, which
accounted for approximately 23% of the Company's 1999 sales, provides a broad
range of petroleum additives, including combustion improvers, fuel detergents
and
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functional performance products and manufactures and markets a range of
chemicals including Octaquest(R) a biodegradable chelating agent developed for
the detergent market.
TEL
- ---
TEL, the most significant of the Company's products, accounted for approximately
77% of the Company's 1999 sales. TEL was first developed in 1928 and introduced
into the European market for internal combustion engines to boost octane levels
in gasoline, allowing it to burn more efficiently and eliminating engine knock.
TEL remains the most cost-effective octane enhancer for motor gasoline and has
the added benefit of acting as a lubricity aid, reducing engine wear. TEL is
used as a gasoline additive in various concentrations depending on the intrinsic
nature of the base fuel and the targeted octane number.
While TEL remains the most cost-effective and energy-efficient additive from an
octane-boosting perspective, leaded gasoline undermines the effectiveness of
catalytic converters, which are increasingly being used to reduce automobile
exhaust emissions. There has also been increasing pressure from regulators and
environmental groups regarding the alleged harmful effects on human health of
leaded gasoline. Environmental agencies and the World Bank are advocating the
elimination of TEL in automotive gasoline.
Worldwide use of TEL has declined since 1973 following the enactment of the US
Clean Air Act of 1970 and similar legislation in other countries. The decline in
TEL volumes since 1990 has been between 10% and 15% per annum, and management
believes that volumes will continue to fall at the upper end of this range for
the next two years.
While TEL business is declining, it will remain viable for a number of years. It
is costly for refineries to switch their gasoline production process to unleaded
gasoline and therefore upgrading some refineries may not be economically
justifiable. These refineries may decide to continue operating until reduced
demand for leaded gasoline forces their closure. There are also significant
costs in converting automobiles and gasoline stations to accommodate the
increased use of unleaded fuels. The transition to lead-free fuel is therefore
unlikely to happen globally all at once.
The Company intends to manage the decline safely and effectively and to maximize
the cash flow through the decline. Continuous cost improvement measures have
been, and will continue to be, taken to respond to declining market demand.
Specialty Chemicals
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The Specialty Chemicals Business Unit comprises two developing business areas -
Petroleum Specialties and Performance Chemicals.
The Petroleum Specialties business develops, produces and markets a range of
specialty products used as fuel additives built on the TEL operations. The
Company has developed a range of products and customized blends to meet market
demand for cleaner-burning and more efficient fuels. The Refinery Services unit
supplies a growing list of products and services that improve operational
efficiencies and product performance at the refinery. The addition of Octel
Deutschland GmbH to Octel's group in December, 1998 opened new European
marketing opportunities and an expanded product range including ferrocene, an
iron based combustion improver. The Octel Starreon LLC joint venture in March,
1999 has developed the Company's marketing strength with end-users, fleets and
oil-jobbers.
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The Performance Chemicals focus going forward is to develop high performance and
particularly environmentally friendly products from its technology base. The
major current line is Octaquest(R), developed for the detergent market but now
addressing new markets in personal care, textiles, photographics and household
cleaning. Octaquest(R) technology is also the platform for the development of a
family of products such as Octahib(R), a biodegradable corrosion inhibitor that
protects metal.
Raw Materials
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Raw material purchases account for a substantial portion of the Company's
manufacturing costs. The major purchases are lead, sodium, ethyl chloride and
dibromoethane. These materials are available readily from more than one source,
and the Company uses long term contracts to manage the risk of price escalation.
Patents and Intellectual Property
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The Company has a portfolio of trademarks and patents, granted and in the
application stage, covering products and processes. These trademarks and patents
relate primarily to the Petroleum Specialties and the Performance Chemicals
businesses, in which intellectual property forms a significant part of the
Company's competitive strengths. The majority of these patents were developed by
the Company. Most patents have more than ten years life remaining. The Company
also holds a license for the manufacture of fuel detergents. The Company has
trademark registrations for the use of the name Octel(R) and for the Octagon
device in Classes 1 and 4 of the "International Classification of Goods and
Services for the Purposes of the Registration of Marks" in all countries in
which it has a significant market presence except for the US in respect of which
the appropriate applications have been made. Octel also has trademark
registrations for Octaquest(R). The Company has application in progress for a
number of other trademark registrations in several jurisdictions.
Octel America Inc., a subsidiary of the Company, has trademarks for Stadis(R),
an aviation and ground fuel conductivity improver, Ortholeum(R), a lube oil
additive antioxidant and metal deactivator, Ocenol(R), an antifoam for refinery
use, and Valvemaster(R), a valve seat recession additive. The Company does not
consider its business as a whole to be dependent on any one trademark, patent or
licence.
Customers
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TEL sales are made principally to the retail refinery market. In 1999, 99% of
Octel's sales volume was to the retail market, which comprises independent,
state or major oil company-owned refineries located throughout the world. Within
this market, refineries owned by British Petroleum, Mobil Oil and Texaco Oil are
entitled to profit participation payments, based on their ongoing purchases from
the Company, by virtue of their former partnership interest in Octel Associates,
an Octel Corp. subsidiary. Selling prices to other refineries are principally
negotiated under long-term supply agreements, with varying prices and terms of
payment.
The customers of the Specialty Chemicals business are multinational oil
companies and fuel retailers. Traditionally, a large portion of the total market
was captive to oil companies which had fuel additives divisions providing
supplies directly to their respective refinery customers. As a result of recent
corporate restructurings and various mergers, joint ventures and other
collaborative arrangements involving downstream refining and marketing
operations, the tied supply arrangements between oil companies and their captive
fuel additive divisions have been weakened and many refineries are increasingly
looking to purchase their fuel
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additive requirements on the open market. This trend is creating new
opportunities for independent additive marketers such as the Company.
Competition
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The world-wide market for the Company's primary product, TEL, is highly
competitive. In this market Octel competes not only with other sellers of TEL
but with marketers of products and processes providing alternative ways of
enhancing octane performance in automotive gasoline. Approximately 98% of all
TEL sold is used to improve the antiknock characteristics of gasoline for
automobiles. Other products and processes that are used to enhance octane
performance in automotive gasoline include oxygenates (primarily methyl tertiary
butyl ether ("MTBE") and ethanol) or aromatics (such as benzene and toluene) as
gasoline blending components, as well as the installation of additional
reforming capacity through refinery upgrades. In addition, non-lead metallic
based antiknock additives are currently under development by several companies
including Octel. Government regulations have restricted or eliminated the use of
TEL as an automotive gasoline additive in many of the largest and developed
markets such as the US. As a result, worldwide demand for TEL is progressively
shrinking as the use of unleaded gasoline becomes more widespread. On a
worldwide basis Octel remains the largest TEL marketer.
The Company's Specialty Chemicals business operates in a competitive
environment, with its main competitors being large oil and chemical companies.
No one company holds a dominant market share. The Company considers its
competitive strengths are its strong technical development capacity,
independence from major oil companies and its strong long-term relationships
with refinery customers in the TEL market which provide synergies with the
petroleum additives business.
The Company is seeking to expand its Specialty Chemicals business. Growth will
be sought from a combination of internal and external sources, including the in-
house development of new products through research and development, exploitation
of current products into new markets, licensing agreements, custom synthesis of
specialty products and acquisitions of products and/or businesses.
Ethyl Agreements
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The Company supplies Ethyl on a wholesale basis with TEL for resale to customers
under two separate long-term supply agreements at prices adjusted annually
through agreed formulas. Under one of these agreements (the "US TEL Supply
Agreement"), effective January 1, 1998, Ethyl purchases from the Company its TEL
requirements for resale to its customers in the United States. In the other
agreement, dated December 22, 1993, Ethyl purchases TEL from the Company for
resale to customers located outside the United States. The maximum quantities of
TEL Ethyl can purchase under the non-US agreement are set at a fixed percentage
of the Company's annual production capacity. Pursuant to a Bulk Transportation
Agreement, dated March 25, 1994, Ethyl supplies the Company with all of its bulk
transportation requirements for TEL. The Company, Ethyl and GLCC reached an
agreement with the Federal Trade Commission on June 24, 1998 with respect to the
terms of a consent decree governing sales of TEL by the Company to Ethyl for
resale in the US market. The Company and Ethyl complied with the provisions of
the consent decree by negotiating and putting into effect a new long-term
contract governing the supply of TEL to Ethyl for resale in the US market. It
should be noted that the entire US TEL market is relatively small and therefore
only a very minor portion of the Company's sales to Ethyl are for resale in the
US market. Neither the terms of the consent decree nor the execution of the US
TEL contract with Ethyl is expected to have a material adverse effect on the
Company's business, results of operation or financial condition.
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Effective October 1, 1998 the Company's UK subsidiary The Associated Octel
Company Limited ("Associated Octel") signed agreements with Ethyl to market and
sell TEL in areas of the world excluding North America and European Union. Under
the agreements, all marketing and sales efforts made to customers are managed by
and made in the name of Associated Octel. Ethyl provides bulk transportation
services in support of the agreements while Octel continues to produce all TEL
marketed under these agreements. Depending upon cost, performance and
flexibility, one or both companies provide other TEL services.
Technology
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The Company's research and development facilities are located at Ellesmere Port,
UK, while its advanced fuel testing facility to support the TEL and Petroleum
Specialties businesses is located at Bletchley, UK. The Company's research and
development activity has been, and will continue to be, focused on the
development of new products and formulations for the Petroleum Specialties and
the Performance Chemicals businesses. Technical customer support is also
provided for the TEL business. Expenditures to support research,
product/application development and technical support services to customers were
$3.9 million, $3.1 million and $3.8 million in 1999, 1998 and 1997,
respectively. The Company considers that its strong technical capability
provides it with a significant competitive advantage. In the last three years,
the Petroleum Specialties business has developed new detergent, lubricity and
combustion improver products, in addition to the introduction of several new
cost effective fuel additive packages. A patented process for manufacturing
Octaquest(R) has enabled the Company to enter into a new market in the
performance chemicals area.
Health, Safety and Environmental Matters
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The Company is subject to Environmental Laws in all of the countries in which it
does business. The principal Environmental Laws to which the Company is subject
in the UK are the Environmental Protection Act 1990, the Water Resources Act
1991, the Health and Safety at Work Act 1974 and regulations and amendments
thereto. Management believes that the Company is in material compliance with all
applicable Environmental Laws, and has made appropriate provision for the
continued costs of compliance with Environmental Laws. Nevertheless, there can
be no assurance that changes in existing Environmental Laws, or the discovery of
additional liabilities associated with the Company's current or former
operations, will not have a material adverse effect on the Company's business,
results of operations or financial condition.
Human Resources
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The Company's workforce at December 31, 1999 consisted of 1,184 employees, of
which 883 were in the UK. Approximately 60% of the Company's employees in the UK
are represented by unions, including the Transport and General Workers Union and
the Amalgamated Engineering and Electrical Union.
The Company has a major employee communication program to help its employees
understand the business issues surrounding the Company, the TEL business and the
corporate downsizing program that has been implemented to respond to declining
TEL demand. Regular briefings are conducted by line managers where Company-wide
and departmental issues are discussed. More formal communication takes place
with the trade unions which the Company recognizes for negotiating and
consultative purposes.
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Management believes that the communication program has been highly successful
and has contributed to achieving a significant reduction in the Company's UK
workforce since January 1, 1996. The Company has implemented an extensive
retraining program which will enable further improvements in the productivity
and flexibility of the Company's UK workforce.
The Company closed one of its three TEL buildings at year-end 1998. Following
the agreement of a further voluntary severance program in November 1999, 330
employees based in the United Kingdom will leave the Company during 2000. By mid
2000, the total UK workforce will be reduced by 70% from that employed in June
1996. This has all been achieved through voluntary severance programs.
Item 2 Properties
A summary of the Company's principal facilities is shown in the following table.
Each of these properties is owned by the Company, except where otherwise noted:-
<TABLE>
<CAPTION>
Location Principal Operations
- -------- --------------------
<S> <C>
Newark, Delaware, US/(1)/ Octel Corp. Headquarters; Petroleum Specialties
regional office
London, UK/(1)/ Sales and Marketing
Manchester, (UK)/(1)/ Octel Corp. European Headquarters
Ellesmere Port, UK Associated Octel Headquarters; Business Team;
Manufacturing; Research & Development; Administration
Bletchley, UK Fuel Technology Center
Herne, Germany/(1)/ Octel Deutschland GmbH; Manufacturing and
Administration
Doberitz, Germany Novoktan GmbH; Manufacturing and Administration
/(1)/ Leased property
</TABLE>
The group's TEL manufacturing sites are at Ellesmere Port and Novoktan.
Ellesmere Port's TEL manufacturing capacity is currently 46,000 metric tons (mt)
per annum, and that of Novoktan is 9,600 mt per annum. Actual annual operating
levels are under review as part of management's response to the decline in TEL
markets. There is also a chlorine plant (40,000 mt per annum) at Ellesmere Port
which is owned by the Company but operated on behalf of a third party.
The group's Specialty Chemicals manufacturing capacity at Ellesmere Port
comprises a detergent plant (6,000 mt per annum) and an EDDS plant (3,000 mt per
annum) for the manufacture of Octaquest(R).
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Item 3 Legal Proceedings
There are no material pending legal proceedings involving the Company, its
subsidiaries or any of its properties. Furthermore, no director, officer or
affiliate of the Company or any associate of any director or officer is
involved, or has a material interest in, any proceedings which would have a
material adverse effect on the Company.
Item 103 of Regulation S-K requires disclosure of administrative or judicial
proceedings arising under any federal, state or local provisions dealing with
protection of the environment, if the monetary sanctions might exceed $100,000.
There are currently no such proceedings.
Item 4 Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the quarter ended
December 31, 1999 .
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PART II
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Item 5 Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is listed on the New York Stock Exchange. As of March
10, 2000 there were approximately 2,260 registered holders of the common stock.
Quarterly stock prices on page 43 of the Report are incorporated herein by
reference.
The borrowings entered into by the Company in relation to the spin-off from GLCC
restrict the Company's ability to pay dividends or buy back stock to a maximum
of $15 million per annum in aggregate.
Item 6 Selected Financial Data
The Financial Highlights on the inside cover of the Report and the Quarterly
Summary on page 43 of the Report are incorporated herein by reference.
Item 7 Management's Discussion and Analysis of Results of Operation and
Financial Condition
The discussion on pages 14 through 21 of the Report is incorporated herein by
reference.
Item 7a Quantitative and Qualitative Disclosure About Market Risk
Information relating to the Company's exposure to market risk on pages 41 and 42
of the Report are incorporated herein by reference.
Item 8 Financial Statements and Supplementary Data
The consolidated financial statements, together with the report of
PricewaterhouseCoopers dated February 9, 2000 and quarterly financial
information, which are on pages 14 through 43 of the Report, are incorporated
herein by reference. The Financial Highlights on the inside front cover of the
Report are also incorporated herein by reference.
Item 9 Changes In and Disagreement with Accountants on Accounting and
Financial Disclosures
Until May 22, 1998 the Company was a subsidiary of GLCC. Accordingly the
Combined Financial Statements for the period ended December 31, 1997 were
audited by Ernst & Young LLP, the auditors of GLCC. The Company's management
sought independent advice from PricewaterhouseCoopers on certain aspects of the
spin-off from Great Lakes.
Following the consummation of the spin-off and the creation of Octel as a group
independent of GLCC, the Board of Directors believed that it was appropriate to
appoint PricewaterhouseCoopers as the auditors of Octel Corp., and all its UK
and US subsidiaries. PricewaterhouseCoopers were duly appointed on August 11,
1998. Ernst & Young were never appointed as auditors of Octel Corp., so their
resignation was not required.
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PART III
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Item 10 Directors and Executive Officers of the Registrant
Information under the heading "Management" set out in the proxy statement
relating to the 1999 Annual Meeting of stockholders dated May 9, 2000 ("The
Proxy Statement") is incorporated herein by reference.
Item 11 Executive Compensation
The information under the heading "Executive Compensation and Other Information"
in The Proxy Statement is incorporated herein by reference.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information under the heading "Security Ownership of Certain Beneficial
Owners and Management" in The Proxy Statement is incorporated herein by
reference.
Item 13 Certain Relationships and Related Transactions
Note 16 on page 42 of the Financial Statements is incorporated herein by
reference.
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PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The Consolidated Financial Statements of Octel Corp. and its
subsidiaries and related notes thereto, together with the report
thereon of PricewaterhouseCoopers dated February 9, 2000 appearing on
pages 14 through 43 of the 1999 Annual Report to Stockholders, are
incorporated by reference in Item 8.
(2) Financial Statement Schedules
All financial statement schedules have been omitted since the
information required to be submitted has been included in the
financial statements or because they are either not applicable or not
required under the Rules of Regulations S-X.
(3) Exhibits
2.1 Transfer and Distribution Agreement, dated as of April 24, 1998,
between Great Lakes Chemical Corporation ("GLCC") and the
Registrant. (3)
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. (1)
3.2 Amended and Restated By-laws of the Registrant. (1)
4.1 Form of Common Stock Certificate. (2)
4.2 Form of Rights Agreement between the Registrant and First
Chicago Trust Company of New York, as Rights Agent. (2)
4.3 Form of Certificate of Designations, Rights and Preferences of
Series A Junior Participating Preferred Stock of the Registrant.
(2)
4.4 Indenture dated as of May 1, 1998 among the Registrant, Octel
Developments PLC and the IBJ Schroder Bank and Trust Company, as
trustee. (4)
4.5 Form of 10% Senior Notes (contained in Exhibit 4.4 as Exhibit
A). (4)
4.6 Registration Rights Agreement dated as of April 30, 1998 among
the Registrant, Octel Developments PLC and the initial
purchasers. (1)
4.7 Purchase Agreement dated as of April 30, 1998 among the Initial
Purchasers, Octel Developments PLC and the Registrant. (4)
7.1 Share purchase agreement between OBOAdler Holdings Limited and
The Associated Octel Company Limited relating to the sale and
purchase of the whole of the issued share capital of OBOAdler
Company Limited, dated June 1, 1999. (6).
7.2 $100,000,000 term loan agreement between Octel Corp., Octel
Associates, Barclays Capital, Barclays Bank plc and others,
dated June 3, 1999 (6).
10.1 Tax Disaffiliation Agreement between GLCC and the Registrant.
(1)
10.2 Corporate Services Transition Agreement between GLCC and the
Registrant. (1)
10.3 Supply Agreement between GLCC and the Registrant for the supply
of ethylene dibromide. (1)
10.4 Supply Agreement between GLCC and the Registrant for the Supply
of anhydrous hydrogen bromide. (1)
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10.5 Supply Agreement for the Supply of 10% sodium hydroxide
solution. (1)
10.6 Ethyl Corporation Market and Sales Agreement. (4)
10.7 Octel Corp. Non Employee Directors Stock Option Plan. (4)
10.8 Employment Agreement between Associated Octel Limited and Steve
W Williams, Geoff J Hignett, Graham M Leathes and Robert A Lee.
(1)
10.9 Employment Agreement between Associated Octel Limited and Dennis
J Kerrison. (1)
10.10 Agreement between GLCC and the Registrant for the Toll
Manufacturing of Stadis Product. (4)
10.11 Octel Corp. Time Restricted Stock Option Plan. (3)
10.12 Octel Corp. Performance Related Stock Option Plan (3)
10.13 Associated Octel Savings-Related Stock Option Plan. (3)
10.14 Form of Octel Corp. Approved Company Share Option Plan.(8)
10.15 Form of Octel Corp. Profit Sharing Share Scheme.(8)
10.16 Employment Agreement between The Associated Octel Company
Limited and Alan G Jarvis.
10.17 Employment offer letter from The Associated Octel Company
Limited to John P Tayler.
10.18 Consultancy Agreement between Octel Corp. and Robert E Bew.
12.1 Statement Regarding Computation of Financial Ratios.
13.1 1999 Annual Report of Octel Corp.
13.2 Opinion of Ernst & Young LLP on 1997 Combined Financial
Statements .
21.1 Subsidiaries of the Registrant.
24.1 Powers of Attorney of Directors and Officers of the Registrant
(4).
27.1 Consolidated Financial Data Schedule.
99.1 Consolidated Financial Statements of OBOAdler Company Limited as
of June 30, 1999 and for the year then ended (7).
(1) Incorporated by reference to the Company's amendment dated
April 21, 1998, to a previously filed Form 10-/A.
(2) Incorporated by reference to the Company's Form 10-/A
previously filed on April 10, 1998.
(3) Incorporated by reference to the Company's amendment dated
May 4, 1998 to a previously filed form 10-/A.
(4) Incorporated by reference to the Company's form S-4
previously filed on October 1, 1998.
(5) Filed with the Company's form 10Q on November 10, 1998.
(6) Filed with the Company's form 8-K on November 12, 1999.
(7) Filed with the Company's form 8-K/A on January 20, 2000.
(8) Filed with the Company's form 10K on March 26, 1999.
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(b) Reports on Form 8-K
A Form 8-K was filed on November 12, 1999 announcing the November 9,
1999 acquisition of OBOAdler Company Limited. A Form 8-K/A was filed
on January 29, 2000 which provided audited financial statements and
proforma financial statements related to the acquired business and the
combined company respectively.
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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.
OCTEL CORP. By: /s/ Dennis J Kerrison
(Registrant) DENNIS J KERRISON
Date: President, Chief Executive Officer
and
March 20, 2000 Director
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 date indicated:
March 20, 2000 /s/ Alan G Jarvis
-------------------------------
Alan G Jarvis, Vice President and
Chief Financial Officer
March 20, 2000 /s/ Robert E Bew
-------------------------------
Dr Robert E Bew, Chairman and
Director
March 20, 2000 /s/ Dennis J Kerrison
-------------------------------
Dennis J Kerrison, President,
Chief Executive Officer and
Director
March 20, 2000 /s/ Martin M Hale
-------------------------------
Martin M Hale, Director
March 20, 2000 /s/ Thomas M Fulton
-------------------------------
Martin M Hale, Director
March 20, 2000 /s/ James Puckridge
-------------------------------
James Puckridge, Director
March 20, 2000 /s/ Benito Fiore
-------------------------------
Dr Benito Fiore, Director
March 20, 2000 /s/ Charles M Hale
-------------------------------
Charles M Hale, Director
March 20, 2000 /s/ Steven W Williams
-------------------------------
Steven W Williams, Vice President,
Group Operations
March 20, 2000 /s/ H Alan Hanslip
-------------------------------
H Alan Hanslip, Vice President,
Human Resources
March 20, 2000 /s/ Geoffrey J Hignett
-------------------------------
Dr Geoffrey J Hignett, Vice
President, Specialty Chemicals
14
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Exhibit 10.16
DATED MAY 1998
================================================================================
THE ASSOCIATED OCTEL COMPANY LIMITED
- and -
ALAN GEOFFREY JARVIS
---------------------------
EXECUTIVE SERVICE AGREEMENT
---------------------------
<PAGE>
DATE: 22nd May 1998
PARTIES:
1. THE ASSOCIATED OCTEL COMPANY LIMITED (registered no: 344359) whose
registered office is at Suite 2, 4th Floor, Berkeley Square House,
Berkeley Square, London. W1X 6DT ("the Company").
2. ALAN GEOFFREY JARVIS of Cob Hall, Hoofield Lane, Huxley, Chester,
CH3 9BR ("the Executive").
OPERATIVE PROVISIONS:
1. INTERPRETATION
2.
1.1. The headings and marginal headings to the Clauses are for convenience
only and have no legal effect.
1.2. Any reference in this Agreement to any Act or delegated legislation
includes any statutory modification or re-enactment of it or the
provision referred to.
1.3. In this Agreement:
"the Board" means the Board of Directors of the
Parent or the Company as the case
may be and includes any committee of
the Board duly appointed by it;
"Managing Director" means any person or
persons jointly holding such office
of the Company from time to time and
includes any person(s) exercising
substantially the functions of a
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Managing Director or Chief Executive
Officer of the Company;
"Confidential Information" includes but is not limited to all
any trade secrets, names and contact
details of customers and prospective
customers, purchasing and sales
agents, suppliers, prices charged to
or charged by the company, financial
and budget information, and any
other information of a confidential
nature relating to the Company or
any Associated Company or
information which has been given to
the Company or any Associated
Company by a third party under a
duty of confidence where such a duty
has been made known to the Executive
and which is not in the public
domain otherwise than by breach of
the Executive's duties of
confidentiality to the Company.
"Corporate Information" means all and any information
(whether or not recorded in
documentary form or on computer disc
or tape) relating to the business
methods, corporate plans, management
systems, finances, business
opportunities or research and
development projects of the Company
or any Associated Company.
"Marketing Information" means all and any information
(whether or not recorded in
documentary form or on computer disc
or tape) relating to the marketing
or sales of any product or service
of the Company or any Associated
Company including without limitation
sales targets and statistics, market
share and pricing statistics,
marketing surveys and plans, market
research reports,
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sales techniques, price lists,
discount structures, advertising and
promotional material, the names,
addresses, telephone numbers,
contact names and identities of
customers and potential customers of
and suppliers and potential
suppliers to the Company or any
Associated Company and the nature of
their business operations, their
requirements for any product or
service sold to or purchased by the
Company or any Associated Company
and all confidential aspects of
their business relationship with the
Company or any Associated Company.
"Associated Company" means a subsidiary and any other
company which is for the time being
a holding company (as defined by the
Company Acts 1985 Section 736) of
the Company or another subsidiary of
any such holding company.
"Pension Scheme" means The Associated Octel Company
Limited Pension Plan.
"Parent" means Octel Corp
2. APPOINTMENT AND DURATION
2.1. The Parent and the Company agree to employ the Executive and the
Executive hereby accepts employment with the Parent and the Company
upon the terms and conditions set forth in this Agreement.
2.2. The Company appoints the Executive and the Executive agrees to serve as
a Director or Officer of the Company and for any Associated Company or
in such other appointment as may from time to time be agreed. The
Executive accepts that the
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Company may at its discretion require him to perform other duties or
tasks not within the scope of his normal duties and the Executive
agrees to perform those duties or undertake those tasks as if they were
specifically required under this Agreement.
2.3. The appointment shall be deemed to have commenced on 22nd May 1998 and
shall continue (subject to earlier termination as provided in this
Agreement) until terminated by the Company giving to the Executive not
less than 12 calendar months prior notice or by the Executive giving to
the Company not less than 6 calendar months prior notice. The
Executive's period of continuous employment with the Company began on
13th October 1997.
2.4. With the prior consent of the Executive the Company may from time to
time appoint any other person or persons to act jointly with the
Executive in his appointment.
2.5. The Executive warrants that by virtue of entering into this Agreement
he will not be in breach of any express or implied terms or any
contract with or of any other obligation to any third party binding
upon him.
3. DUTIES OF THE EXECUTIVE
3.1. The Executive shall at all times during the period of this Agreement:
3.1.1. devote the whole of his time, attention and ability to the
duties of his appointment save for such reasonable time as
he may use for non-executive directorships of companies,
which he has been authorised in writing by the Board to
accept;
3.1.2. faithfully and diligently perform those duties and exercise
such powers consistent with them which are from time to time
assigned to or vested in him;
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3.1.3. obey all lawful and reasonable directions of the Board of
the Parent of the Company;
3.1.4. use his best endeavours to promote the interests of the
Company;
3.1.5. keep the Managing Director promptly and fully informed (in
writing if so requested) of his conduct of the business or
affairs of the Company or any Associated Company and provide
such explanations in connection therewith as the Managing
Director may require;
3.1.6. not at any time make any untrue or misleading statement
relating to the Company or any Associated Company;
3.1.7. inform the Managing Director promptly if he receives a
solicitation from a competitor or potential competitor
either on a personal or a business basis which could be
prejudicial to the best interests of the Company or its
Associated Companies.
4. PLACE OF WORK AND RESIDENCE
4.1. The Executive shall perform his duties at the Company's premises in
Ellesmere Port and/or such other place of business of the Company as
the Company may require whether inside or outside the United Kingdom
but the Company shall not without his prior consent require him to go
to or reside anywhere outside the United Kingdom except for occasional
visits in the ordinary course of his duties, such visits not normally
to exceed a period of one month.
4.2. The Executive shall at all times reside within a radius of 40 miles
from his place of work from time to time. If the Company shall change
his place of work such that the Executive has to relocate his residence
to remain within that radius, the Company shall reimburse him his
removal and other incidental expenses in accordance with its
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then current policy for relocation of Executives.
5. HOURS OF WORK
The Executive's hours of work are the normal hours of the Company from
9 am to 5.30 pm Monday to Friday each week together with such
additional hours as may be necessary so as properly to fulfill his
duties.
6. PAY
6.1. During his appointment the Company shall pay to the Executive:
6.1.1. a basic salary at the rate of (pound)150,000 per year which
shall accrue day to day and be payable by equal monthly
instalments in advance according to the published schedule
of payment dates. The salary shall be deemed to include any
fees receivable by the Executive as a Director or Officer of
the Company, or of any other Associated Company or other
company unincorporated body in which he holds office as
nominee or representative of the Company or an Associated
Company and
6.1.2. a bonus in accordance with the corporate bonus scheme set
out in Schedule 1.
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6.2. The Executive's basic salary shall be reviewed by the Board on 1st
January each year except in the first year and the rate of basic salary
may be increased by the Company on a discretionary basis with effect
from that date by such amount if any as it shall think fit. The first
such review of salaries will take place on 1st January 2000.
7. PENSION
7.1. The Executive shall be entitled to be and remain a member of the
Company Pension Scheme subject to the terms of its Deed and Rules from
time to time details of which are at Schedule 2. The Company shall be
entitled at any time to terminate the Pension Scheme or the Executive's
membership of it subject to providing him with the benefit of an
equivalent pension scheme ("the New Scheme") each and every benefit of
which shall not be less favourable than the benefits provided to the
Executive under the existing scheme and to ensuring that the Executive
is fully credited in the New Scheme for his pensionable service in the
existing scheme as if such pensionable service has been under the New
Scheme.
7.2. For the purposes of Part III of the Pension Schemes Act 1993 there is a
contracting-out certificate in force.
7.3. The Company will provide additional pension benefits which after taking
account of the Executive's entitlement under the Company Pension
Scheme, shall be the equivalent of 1/40th of full basic pay (as
provided under Clause 6.1.1 above) irrespective of the Inland Revenue
Pensions Cap for each year of pensionable service. The Executive is
entitled to participate in The Associated Octel Funded Unapproved
Retirement Benefits Scheme (FURBS) and The Associated Octel Top Hat
Scheme (which together are hereinafter referred to as the Company
Pension Plans) by which such additional pension provision referred to
within this sub-Clause shall be provided.
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7.4. Without prejudice to Clause 7.3, should the Executive be prevented or
restricted in part or in whole by UK Inland Revenue restrictions from
drawing benefits otherwise payable under the Company Pension Plans, the
Company shall pay him further salary which after meeting income tax
obligations shall be equivalent to the cost of providing the pension
benefits denied him by such UK Inland Revenue restrictions.
7.5. The Executives accrued benefits under the Company Pension Plans shall
survive termination of this Agreement, irrespective of the cause or
reason for such termination.
8. INSURANCE BENEFITS
8.1. The Executive shall be entitled to participate at the Company's expense
in the Company's Permanent Health Insurance scheme which provides cover
for permanent sickness or disability. He will also be covered for
himself, his spouse and eligible children in the Company's BUPA Scheme,
subject to the rules of such schemes, details of which are available
from the HR Director. The Company may choose to terminate its agreement
with BUPA and provide at least equivalent benefits with an alternative
supplier.
9. CAR
9.1. Subject to the Executive holding a current full driving licence a car
of make, model and specification in line with current policy for
executives will be provided. The policy also includes an option to
trade up to a higher cost car, the additional cost of such to be borne
by the Executive. The policy is available from the HR Director. At the
option of the Company a non-pensionable cash allowance may be paid by
monthly instalments in arrears in lieu of the provision of a Company
car in line with current Company policy.
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9.2. The Company shall bear all standing and running expenses of the car
including fuel consumed during private use of the car throughout
Europe, including holiday usage and any additional insurance costs
incurred to permit the Executive to use the car outside the United
Kingdom for private purposes.
9.3. The Executive shall always comply with all regulations laid down by the
Company from time to time with respect to company cars; shall follow
the Company policy in the case of any accidents involving his Company
car, shall immediately report to the Company any driving convictions in
respect of which he is disqualified from driving a motor vehicle and,
on the termination of his appointment whether lawfully or unlawfully,
shall forthwith return his Company car to the Company, (except as
provided for in Clause 17.6.3).
10. EXPENSES
10.1. The Company shall reimburse to the Executive normally on a monthly
basis all travelling, hotel, entertainment and other expenses
reasonably incurred by him in the proper performance of his duties
subject to the Executive complying with such guidelines or regulations
issued by the Company from time to time in this respect and to the
production to the Company of such vouchers or other evidence of actual
payment of the expenses as the Company may reasonably require.
10.2. The Company will issue Company sponsored charge card(s) to the
Executive and he shall use such card(s) only for expenses reimbursable
under Clause 10.1 above, and shall return the card(s) to the Company
forthwith on the termination of his employment.
11. HOLIDAY
11.1. In addition to English public holidays the Executive is entitled to 30
working days paid holiday in each holiday year which runs from 1st
January to 31st December to
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be taken at such time or times as are agreed with the Managing
Director. The Executive may, with the consent of the HR Director, carry
forward up to 10 unused days from his holiday entitlement to be taken
by 31st March in the subsequent holiday year.
11.2. The Executive, with the written consent of the HR Director, may bank up
to 5 days per year of his holiday entitlement which can be taken
immediately prior to his normal (or early) retirement date.
Alternatively, the banked holiday days may be taken as sabbatical leave
with the permission of the Managing Director.
11.3. For the holiday year during which his appointment commences or
terminates, the Executive is entitled to two and a half working days
holiday for each calendar month of his employment by the Company during
that holiday year. On the termination of his appointment for whatever
reason, the Executive shall be entitled to pay in lieu of outstanding
holiday entitlement and shall be required to repay to the Company any
salary received for holiday taken in excess of his entitlement.
12. SICKNESS
12.1. If the Executive is absent because of sickness (including mental
disorder) or injury he shall report this fact forthwith to his
immediate Supervisor and if the Executive is so prevented for seven or
more consecutive days he shall provide a medical practitioner's
statement to the HR Director on the eighth day and weekly thereafter so
that the whole period of absence is certified by such statements.
Immediately following his return to work after a period of absence due
to incapacity the Executive shall complete a Self-Certification form
available from the HR Department detailing the reason for his absence.
This should be forwarded to the Staff Pay Office at Ellesmere Port by
the Executive on the first day of his return to work.
12.2. If the Executive shall be absent due to sickness (including mental
disorder) or injury duly certified in accordance with the provisions of
Clause 12.1 hereof, he shall be paid his full remuneration hereunder
for up to one month's absence in any period of
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twelve consecutive months and thereafter such remuneration, if any, as
the Managing Director shall determine from time to time provided that
such remuneration shall:-
12.2.1. never be less than the proceeds received by the Company in
respect of the Executive under the Company's permanent
health insurance scheme (after paying pension
contributions); and
12.2.2. be inclusive of any Statutory Sick Pay to which the
Executive is entitled under the provisions of the Social
Security Contributions and Benefits Act 1992 and any
Social Security Sickness Benefit or other benefits
recoverable by the Executive (whether or not recovered)
may be deducted therefrom.
12.3. If the sickness or injury of the Executive shall be or appear to be
occasioned by actionable negligence of a third party in respect of
which damages are or may be recoverable, the Executive shall
immediately notify the Company of that fact and of any claim,
compromise, settlement or judgment made or awarded in connection with
it and shall give to the Company all particulars the Company may
reasonably require and shall if required by the Company refund to the
Company that part of any damages recovered relating to loss of earnings
for the period of the incapacity as the Company may reasonably require,
provided that the amount to be refunded shall not exceed the amount of
damages or compensation recovered by him less any costs borne by the
Executive in connection with the recovery of such damages and or
compensation and shall not exceed the total remuneration paid to him by
way of salary in respect of the period of absence.
12.4. For Statutory Sick Pay purposes the Executive's qualifying days shall
be his normal working days.
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12.5. At any time during the period of his appointment the Executive shall at
the request and expense of the Company permit himself to be examined by
a registered medical practitioner to be selected by the Company and
shall authorise such medical practitioner to disclose to and discuss
with the Company's medical adviser the result of such examination and
any matters which arise from it in order that the Company's medical
adviser can notify the Company of any matters which, in his opinion,
might hinder or prevent the Executive (if during a period of
incapacity) from returning to work for any period or (in other
circumstances) from properly performing any duties of his appointment
at any time.
13. ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges:
13.1. that the Company or its Associated Companies possesses or will possess
a valuable body of Confidential Information; and
13.2. that the Company or its Associated Companies will give him access to
Confidential Information in order that he may carry out the duties of
his employment; and
13.3. that the duties of his employment include without limitation a duty of
trust and confidence and a duty to act at all times in the best
interests of the Company and any Associated Company; and
13.4. that his knowledge of Confidential Information directly benefits him by
enabling him to perform his management duties; and
13.5. that the disclosure of any Confidential Information to any competitor
of the Company or any Associated Company or to other third parties
would place the Company or any
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Associated Company at a serious competitive disadvantage and would
cause serious financial and other damage to their businesses; and
13.6. that the success of the business of the Company and its Associated
Companies depends in part on the Executive's success and the Directors
of the Company and its Associated Companies establishing business
relationships with clients similar to those established and maintained
by the Executive in the course of his employment.
14. RESTRICTIVE COVENANTS
14.1. The Executive shall not make use of, divulge or communicate to any
person (save in the performance of his duties during the course of his
employment) any trade secrets or other Confidential Information or
Marketing Information of or relating to the Company or any of its
Associated Companies which he may have received or obtained while in
the service of the Company or any of its Associated Companies. This
restriction shall continue to apply after the termination of his
employment without limit in point of time and shall cease to apply to
information ordered to be disclosed by a Court of competent
jurisdiction or otherwise required to be disclosed by law.
14.2. Restrictions on competition
14.2.1. Within this Clause 14 the following words shall have the
following meanings:
`Termination Date' shall mean the date of termination of
your employment in accordance with the terms of this
contract.
`Relevant Period' shall mean the twelve month period prior
to and ending with the Termination Date.
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`Restricted Customer' shall mean any person, firm, company
or other entity who was at any time in the relevant period a
customer of the Company or any Associated Company.
`Prospective Customer' shall mean any person, firm or
company who was at the Termination Date negotiating with the
Company or any Associated Company with a view to dealing
with the Company or any Associated Company as a customer.
`Prohibited Business' shall mean any business or activity
carried on by the Company or any Associated Company at the
Termination Date or at any time in the Relevant Period in
which you shall have been directly concerned in the course
of your employment at any time in the Relevant Period.
`Protected Supplier' shall mean any supplier or prospective
supplier of the Company or any Associated Company with whom
you shall have had dealings in the course of your employment
during the Relevant Period.
14.2.2. You shall not compete with the Company or any Associated
Company during the period of twelve months after the
Termination Date directly or indirectly on your own account
or on behalf of or in conjunction with any person, firm or
company or other organisation canvas or solicit or by any
other means seek to conduct, or conduct Prohibited Business
with any Restricted Customer with whom you shall have had
material dealings during the course of your duties hereunder
at any time in the Relevant Period or with whom and to your
knowledge any employee or agent of the Company or any
Associated Company shall have had material dealings in the
Relevant Period.
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14.2.3. You shall not compete with the Company or any Associated
Company during the period of twelve months after the
Termination Date directly or indirectly
on your own account or on behalf of or in conjunction with
any person, firm or company or other organisation canvas or
solicit or by any other means seek to conduct Prohibited
Business with or conduct Prohibited Business with any
prospective customer with whom you shall have had material
dealings in the course of your duties hereunder at any time
in the Relevant Period or with whom and to your knowledge
any employee or agent of the Company or any Associated
Company shall have had material dealings in the Relevant
Period.
14.2.4. You shall not during the period of twelve months after and
during a six month period prior to the Termination Date
directly or indirectly induce or seek to induce any employee
being a manager or a director of the Company or any
Associated Company engaged in the Prohibited Business who
was such an employee at the Termination Date and with whom
you shall during the Relevant Period have had material
dealings in the course of your duties hereunder to leave the
employment of the Company or any Associated Company whether
or not this would be a breach of contract on the part of
that employee.
14.2.5. You shall not during the period of twelve months after the
Termination Date directly or indirectly seek to entice away
from the Company or any Associated Company or otherwise
solicit or interfere with the relationship between the
Company or any Associated Company and any Protected
Supplier.
14.2.6. Each of the restrictions contained in this Clause 11 is
intended to be separate and severable. In the event that any
of the restrictions shall be held void but would be valid if
part of the wording thereof were deleted,
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such restriction shall apply with such deletion as may be
necessary to make it valid and effective.
14.2.7. The Company reserves the right to update and change these
conditions when circumstances dictate to reflect the
changing nature of its business and protectable interests.
14.3. Each of the restrictions in each of Clauses 14.2.2 to 14.2.7 is
considered by the parties to be reasonable in all the circumstances but
if any such restriction shall be held by any Court to be void as going
beyond what is reasonable in all the circumstances for the protection
of the interests of the Company, the said restriction shall apply with
such modifications as may be necessary to render it valid and
effective.
15. INTELLECTUAL PROPERTY
You will promptly disclose to the Company and keep confidential all
inventions, copyright works, designs or technical know how conceived or
made by you alone or with others in the course of your employment. You
will hold all such intellectual property in trust for the Company and
will do everything necessary or desirable at its expense to vest the
intellectual property fully in the Company and/or any Associated
Company and/or to secure patent or other appropriate forms of
protection for the intellectual property. Decisions as to the
protection or exploitation of any intellectual property shall be in the
absolute discretion of the Company.
16. COPYRIGHT
16.1. The Executive hereby assigns to the Company by way of future assignment
all copyright, design right and other intellectual property rights for
the full terms thereof throughout the world in respect of all copyright
works and designs originated, conceived, written or made by the
Executive (except only those works or designs originated, conceived,
written or made by the Executive wholly outside his normal
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working hours which are wholly unconnected with his employment or the
business of the Company) during the period of his employment by the
Company.
16.2. The Executive hereby irrevocably and unconditionally waives in favour
of the Company any and all moral rights conferred on him by Chapter 4
of Part I of the Copyright Designs and Patents Act 1988 for any work in
which copyright or design right is vested in the Company whether by
Clause 16.1 or otherwise.
16.3. The Executive shall, at the request and cost of the Company, do all
things necessary or desirable to substantiate the rights of the Company
or any Associated Company under Clauses 16.1 and/or 16.2.
17. TERMINATION OF AGREEMENT
17.1. Automatic Termination
This Agreement shall automatically terminate:
17.1.1. on the first day of the month following the Executive reaching
his 65th birthday; or
17.1.2. if the Executive becomes prohibited by law from being a
Director of the Parent; or
17.1.3. if he resigns his office as a Director of the Company; or
17.1.4. if the office of Director of the Company held by the Executive
is vacated pursuant to the Company's Articles of Association
save if the vacation shall be caused by illness (including
mental disorder) or injury; or
17.1.5. if the Executive otherwise ceases to be a Director of the
Company.
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17.2. Suspension
In order to investigate a complaint against the Executive of misconduct
the Company is entitled to suspend the Executive on full pay for so
long as may be necessary to carry out a proper investigation and hold a
disciplinary hearing.
17.3. Immediate Dismissal
The Company may by notice terminate this Agreement with immediate
effect if the Executive:
17.3.1. commits any act of gross misconduct or repeats or continues
(after written warning) any other serious breach of his
obligations under this Agreement; or
17.3.2. is guilty of any conduct which in the reasonable opinion of
the Board of the Parent brings him, or the Company or its
Associated Companies into disrepute; or
17.3.3. is convicted of any criminal offence punishable with more than
six months imprisonment (other than an offence under road
traffic legislation in the United Kingdom or elsewhere in
respect of which he is convicted and is sentenced to an
immediate term of imprisonment); or
17.3.4. commits any act of dishonesty whether relating to the Company,
any of its or their employees or otherwise; or
17.3.5. when he is a Director of the parent, becomes bankrupt or makes
any
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arrangement or composition with his creditors generally; or
17.3.6. is in the reasonable opinion of the Board of the parent
incompetent in the performance of his duties.
17.4. Dismissal on Short Notice
The Company may terminate this Agreement as follows notwithstanding
Clause 12.2 by not less than six months' prior notice given at any time
while the Executive is incapacitated by ill-health or accident from
performing his duties under this Agreement and has been so
incapacitated for a period or periods aggregating 100 days in the
preceding twelve months. Provided that:-
17.4.1. the Company shall withdraw any such notice if during the
currency of the notice the Executive returns to full time
duties and provides a medical practitioner's certificate
satisfactory to the Board to the effect that he has fully
recovered his health and that no recurrence of his illness or
incapacity can reasonably be anticipated;
17.4.2. the Company shall not exercise this right if the effect of so
doing shall be to deprive the Executive of any of the benefits
of the Permanent Health Insurance referred to in Clause 8.1.
17.5. Pay in lieu
Upon notice being tendered by either party to terminate this Agreement
or at any time thereafter during the currency of such notice the
Company shall be entitled to require the Executive to refrain from
carrying out some or all of his duties during the period of such notice
and to serve out such notice at his home or any of the Company's UK
premises.
17.6. Change of Control
17.6.1 Termination by Company Without Cause or By Executive for Good
-------------------------------------------------------------
Reason After Change of Control.
------------------------------
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Notwithstanding any other provisions in this Agreement, if during the
three- year period following a "Change of Control", the Company
terminates the Executive without Cause or the Executive terminates his
employment for Good Reason, then the Company shall pay the Executive an
amount equal to (i) three (3) times the highest base salary in effect
during the term of this Agreement and (ii) three (3) times the highest
annual bonus paid during the term of this Agreement, and (iii) all
amounts accrued for (a) base salary through the termination date, (b)
any unpaid annual bonus for completed years, (c) accrued vacation
through the termination date, and (d) business expenses through the
termination date. The Company shall pay the Executive all amounts to
which he is entitled under this paragraph within 10 days after the
termination date. In addition, for purposes of determining the
Executive's entitlement to benefits under the Company's retirement
plans, the Company shall credit the Executive with three (3) additional
years of service and earnings as though he had continued to work
through such three-year period at the highest base salary and annual
bonus paid during the term of this Agreement. If the Company is
prohibited by law from crediting the Executive with such service and
earnings under any qualified plan, it shall make any such incremental
benefit available to him under a non-qualified supplemental plan. Where
such termination takes place before 3 years service, the annual bonus
multiplier will be assumed to be the target percentage for the
Executive.
17.6.2. Under the circumstances described in Clause 17.6.1, all stock
options previously granted to the Executive and not yet
expired, will become fully and immediately vested and
exercisable on the Termination Date and for 180 days
thereafter. During the first 45 days of trading, a notional
value of $15 per share will be assumed.
17.6.3. Under the circumstances described in Clause 17.6.1, the Company
will cause title to the Executive's currently allocated car, if
a car was provided by the Company at the date of the change of
control, to be transferred free of charge to the Executive
within ten days of the Termination Date.
17.6.4. For the purposes of Clause 17.6 "Change of Control" means a
change in
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control of a nature that would be required to be reported in
response to item 5
(f) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 of the United States of
America, as amended ("Exchange Act") whether or not the Parent
or the Company is then subject to such reporting requirement;
provided that, without limitation, such a change in control
shall be deemed to have occurred if (a) any "person" or
"group" (as such terms are used in Section 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Parent or the Company
representing 20% or more of the combined voting power of the
Parent's or the Company's, respectively, then outstanding
securities (other than the Parent, the Company, any employee
benefit plan of the Company or the Parent); and, for purposes
of this Agreement, no change in control shall be deemed to
have occurred as a result of the "beneficial ownership", or
changes therein, of the Parent's or the Company's securities,
respectively, by any of the foregoing, (b) there shall be
consummated (i) any consolidation or merger of Parent or the
Company in which the Parent or the Company is not the
surviving or continuing corporation or pursuant to which
shares of the Parent's or the Company's Common Stock,
respectively, would be converted into cash, securities or
other property, other than a merger of the Parent or the
Company in which the holders of the Parent's Common Stock
immediately prior to the merger have (directly or indirectly)
at least a 70% ownership interest in the outstanding Common
Stock of the surviving corporation immediately after the
merger, or (ii) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Parent or the
Company, (c) the shareholders of the Parent approve any plan
or proposal for the liquidation or dissolution of the Parent,
or (d) as the result of, or in connection with, any cash
tender offer, exchange offer, merger or other business
combination, sale of assets, proxy or consent solicitation
(other than by the Board of
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the parent), contested election or substantial share
accumulation (a "Control Transaction"), the members of the
Board of the Parent immediately prior to the first public
announcement relating to such Control Transaction shall
thereafter cease to constitute a majority of the Board of the
Parent.
17.6.5. For the purposes of Clause 17.6 "Good Reason" exists if,
without the Executive's express written consent, (a) the
Executive is assigned duties materially inconsistent with his
present position, duties, responsibilities and status with the
Company and the Parent, (b) the Company reduces the
Executive's base salary as in effect on the effective date
hereof or as the same may be increased from time to time, (c)
the Company reduces the Executive's aggregate compensation and
incentive and benefit package, (d) the Company requires the
Executive regularly to perform his duties of employment beyond
a forty miles radius from the location of his current place of
employment, (e) the Company takes any other action which
materially and adversely changes the conditions or perquisites
of the Executive's employment as in effect at the time of the
Change of Control, (f) the Parent or the Company fails to
obtain a satisfactory agreement from any successor to assume
and agree to perform this Agreement, or (g) the Company
purports to terminate the Executive's employment other than
pursuant to a Notice of Termination which satisfies the
requirements of Clause 17.6 (and, for purposes of this
Agreement, no such purported termination shall be effective).
17.6.6. For the purposes of Clause 17.6 "Cause" means (a) the
Executive's conviction of any criminal violation involving
dishonesty, fraud or breach of trust, or (b) the Executive's
willful engagement in gross misconduct in the performance of
his duties that materially injures the Company. For purposes
of this definition, no act or failure to act on the
Executive's part shall be considered "willful" unless done, or
omitted to be done, by the Executive not in good faith and
without reasonable belief that his action or omission was in
the best interest of the Company or its Subsidiaries.
17.6.7. For the purposes of Clause 17.6 "Without Cause" means an
involuntary termination of the Executive's employment by the
Company other than for
23
<PAGE>
cause (defined in Clause 17.6.6.) or due to the Executive's
death or disability.
17.6.8. Default of Payment. Any payment not made within ten days after
------------------
it is due in accordance with this Agreement shall thereafter
bear interest, compounded annually, at an interest rate equal
to the prime rate from time to time in effect at the Barclays
Bank interest rate plus two percent (2%).
17.6.9. The Executive will not be required to mitigate the amount of
any payment or benefits provided for in Clauses 17.6.1, 17.6.2
and 17.6.3 by seeking other employment, nor shall those
amounts be reduced by any payments or benefits received after
the Termination Date from another employer.
17.7. Miscellaneous
On tendering notice by either party, or at any time thereafter, the
Executive shall at the request of the Company:
17.7.1. resign (without prejudice to any claims which the Executive
may have against any Company arising out of this Agreement or
the termination thereof) from all and any offices which he may
hold as a Director of the Company or any Associated Company
and from all other appointments or offices which he holds as
nominee or representative of the Company or any Associated
Company; and
17.7.2. transfer without payment to the Company or as the Company may
direct any qualifying shares provided by it to him; and if he
should fail to do so within seven days the Company is hereby
irrevocably authorised to appoint some person in his name and
on his behalf to sign any documents or do any things necessary
or requisite to effect such resignation(s) and/or transfer(s).
18. DISCIPLINARY AND GRIEVANCE PROCEDURE
18.1. The Executive is subject to the Company's disciplinary rules and
procedure, details of which are contained in the Company's Handbook,
but the Executive has no
24
<PAGE>
contractual entitlement in this respect.
18.2. If the Executive has any grievance relating to his employment (other
than one relating to a disciplinary decision) he should refer such
grievance to the Managing Director and if the grievance is not resolved
it will be referred to the Board of the Parent for resolution.
19. GENERAL
19.1. Collective Agreements
There are no collective agreements currently in force applicable to the
Executive's employment.
19.2. Reconstruction and amalgamation
If the Executive's employment hereunder shall be terminated by reason
of the liquidation of the Company for the purposes of reconstruction or
amalgamation then the Executive shall be offered employment with any
concern or undertaking resulting from such reconstruction or
amalgamation on terms and conditions not less favourable than the terms
of this Agreement as then in operation and the Executive shall have no
claim against the Company in respect of the termination of his
employment hereunder by reason of liquidation for such purposes.
19.3. Prior agreements
This Agreement sets out the entire agreement and understanding of the
parties and is in substitution for any previous contracts of employment
or for services between the Company or any of its Group Companies and
the Executive (which shall be deemed to have been terminated by mutual
consent).
19.4. Accrued rights
The expiration or termination of this Agreement however arising shall
not operate to
25
<PAGE>
affect such of the provisions of this Agreement as are expressed to
operate or have effect after then and shall be without prejudice to any
accrued rights or remedies of the parties.
19.5. Proper law
The validity construction and performance of this Agreement shall be
governed by English law.
19.6. Acceptance of jurisdiction
All disputes claims or proceedings between the parties relating to the
valid construction or performance of this Agreement shall be subject to
the non-exclusive jurisdiction of the High Court of Justice in England
and Wales ("the High Court") to which the parties irrevocably submit.
19.7. Notices
Any notice to be given by a party under this Agreement must be in
writing and must be given by delivery at or sending first class post or
other faster postal service, or facsimile transmission or other means
of telecommunication in permanent written form (provided the addressee
has facilities for receiving such transmissions) to the last known
postal address or relevant telecommunications number of the other
party. Where notice is given by sending in a prescribed manner it shall
be deemed to have been received when in the ordinary course of the
means of transmission it would be received by the addressee. To prove
the giving of a notice it shall be sufficient to show it was
despatched. A notice shall have effect from the sooner of its actual or
deemed receipt by the addressee.
26
<PAGE>
IN WITNESS whereof the Executive and the Company have executed this document as
a Deed the day and year first before written
SIGNED AND DELIVERED AS A DEED )
by the Executive in the presence of: )
EXECUTED AND DELIVERED AS A DEED )
by the Company acting by: )
Director: ....................................
Director/Secretary: ..........................
in the presence of: ..........................
27
<PAGE>
EXHIBIT 10.17
PERSONAL
- --------
Mr John Tayler
The Castle
46 North Cross Road
Fixby
Huddersfield
Yorkshire
HD2 2NL
26th March 1999
Dear John
Following our telephone conversation today, I have pleasure in offering you
employment with The Associated Octel Company Limited to begin on 1st May 1999.
You will initially be employed as Corporate Secretary based at our Manchester
office, at a basic salary at the rate of (Pounds)80,001 per annum.
This offer is subject to the following conditions:
1. That you pass a Company medical examination.
2. That you accept the Company's terms and conditions when, unless otherwise
expressed in this letter, are set out in Part 1 of the enclosed copy of the
Staff Handbook.
3. That we receive satisfactory references.
Pension Plan
- ------------
The Company maintains a Pension Scheme for the benefit of employees. Further
details of the Scheme are contained in the enclosed copy of the Pension Plan
Booklet and your attention is drawn to the letter accompanying this booklet.
Contributions are currently suspended, but will at some stage be reintroduced up
to 4% of salary.
In addition, you will be able to participate in the Company's Senior Management
Scheme which is a non-contributory money purchase pension plan designed to
provide you with the equivalent of a total 1/45th of your pensionable salary for
each year of service.
<PAGE>
Holiday Entitlement
- -------------------
You will be entitled to 30 days annual holiday in a full holiday year which runs
from 1st March to 28/29th February.
BUPA Membership
- ---------------
You will be offered membership of the Company's BUPA Bulk Scheme for yourself
and your spouse on a non-contributory basis. The current taxable benefit arising
from the Company's contribution is (Pounds)700.96 per annum. Membership can be
extended to cover any unmarried children under 21 years of age on a contributory
basis.
Holiday Gift and Overseas Travel Allowance
- ------------------------------------------
With reference to Sections 7 and 23 of the Staff Handbook respectively, please
note that you are not entitled to Holiday Gift or the Overseas Travel
Allowances.
Termination of Contract
- -----------------------
Should you wish to terminate your employment you must give the Company six
months notice. You will be entitled to receive twelve months notice from the
Company to terminate your services. The Company notice period will not apply if
your service is terminated as a result of gross misconduct.
Company Car
- -----------
You will be provided with a fully funded Company car, including private fuel.
The car is typically a Mercedes 200 or BMW 323i and we will arrange for a list
of possible vehicles to be sent to you. You may also take a cash equivalent in
lieu of a car, currently the allowance is (Pounds)6729 per annum.
Management Incentive Plan
- -------------------------
You will be eligible to participate in the annual Management Incentive Plan. In
your case the target payout would be 25% of basic salary subject to Company and
personal performance. The plan normally runs from 1st January to 31st December.
Group Accident Insurance
- ------------------------
You will be covered by the Company's Group Accident insurance.
<PAGE>
Stock Options
- -------------
You will be granted Octel Corp., stock options to the value of approximately
(Pounds)30,000 at current market value after 3 months service. The stock will
vest in three to ten years from grant.
I assume you will not wish to relocate given the proximity of your current
residence.
Should you wish to accept our offer, will you please sign the acceptance on the
duplicate of this letter and EITHER the enclosed Pension Plan Membership
Application Form, OR Waiver Form and return them to me. Please give me a call if
you would like any clarification.
Meanwhile, I personally very much look forward to working with you. An early
task might be to revamp the mass of paperwork included with this offer!
Yours sincerely
ALAN HANSLIP
- ------------
Director of Human Resources
Signed: ................................ Date: ................................
<PAGE>
Exhibit 10.18
CONSULTANCY AGREEMENT
---------------------
Date: 1/st/ October 1999
Parties:
1. "The Company": Octel Corp. a limited liability company incorporated in the
State of Delaware, USA and having its European Headquarters at Global
House, Bailey Lane, Manchester M90 4AA, UK; and
2. "The Consultant": Dr R E Bew of Ivy Cottage, 106 The High Street, Norton,
Stockton-on-Tees, Cleveland, TS20 1DS.
Recitals:
(A) The Company wishes to retain the Consultant to assist the Company by
providing corporate development services.
(B) The Consultant has experience and expertise in corporate development
activities and is willing to provide those services to the Company on the
terms of this agreement.
A G R E E M E N T
1. Appointment
-----------
The Company appoints the Consultant to provide the following services to
the Company:
1.1 develop the Company's international business profile;
1.2 develop senior level relationships for the Company with the banking
community and the major companies in the chemical industry;
1.3 assist the Corporate Development team to develop, review and implement the
Company's M&A programme;
1.4 develop a corporate KPI programme;
1.5 assist in the development of the N.W. Inter-active programme.
2. Terms
-----
This agreement shall commence on 1/st/ October 1999 and shall continue
until terminated by either party giving three months notice in writing.
1
<PAGE>
3. Consultant's Obligations
------------------------
The Consultant shall devote such time to the provision of the services
described in paragraph 1 hereof as is necessary to fulfil those obligations
but the Company and Consultant expect that the Consultant shall provide
such services to the Company on an average of two days per week.
4. Fees
----
The Company shall pay to the Consultant (Pounds)15,000 per calendar quarter
for the terms of this agreement.
5. Consultant Status
-----------------
The Consultant is an independent contractor and not a servant of the
Company. The services will be provided by the Consultant as a self-
employed person and nothing in this agreement shall be construed as
creating an employer/employee relationship. The Consultant is not eligible
for sickness benefit, to join the Company Pension Scheme or receive any
holiday pay or bonus payments.
6. Governing Law and Jurisdiction
------------------------------
The construction, validity and performance of this Agreement shall be
governed by the laws of England and Wales and both parties submit to the
non-exclusive jurisdiction of the English courts.
SIGNED by _______________________________
for and on behalf of
Octel Corp.
SIGNED by _______________________________
The Consultant
2
<PAGE>
EXHIBIT 12.1 - STATEMENT REGARDING COMPUTATION OF FINANCIAL RATIOS
(Dollars in millions)
1999 1998 1997 1996 1995
1. NET INCOME AS A
PERCENT OF SALES
A Net Income $ 42.6 $ 70.4 $117.7 $128.3 $145.1
B Net Sales $516.8 $465.0 $539.1 $497.4 $628.3
A % of B 8.2% 15.1% 21.8% 21.5% 23.1%
2. EFFECTIVE INCOME TAX
RATE
C Income Taxes $ 32.7 $ 41.5 $ 56.7 $ 63.8 $ 71.7
D Income before Income $ 75.3 $111.9 $174.4 $192.1 $216.8
Taxes
C % of D 43.4% 37.1% 32.5% 33.2% 33.1%
Current Ratio
E Current Assets $255.8 $240.9 $282.7 $339.6 $314.9
F Current Liabilities $206.8 $205.2 $102.8 $123.5 $138.8
E : F 1.2 1.2 2.7 2.7 2.3
<PAGE>
YEAR 2:
ON TRACK.
ON TARGET.
Octel Corp. 1999 Annual Report
<PAGE>
Octel is a global chemical company specializing in high performance fuel
additives and other performance chemicals. In a market where demand for
tetraethyl lead (TEL), our major product, is declining roughly 15 percent per
year, we have pledged to manage the decline safely under our Product Stewardship
Program. By vigorous strategic management of our cost base we will work to
maintain high margins to pay off debt and generate sufficient cash to grow our
two strategic business units: Petroleum Specialties and Performance Chemicals.
The result, we believe, will be the creation of value for our shareholders.
[OCTEL LOGO]
<PAGE>
Octel has taken on one of the most difficult jobs in any business:
We are reinventing our company.
In 1999, we:
built our share in the TEL market through a strategic acquisition and
continued to differentiate ourselves from our global competition,
used our international network, customer relationships, advanced technology
and superior technical service to expand our Petroleum Specialties business, and
took first steps toward creating a firm foundation for our Performance
Chemicals business through the development of new products, aggressive marketing
and organizational focus.
<TABLE>
<S> <C>
LEAD ALKYLS (TEL) 4
PETROLEUM SPECIALTIES 6
PERFORMANCE CHEMICALS 9
CHAIRMAN'S LETTER 12
FINANCIALS 13
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(dollar amounts in millions except per
share figures)
<S> <C> <C> <C> <C> <C>
Summary of earnings:
Net sales $ 516.8 $ 465.0 $ 539.1 $ 597.4 $ 628.3
Operating income 92.3 134.9 194.7 226.1 254.6
Income before income taxes
and minority 77.2 111.9 198.7 221.7 249.1
Minority interest 1.9 -- 24.3 29.6 32.3
Income taxes 32.7 41.5 56.7 63.8 71.7
Net income 42.6 70.4 117.7 128.3 145.1
EBITDA 167.6 194.1 243.8 262.7 287.0
Cash generated
by operating activities 108.7 238.3 167.5 127.8 175.8
Financial position at year end:
Working capital 129.0 106.7 179.9 216.1 175.8
Total assets 849.5 806.7 832.9 841.0 798.4
Long term debt (including current
portion) 313.3 300.8 -- -- --
GLCC investment -- -- 652.8 584.6 530.8
Stockholders' equity 313.9 301.1 -- -- --
Financial ratios:
Net income as a percent to sales 8.2 15.1 21.8 21.5 23.1
Effective income tax rate 43.4 37.1 32.5 33.2 33.1
Current ratio 1.2 1.2 2.7 2.7 2.3
Share data:
Earnings
-- Basic 3.08 4.85 7.84 8.08 8.88
-- Fully diluted 3.05 4.85 7.84 8.08 8.88
Shares outstanding (basic, thousands)
-- At year end 13,451 13,934 15,000 15,900 16,300
-- Average during year 13,827 14,514 15,000 15,900 16,300
Stock price
-- High 15.3 22.7 -- -- --
-- Low 9.7 11.6 -- -- --
-- At year end 10.4 13.9 -- -- --
</TABLE>
1995 balance sheet data is unaudited.
Accounts details prior to the spin-off (May 22, 1998) are derived from GLCC
historic data.
[GRAPH APPEARS HERE]
<PAGE>
Dear Shareholders:
(PHOTO OF DENNIS J. KERRISON APPEARS HERE)
In last year's annual report I outlined a five-year plan to reinvent Octel by
profitably managing our declining TEL business and growing our Specialty
Chemicals business. I am pleased to report that, while in 1999 we started to see
a faster-than-anticipated decline in TEL markets and increased competition, we
maintained our momentum towards achieving the ultimate goal of our vision --
maximizing shareholder return.
New additions to the company played a major role in our progress. We acquired
OBOAdler and this, following our successful alliance last year with Ethyl
Corporation, completes the final stage of our planned consolidation of the TEL
market.
Joint ventures with Starreon Corporation and APS, forming Octel Starreon and
Octel Valvemaster respectively, strengthened our base in Specialty Chemicals.
These alliances, combined with strong organic growth, gave us a 48 percent
increase in sales revenue in Specialty Chemicals year on year and helped us to
profit in our second full year of operation as a stand-alone business unit.
Another critical component of our progress -- especially given the issues in the
TEL market -- was the performance of our people in strategically managing our
cost base and minimizing the decrease in percentage margin.
While there remain uncertainties about the rate of market decline and
competitive pressures in TEL, we are confident that our successful stewardship
of the TEL business and growth of the Specialty Chemicals businesses put us
firmly on track and on target as we head into year three of our plan.
In this report, we take a closer look at a very successful year and our plans
for the future.
/s/ Dennis J. Kerrison
Dennis J. Kerrison
President and Chief Executive Officer
<PAGE>
LEAD ALKYLS (TEL)
HIGHLIGHTS
Began the second phase of a re-engineering project at Ellesmere Port that will
help reduce our cost base.
Continued to maintain our percentage gross margin above 40 percent (excluding
provisions).
Reached agreement to acquire OBOAdler, strengthening logistics and distribution
efficiency.
Made excellent progress in managing the alliance with Ethyl.
Strengthened Octel Environmental and Refinery Service units.
"END GAME" STRATEGY SHOWING RESULTS
In managing a declining TEL business, our strategy has been to combine product
stewardship with aggressive cost management to maintain a high-quality, safe and
efficient supply to our customers. Success in that strategy will provide funds
to pay down our debt and invest in our strategic businesses.
In 1999, two factors created significant challenges to the execution of our
strategy. Firstly, a number of countries started moving much more aggressively
than anticipated in phasing out leaded gasoline. Secondly, we saw increased
price competition from a Russian competitor, which had an impact on margins.
In spite of these conditions, we expect that our ability to leverage our
strengths of quality, service and global presence will enable us to continue to
manage this business effectively.
DISTINGUISHING OCTEL IN GLOBAL MARKETS
A key strategy is to continue to invest in the safety and efficiency of both our
logistics and distribution systems through Octel Environmental and Octel
Refinery Services.
Through our alliance and acquisition, we have strengthened these services and
resources to create 100 percent coverage for all our customers. We intend to
give our customers and the entire industry safe and effective support during
TEL's phaseout. To date, 83 percent of the industry worldwide has used these
support services.
AN ONGOING EMPHASIS ON COST REDUCTION
In a rapidly declining industry, unit costs rise rapidly. Since 1996, Octel has
limited the rising cost base through tight cost management programs and
balancing supply and demand. In 1999, we took a major step forward with a re-
engineering program at our Ellesmere Port manufacturing site, the key operating
unit in our group.
While the restructuring effort will result in significant head-count reduction -
- - by mid-2000, we will have approximately 30 percent of the 1996 workforce at
the Ellesmere Port site -- the program is also about the way we operate --
creating new skills, productivity and flexibility.
<PAGE>
PHOTO CAPTION
Through alliances in this sunset industry, Octel has been able to maintain and
improve service globally. 83 percent of Octel's customers use our environmental
services, ensuring the safe and cost effective distribution of TEL.
<PAGE>
PHOTO CAPTION
With a well-established base business and advanced technologies, we will take
advantage of significant opportunities in our core markets. We expect to grow an
average 15 percent per annum in these markets, driven by demands for cleaner and
more efficient fuels.
<PAGE>
PETROLEUM SPECIALTIES
HIGHLIGHTS
Installed expert management teams and assigned profit center responsibility.
Created a joint venture with Starreon Corp., combining respective strengths in
the US market.
Achieved first year growth and profitability from the Pluto business, acquired
in 1998 and now operating as Octel Deutschland GmbH.
Entered into a joint venture with APS on valve-seat recession products under the
Valvemaster(R) name.
Improved cost efficiency by bringing fuel detergent manufacturing in house and
improving raw material purchasing, storage and distribution.
GROWTH OPPORTUNITY IN PETROLEUM SPECIALTIES
Our Petroleum Specialties business supplies a range of specialty fuel additives
and compounded formulations to more than 200 refineries in 65 countries around
the world.
Our core strategy is to continue to build on that base through both organic
growth and strategic acquisitions or alliances, at the same time improving our
cost-effectiveness throughout the business process.
Our focus is on combining strong technologies and service leadership to attack
the significant opportunities in our target markets. One of the main growth
drivers is the universal demand for cleaner air. Ongoing rounds of legislation
and regulation -- both current and proposed -- will continue to lower the levels
of contaminants in fuel and improve combustion efficiency. Our advanced
technology, product development capability and testing facilities position us to
be a strategic partner with customers who must keep ahead of ever more stringent
demands from the regulators and society.
In 1999, we strengthened our technologies with the introduction of additives for
diesel particulate filters, which lower the particle discharge from diesel
engines. We also enhanced our product range by introducing additives that
improve combustion and reduce diesel engine emissions.
We made solid progress in 1999 in strengthening the existing business base. We
reorganized and consolidated our management team, as part of our five-year
strategy. We negotiated new supply agreements to improve cost efficiency,
negotiated improved purchase contracts and rationalized the storage and
distribution of raw materials.
We organized ourselves to become more effective marketers. In 1998 and 1999, we
progressed to a more focused market approach -- building our products, services
and sales operations around two key markets and the requirements of our
customers in both Refinery and Performance Specialties.
MARKET FOCUS CREATES TWO UNITS
Our Refinery business focuses on additives that help customers meet fuel
specifications and achieve maximum yields of premium refinery fuels. We are now
set up to concentrate our product range, manufacturing, product testing and
distribution strengths on their needs.
<PAGE>
Our second business area, Performance Specialties, is involved in developing
performance packages for diesel and gasoline in which we now have over a decade
of experience. Our understanding of market trends being shaped by new
legislation and consumer demands -- combined with our technological expertise
and product development -- gives us and our customers a key advantage.
GROWTH THROUGH STRATEGIC ADDITIONS
Our growth strategy is to develop a strong base, organically and through
acquisition or joint ventures. In 1998, we acquired the Pluto business from
Veba. Renamed Octel Deutschland, the company has given us a strategic presence
in a major European fuel additive market, coupled with a spectrum of
technologies. In 1999, we created a joint venture, Octel Starreon LLC, with
Starreon Corporation, a company with an excellent reputation which complements
our technical expertise with its sales and marketing strengths. Starreon
contributes an established presence with end-users, fleets and jobbers with a
strong position in premium fuel programs at the fuel terminals. Octel's historic
strength has been predominantly with the oil refineries and fuel retailers.
In 1999, we formed a joint venture with APS, Octel Valvemaster Ltd, which offers
protective valve-seat recession additives that are necessary during the phaseout
of TEL. We also signed an agreement with Castrol, who will market Valvemaster(R)
in the UK.
MORE TO COME
Looking ahead, in 2000 we will build on our accomplishments of 1999. We will
continue to serve the increasingly demanding needs of the market with
proprietary products, new technologies and outstanding service. While we expect
much of our short-term growth to be organic, we will continue to look for
opportunities to add to our capabilities either through acquisitions, alliances
or joint ventures.
PHOTOS
<PAGE>
PERFORMANCE CHEMICALS
HIGHLIGHTS
Identified new markets for the Octaquest(R) family.
Installed experienced management and market development team, creating a
distinct business unit with profit responsibility.
Introduced a new range of environmentally-friendly products -- Octahib(R), a
bio-degradable corrosion inhibitor, and Octasol(R), a colloidal alumina sol for
use in a wide range of water treatment applications.
NEW CHEMICAL BUSINESS SHOWING EARLY SUCCESS
While Petroleum Specialties pursues growth within our existing markets in the
fuel industry, we are also seeking growth in new areas through the aggressive
development of our Performance Chemicals business. The business unit
manufactures and markets a growing range of chemical products -- including a
number of new environmentally-friendly materials developed by Octel Research and
Development.
We have made excellent progress since establishing the Performance Chemicals
business. A new management team is now in place and charged with profit center
responsibility. We have also created a market development team to identify and
develop opportunities around the Octaquest(R) range of products, and a dedicated
sales team introducing our new products to the market.
OCTAQUEST(R) IN STEP WITH MARKET NEED
Currently, our business is centered on Octaquest(R), a powerful chelating agent
that is used in European detergents. Octaquest(R) is phosphorus-free and readily
biodegradable -- a timely solution to growing concerns about existing chelating
agents and the growing need for environmentally-friendly products.
We are working to expand the unique Octaquest(R) technology into other
industries that require effective chelating agents. The market opportunities we
are exploring include photography, personal care, household and institutional
cleaning and textiles.
In 1999, we signed an agreement with Hi-Mar Specialties, Inc., to market their
specialty effect chemicals, including defoamers, globally outside North America.
This offers us marketing synergies with our Octaquest(R) product range in
certain markets.
<PAGE>
PHOTO CAPTION
With unique technologies and a newly established marketing and sales operations
in place, we are targeting growth at 15 percent per annum for Specialty
Chemicals.
<PAGE>
UNIQUE TECHNOLOGIES CREATE NEW PLATFORMS
As we expand the Octaquest(R) market, we are also building a business platform
to support growth in other specialty chemicals. During the year, we began to
market a series of biodegradable corrosion inhibitors under the Octahib(R) brand
- -- which has solid growth possibilities in crude oil and natural gas production,
water treatment and a range of similar industries that need a more
environmentally-acceptable means to provide corrosion resistance.
Our emphasis in 1999, for both the Octaquest(R) family and sister products, was
providing environmentally-friendly options to help solve customer problems in a
wide range of markets.
ACQUISITIONS FIGURE IN THE FUTURE
Acquisitions and alliances also figure in this business strategy. Our short-term
focus is likely to be on relatively small "seed" acquisitions that give us
experience in new markets or help speed our growth program.
ON TRACK FOR GROWTH
We believe that both our Specialty Chemicals businesses have created a solid
base and have outstanding growth prospects. We now have the organization to
bring unique, proven technologies to markets which are increasingly demanding
improved environmental performance. We see these products and these markets as
the future for Octel, and that future looks very promising.
[PHOTOS]
<PAGE>
CHAIRMAN'S LETTER
We have completed a very successful second year under conditions in our TEL
market that were less than ideal. We demonstrated three defining strengths.
First, we showed the ability to adjust to changes in TEL demand and strong
competition. Second, we demonstrated the promise of our Specialty Chemicals
Business. Third, in everything we accomplished, we exhibited that every one of
our decisions and business efforts centers on creating maximum shareholder
value.
I believe our progress and our prospects tie directly to the abilities of an
outstanding management team. In 1999, the development of the three strategic
business units enabled our managers to contribute their skills and experience
and assume full profit accountability in each of our businesses.
As we enter our third year, I am confident that this company will continue to
focus its resources and energies on recreating Octel around Specialty Chemicals,
while successfully managing the declining TEL business. I believe we have the
critical pieces in place -- market and customer knowledge, new product
technologies, and people with experience -- to transform this company, and to
put it on a clear growth track.
PHOTO OF DR. ROBERT E. BEW
Sincerely,
/s/ Robert E. Bew
Dr. Robert E. Bew
Chairman
<PAGE>
FINANCIALS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 14
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS 22
REPORT OF INDEPENDENT ACCOUNTANTS 23
CONSOLIDATED STATEMENTS OF INCOME 24
CONSOLIDATED BALANCE SHEETS 25
CONSOLIDATED STATEMENTS OF CASH FLOWS 26
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 27
NOTES ON CONSOLIDATED FINANCIAL STATEMENTS 28
QUARTERLY SUMMARY (UNAUDITED) 43
BOARD OF DIRECTORS 44
CORPORATE OFFICERS 44
INVESTOR INFORMATION 45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The following discussion is based upon the separate financial statements of the
Company, which present the Company's results of operations, financial position
and cash flows. Insofar as they relate to the periods prior to May 22, 1998 when
the "spin-off" of Octel Corp. from the Great Lakes Chemical Corporation group
(GLCC) was consummated, these financial statements include the assets,
liabilities, income and expenses that related to the Octel businesses as they
were operated as a part of the Petroleum Additives Business Unit of GLCC, and
the Company's statement of income includes all the related costs of doing
business, including charges for the use of facilities and for employee benefits.
The financial information included herein, however, may not necessarily reflect
the results of operations, financial position and cash flows that would have
been achieved if the Company had been an independent company during the periods
presented.
Some of the information presented in the following discussion constitutes
forward-looking comments within the meaning of the Private Litigation Reform Act
of 1995. Although the Company believes its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. Factors which could cause actual results to differ from
expectations include, without limitation, the timing of orders received from
customers, the gain or loss of significant customers, competition from other
manufacturers and changes in the demand for the Company's products, including
the rate of decline in demand for TEL. In addition, increases in the cost of
product, changes in the market in general and significant changes in new product
introduction could result in actual results varying from expectations.
The Company has two businesses -- Lead Alkyls (TEL) and Specialty Chemicals. The
Company's strategy is to maximize cash generation from the declining TEL
business by consolidating the Company's place in the market and by rigorous
management of the cost base. Funds generated by the TEL business will be used to
pay down debt but will also be invested in growing Petroleum Specialties and
Performance Chemicals, which together comprise the Specialty Chemicals business.
Investment in these areas will be to stimulate organic growth in existing areas
or to grow by acquisition.
From 1989 to 1995, the Company was able to substantially offset the financial
effects of the declining demand for TEL through higher TEL pricing. The
magnitude of these price increases reflected the cost effectiveness of TEL as an
octane enhancer as well as the high cost of converting refineries to produce
higher octane grades of fuel. More recently, however, as competition has
intensified due to the decline
<PAGE>
in demand for TEL, it has been difficult for the Company to secure general price
increases. The Company expects that this trend may continue in the foreseeable
future.
As world demand for TEL has declined, the Company has been reducing its cost
base in an attempt to maintain its margins. In 1989, the Company closed its
German manufacturing facility. In 1996, the Company ceased production at its
Italian and French manufacturing facilities. The closure of the Italian and
French facilities reduced the Company's workforce by 244 and will result in a
further reduction of eight employees upon completion of site remediation
activities in France. Until the acquisition of OBOAdler, all of the Company's
current TEL requirements were produced at its sole remaining TEL manufacturing
facility which is located in Ellesmere Port in the United Kingdom. In December
1998, one of the three TEL buildings on this site was closed. Since 1996, the
Company's cost reduction efforts and operating improvement programs in the UK
have reduced the workforce by 921 people as at December 31, 1999 and by mid 2000
the total UK workforce will be reduced by 70% from the 1,800 employed in June
1996. All this has been achieved through voluntary severance. The Company will
continue to downsize its manufacturing and operating cost base and restructure
its operations as the TEL market continues to decline.
RECENT DEVELOPMENTS
In December, 1998 the Company concluded an agreement with Veba Oel AG for the
acquisition of its petroleum specialties subsidiary, Chemische Betriebe Pluto
GmbH, now renamed Octel Deutschland GmbH (Octel Deutschland). Based in Herne,
Germany, Octel Deutschland manufactures and sells fuel additives mainly based on
ferrocene, an iron-based metal organic product used as a combustion improver.
On March 1, 1999, the Company formed a joint venture between its subsidiary,
Octel America Inc., and Starreon Corporation. The joint venture, Octel Starreon
LLC, combines the finished fuel additives businesses of both companies in the
USA and Canada but excludes TEL.
Following the completion of the third phase of the UK voluntary severance
program in the June quarter 1999, which reduced the headcount by 280 employees,
a further UK voluntary severance program was announced in the fourth quarter
1999, and a further 330 employees will leave the group's employment during
fiscal 2000.
On September 6, 1999 the Federal Trade Commission (FTC) approved the acquisition
by The Associated Octel Company Limited (AOC) of the UK company OBOAdler Company
Limited (OBOAdler). AOC completed the acquisition on November 9, 1999. The
OBOAdler group includes a sales office in Baar, Switzerland and a TEL
manufacturing plant in Doberitz, Germany. The price paid for OBOAdler was $94.5
million plus fees and expenses and the acquisition was funded by an additional
$100 million of senior debt on similar terms to Octel's current debt.
<PAGE>
Results of Operations -- Fiscal 1999 Compared to Fiscal 1998
- ------------------------------------------------------------
The results of operations for fiscal 1999 and 1998 are analyzed by business unit
in the following table:
<TABLE>
<CAPTION>
Increase/
(dollars in millions) 1999 1998 (Decrease)
<S> <C> <C> <C> <C> <C>
NET SALES:
TEL $396.1 77% $383.7 82% 3%
Specialty Chemicals 120.7 23% 81.3 18% 48%
------ ---- ------ ---- -----
$516.8 100% $465.0 100% 11%
------ ---- ------ ---- -----
GROSS PROFIT:
TEL $155.5 82% $203.1 92% (23%)
Specialty Chemicals 34.5 18% 17.6 8% 96%
------ ---- ------ ---- -----
$190.0 100% $220.7 100% (14%)
------ ---- ------ ---- -----
OPERATING INCOME:
TEL $ 85.4 92% $139.6 103% (39%)
Specialty Chemicals 6.9 8% (4.7) (3%) 147%
------ ---- ------ ---- -----
$92.3 100% $134.9 100% (32%)
------ ---- ------ ---- -----
</TABLE>
Comparatives have been restated to reflect the reallocations described in Note 2
to the financial statements.
The overall decline in the TEL market continued, but the effect on Octel was
offset by the effect of a full year's operation of the Ethyl marketing agreement
in 1999 (as opposed to three months in 1998) and the inclusion of two months of
OBOAdler sales. Total volumes fell by 4,299 metric tons (mt) from 64,000 mt to
59,701 mt, a decrease of 7%. Within this overall decrease, however, there was a
favorable sales mix variance. Lower value wholesale volumes fell by 12,040 mt to
1,360 mt, whereas retail volumes rose by 7,741 mt to 58,340 mt. This, combined
with an average 1% increase in retail prices over 1998 levels, resulted in an
increase of 3% in the overall value of net sales from 1998 to 1999.
TEL gross profit in 1999 was 39% of net sales compared to 53% in 1998. This
partly reflects the full year's marketing agreement contribution payable to
Ethyl, but cost of goods sold was also increased by rationalization costs in
connection with the 1999 UK severance program. Total rationalization charges in
1999 were $24 million compared to $16 million in 1998.
Specialty Chemicals net sales saw growth of 48% over 1998 levels and an increase
in gross profit from 22% to 29% of net sales. Two-thirds of the sales increase
arose from acquisitions in late 1998 and early 1999 (Octel Deutschland and Octel
Starreon) and the remainder was organic growth. This resulted in the operating
loss of $4.7 million in 1998 becoming an operating income of $6.9 million in
1999.
The increase in sales, general and administrative costs overall from $40.1
million to $44.9 million arose due to the inclusion of new acquisitions -- Octel
Deutschland, Octel Starreon and OBOAdler.
Amortization charges rose by $6.3 million (15%) to $48.9 million, due to charges
on goodwill relating to new acquisitions and to the effect of a full year's
charge on deferred finance costs arising from the "spin-off." Other income
relates mainly to exchange gains, $9.2 million in 1999 compared to $2.5 million
in 1998.
<PAGE>
The effective tax rate has increased from 37.1% to 43.4% mainly due to increased
amortization on overseas goodwill which is not tax deductible. The tax charge is
net of $3.2 million income arising from a refund of Italian withholding tax.
Results of Operations -- Fiscal 1998 Compared to Fiscal 1997
- ------------------------------------------------------------
The results of operations for fiscal 1998 and 1997 are analyzed by business unit
in the following table:
<TABLE>
<CAPTION>
Increase/
(dollars in millions) 1998 1997 (Decrease)
<S> <C> <C> <C> <C> <C>
NET SALES:
TEL $383.7 82% $454.1 84% (16%)
Specialty Chemicals 81.3 18% 85.0 16% (4%)
------ ---- ------ ---- -----
$465.0 100% $539.1 100% (14%)
------ ---- ------ ---- -----
GROSS PROFIT:
TEL $203.1 92% $244.9 92% (17%)
Specialty Chemicals 17.6 8% 19.8 8% (11%)
------ ---- ------ ---- -----
$220.7 100% $264.7 100% (17%)
------ ---- ------ ---- -----
OPERATING INCOME:
TEL $139.6 103% $196.8 101% (29%)
Specialty Chemicals (4.7) (3%) (2.1) (1%) (124%)
------ ---- ------ ---- -----
$134.9 100% $194.7 100% (31%)
------ ---- ------ ---- -----
</TABLE>
Amounts have been restated to reflect the reclassifications described in Note 2
to the financial statements.
TEL sales in 1998 were $70 million (16%) lower than 1997 largely due to the
decreased worldwide demand for TEL which reduced volumes and increased surplus
capacity and competition in the marketplace.
Retail TEL volumes decreased by 9% to 50,600 metric tons, and prices fell by 3%.
Sales on a wholesale basis fell in volume terms by 45% to 13,400 metric tons
principally due to reduced off-take by Ethyl.
Specialty Chemicals net sales in 1998 were $81.3 million, a decrease of 4% below
1997 levels mainly as a result of reduced demand for Octaquest(R) and a plant
maintenance shutdown, prior to expansion during the year.
Gross profit of $220.7 million in 1998 was $44.0 million (17%) below 1997
levels. As a percentage of sales gross profit in 1998 was 47% compared to 49% in
1997. The reduction reflects the decline in TEL sales, but also reflects an
increase in rationalization charge from $13 million to $16 million, including
the settlement of all liabilities relating to the Bussi site (Italy) in return
for a payment of $5 million.
Operating expenses in 1998 were $85.8 million, increased by $15.8 million (23%)
on 1997. The increase is principally due to higher amortization charges on
intangible assets from $27.6 million in 1997 to $42.6 million in 1998, mainly
resulting from increased asset cost in late 1997 and 1998. Sales, general and
administrative expenses were $40.1 million compared to $38.6 million in 1997,
but the increase of $1.5 million includes $2.5 million of non-recurring
consultancy costs and $3.0 million Octel Corp. costs which did not exist in
1997.
<PAGE>
Operating income in 1998 was $134.9 million, a return of 29% on net sales. The
reduction in the rate of return from 36% in 1997 was mainly the result of lower
gross profit and increased amortization charges.
Interest expense in 1998 was $25.2 million compared to $2.2 million in 1997.
Interest on the senior debt and notes issued in connection with the "spin-off"
from GLCC was $21 million for the eight months through December, the balance
being interest paid to GLCC on loans to fund the acquisition of Chevron's
minority interest in November 1997. Interest income decreased from $3.9 million
in 1997 to $2.7 million in 1998.
The decrease in other expenses and other income, compared to 1997, of $1.8
million and $4.6 million respectively, relates to foreign exchange movement from
an income of $6.8 million to an expense of $2.5 million.
The minority interest in the Company was acquired in the fourth quarter of 1997,
resulting in an improvement of $24.3 million in profit attributable to the
Company in 1998.
Income tax charges of $41.5 million in 1998 decreased by $15.2 million from
1997, largely due to the decrease in pre-tax profits but also due to a $3.5
million refund of Italian withholding tax received by the Company.
LIQUIDITY AND FINANCIAL CONDITION
Cash provided by operating activities in 1999 was $108.7 million compared to
$238.3 million in 1998. The two main reasons for this decrease are adverse
changes in taxation liabilities of $59 million (from $45.0 million inflow to
$14.0 million outflow) and in accounts receivable of $68 million (from $54
million inflow to $14 million outflow). Taxation liabilities due in 1998 in
respect of fiscal 1997 were paid by GLCC, effectively allowing the Company a
one-year tax holiday from a cash flow perspective. This was no longer the case
in 1999. The cash flow increase of $53.6 million from accounts receivable in
1998 arose because of exceptionally high opening balances at December 31, 1997.
Once having realized those reductions in 1998 further decreases in receivables
became more difficult to achieve. In fact, accounts receivable increased by
$14.0 million, representing 104 days' sales compared to 98 days' in 1998.
A significant increase in operating cash was generated by the reduction in
inventory levels. The overall decrease of $31.6 million in 1999 included a
reduction of $29 million in finished goods (excluding OBOAdler), completing
management's program to reverse the $25.4 million increase which arose in 1998.
The $11.8 million business combination inflow is the net of equity investments
in OBOAdler, and related costs, and the cash in OBOAdler's balance sheet of
$19.3 million on acquisition. This excludes the funding by Octel of the
repayment of $90 million OBOAdler short-term credit which is included in
financing activities.
The Company drew down $6 million under the revolving credit facility in first
quarter 1999, and entered into $100 million further term loan connected with the
OBOAdler acquisition. Debt repayments in fiscal 1999 include full settlement of
the amounts due of $17 million under the revolving credit facility, $10 million
repayment of OBOAdler-related debt and $66.5 million of the original 1998
senior debt. Over 74% of the total bank debt entered into at the "spin-off" has
been repaid by 1999 year end.
<PAGE>
DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Over half of the Company's sales are in US dollars. Foreign currency sales,
primarily in UK pounds sterling, offset most of the Company's costs, which are
also in UK pounds sterling. To the extent required by the Company, dollars are
sold forward to cover local currency needs. The instruments utilized by the
Company in its hedging activities are considered risk management tools, and are
not used for trading or speculative purposes. The Company diversifies the
counterparties used and monitors the concentration of risk to limit its
counterparty exposure.
ENVIRONMENTAL MATTERS AND PLANT CLOSURES
The Company is subject to laws, regulations and legal requirements relating to
the use, storage, handling, generation, transportation, emission, discharge,
disposal and remediation of, and exposure to, hazardous and non-hazardous
substances and wastes ("Environmental Laws") in all of the countries in which it
does business. Under certain Environmental Laws, the Company is responsible for
the remediation of hazardous substances or wastes at currently or formerly owned
or operated properties.
The manufacturing operations of the Company have been conducted outside the
United States and, therefore, any liability of the Company pertaining to the
investigation and remediation of contaminated properties is likely to be
determined under non-US law.
Management believes (based upon its internal review and the review of reports
prepared by independent experts) that the Company is in material compliance with
all applicable Environmental Laws. Such expenditure as is required to maintain
compliance has been, and will continue to be made at all sites for which the
Company has responsibilities. The Company has developed estimates for the costs
of compliance, which are set out below. Management believes these to be
reasonable (based upon its internal review and the review of reports prepared by
independent experts). There can be no assurance, however, that these estimates
will prove accurate or that the Company will not incur costs in excess of these
estimates. Further, there can be no assurance that changes in existing laws, or
the discovery of additional environmental liabilities associated with current or
historical operations, will not require the Company to incur material costs or
otherwise adversely affect the Company's business, results of operations or
financial condition.
Management evaluates costs for remediation, decontamination and demolition
projects on a regular basis. Full provision is made for those costs to which the
Company is committed under Environmental Laws. Total estimated future costs at
December 31, 1999 were $89.2 million of which $52.7 million were deemed to be
either capital (rather than revenue) in nature or at management's discretion.
Full provision has been made for the committed costs of $36.5 million.
Expenditure against provisions was $9.3 million, $12.9 million and $13.5 million
in the years 1999, 1998 and 1997. Capital costs related to environmental matters
for the same years were $0.7 million, $2.7 million and $0.6 million,
respectively.
The Company has also incurred personnel severance costs in relation to the
management of the decline in TEL markets. Total severance costs were $17.0
million, $14.9 million and $21.8 million in the years 1999, 1998 and 1997,
respectively. Provision is made for severance costs to which the Company is
committed. The provision at December 31, 1999 was $19.1 million which related to
the 330 employees included in the UK voluntary severance program announced in
fourth quarter, 1999.
<PAGE>
INFLATION
Inflation has not been a significant factor for the Company over the last
several years. Management believes that inflation will continue to be moderate
over the next several years.
SINGLE EUROPEAN CURRENCY
In January 1999, certain European countries (excluding the UK) began the
transition to the euro. The transition to the euro has both internal
recordkeeping and external commercial aspects, neither of which are expected to
have a material effect on the Company's business, results of operations or
financial condition.
YEAR 2000
Octel has implemented a program of work, the objective of which was to ensure
that the Company was not adversely affected by "Date Discontinuity" problems in
computers, software and embedded processors during the transition from 1999 to
2000 and as a result of 2000 being a leap year.
Date discontinuity occurs when time as expressed by a system or its software
does not move forward successfully in line with true time. The most commonly
known manifestation of this occurs in systems that recognize years as two digits
and, when moving from "99" to "00", recognize "00" as 1900 or fail altogether.
Additionally, some systems fail to recognize 2000 as a leap year, so omitting
Feb 29th from their calendars.
Project Scope
The project covered Information Technology (IT) systems, embedded processors,
supply chain and business continuity.
IT systems include central and network hardware, business systems and desktop
hardware and software. Octel has very little custom-made software, the majority
being industry standard packages, customized only where necessary.
Embedded processors include, for example, plant instruments, laboratory
equipment, control systems, data acquisition systems, vehicles and
telecommunications.
Supply chain considerations include liaison with suppliers and customers about
our respective states of readiness for the Year 2000.
Business continuity considers all areas of the business and puts in place
contingency plans to mitigate the consequences arising from key risks
identified.
The project covered all Octel Corp. sites.
Octel Corp. was in full Year 2000 readiness for critical systems by the end of
the third quarter 1999 and then continued to monitor all areas through New Year
and beyond.
Costs
It is estimated that the total cost of achieving Year 2000 compliance was
approximately $8.0 million of which $6.5 million was on IT systems and $1.5
million on embedded processors.
<PAGE>
Risks
The most reasonably likely worst case scenario was an event which would shut
down the sodium manufacturing process. It has been estimated that this would
have reduced TEL production for up to six months. During this time the Company
would have been able to maintain supplies to its customers but the cost to the
business would have been approximately $3 million.
Through its internal and supplier Year 2000 projects the Company worked to
minimize the probability of such an event occurring and, through its contingency
planning, to mitigate the consequences. No evidence has arisen of significant
date discontinuity problems to date.
FUTURE OUTLOOK
The Company is, and for the next several years is likely to remain, highly
dependent on its principal product, TEL. Over the last three years, TEL has
represented approximately 80% of the Company's net sales and has provided
essentially all the Company's profits and cash flow. The Company believes that
its strong, although declining, cash flow in the foreseeable future will be
adequate to fund the Company's future capital and operating needs.
World demand for TEL has been in decline since the 1970s, and this trend is
expected to continue. Through the mid-1990s the Company was able, in part, to
offset the effects of declining volumes with selling price increases. More
recently, however, the Company has reduced or foregone price increases in order
to extend the life of the product and to remain competitive with other TEL
marketers and alternate methods of achieving higher octane levels in gasoline.
The Company believes that a competitive pricing environment will continue which
will limit the ability of the Company to partially offset the effects of future
declines in TEL volumes with price increases. The Company is seeking to optimize
returns over the remaining life of TEL, but in the longer term the general
market trend is not expected to reverse.
The Company has and will continue to downsize and restructure its operations
consistent with declining demand for TEL. Notwithstanding the Company's
continuing downsizing and productivity improvement programs, management expects
the fixed cost per ton of TEL to increase gradually in the future as cost
reductions are not expected to keep pace with declining TEL sales volume.
Raw materials account for a substantial portion of total manufacturing costs of
TEL. Of these the principal items are lead, sodium, ethyl chloride and
dibromoethane, which are subject to long-term contracts with suppliers.
A strong, although declining, cash flow is expected in future years. The Company
does not anticipate any significant capital expenditures, other than maintenance
and environmental compliance costs in the foreseeable future.
Although the Company anticipates significant sales growth from the Specialty
Chemicals business in the future, earnings from this business alone will not be
sufficient to fully offset the projected decline in TEL sales and earnings at
least over the next several years.
<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Octel Corp. is responsible for the preparation and
presentation of the accompanying consolidated financial statements and all other
information in this Annual Report. The financial statements are prepared in
accordance with generally accepted accounting principles and include amounts
that are based on management's informed judgments and estimates.
The Company maintains accounting systems and internal accounting controls which
management believes provide reasonable assurance that the Company's financial
reporting is reliable, that assets are safeguarded, and that transactions are
executed in accordance with proper authorization. This internal control
structure is supported by the selection and training of qualified personnel and
an organizational structure which permits the delegation of authority and
responsibility. The systems are monitored by an internal audit function that
reports its findings to management.
The Company's financial statements have been audited by independent accountants,
in accordance with generally accepted auditing standards. These standards
provide for the review of internal accounting control systems to plan the audit
and determine auditing procedures and tests of transactions to the extent they
deem appropriate.
The Audit Committee of the Board of Directors, which consists solely of non-
employee directors, is responsible for overseeing the functioning of the
accounting systems and related internal controls and the preparation of annual
financial statements. The Audit Committee periodically meets with management,
internal auditors and the independent auditors to review and evaluate their
accounting, auditing and financial reporting activities and responsibilities.
The independent auditors and internal auditors have full and free access to the
Audit Committee without management's presence to discuss internal accounting
controls, results of their audits and financial reporting matters.
/s/ Alan G. Jarvis
Alan G. Jarvis
Vice President and
Chief Financial Officer
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, cash flows and stockholders' equity present
fairly, in all material respects, the financial position of Octel Corp. at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. The financial statements of Octel Corp. as of December 31, 1997 and for
the year then ended were audited by other independent accountants whose report,
dated April 4, 1998, expressed an unqualified opinion on those statements.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
February 9, 2000
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in millions, except per share data)
Years ended December 31 1999 1998 1997
<S> <C> <C> <C>
Net sales (Note 2) $ 516.8 $ 465.0 $ 539.1
Cost of goods sold 326.8 244.3 274.4
- ----------------------------------------------------------------------------------
Gross profit (Note 2) 190.0 220.7 264.7
OPERATING EXPENSES:
Selling, general and administrative 44.9 40.1 38.6
Research and development 3.9 3.1 3.8
Amortization of intangible assets 48.9 42.6 27.6
- ----------------------------------------------------------------------------------
Total 97.7 85.8 70.0
- ----------------------------------------------------------------------------------
Operating income (Note 2) 92.3 134.9 194.7
Interest expense 25.9 25.2 2.2
Other expenses 2.6 3.8 5.6
Interest income (3.9) (2.7) (3.9)
Other income (9.5) (3.3) (7.9)
- ----------------------------------------------------------------------------------
Income before income taxes and minority
interest 77.2 111.9 198.7
Minority interest 1.9 -- 24.3
- ----------------------------------------------------------------------------------
Income before income taxes (Note 2) 75.3 111.9 174.4
Income taxes (Note 5) 32.7 41.5 56.7
- ----------------------------------------------------------------------------------
Net income $ 42.6 $ 70.4 $ 117.7
- ----------------------------------------------------------------------------------
Basic earnings per share $ 3.08 $ 4.85 $ 7.84
- ----------------------------------------------------------------------------------
Diluted earnings per share $ 3.05 $ 4.85 $ 7.84
- ----------------------------------------------------------------------------------
Weighted average shares outstanding (in thousands)
-- basic 13,827 14,514 15,000
-- diluted 13,979 14,514 15,000
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in millions) At December 31 1999 1998
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 37.2 $ 26.5
Accounts receivable (less allowance of $2.2 and $0.8
respectively) 150.5 120.6
Inventories
Finished goods 34.8 61.1
Raw materials and work in progress 29.5 27.8
- ------------------------------------------------------------------------
64.3 88.9
Prepaid expenses 3.8 4.9
- ------------------------------------------------------------------------
Total current assets 255.8 240.9
Property, plant and equipment (Note 9) 104.5 116.1
Goodwill (Note 7) 379.2 360.5
Intangible asset 22.7 --
Deferred finance costs (Note 8) 12.7 15.7
Prepaid pension cost (Note 4) 72.2 73.5
Other assets 2.4 --
- ------------------------------------------------------------------------
$849.5 $ 806.7
- ------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 78.5 $ 78.6
Accrued expenses 17.0 13.0
Accrued income taxes 31.3 42.6
Current portion of long-term debt (Note 11) 80.0 71.0
- ------------------------------------------------------------------------
Total current liabilities 206.8 205.2
Plant closure provisions (Note 10) 55.6 47.1
Deferred income taxes (Note 5) 35.8 21.6
Long-term debt (Note 11) 233.3 229.8
Other liabilities 1.7 1.9
Minority interest 2.4 --
STOCKHOLDERS' EQUITY (NOTE 13)
Common stock, $0.01 par value, authorized
40,000,000 shares, issued 14,766,386 shares 0.1 0.1
Additional paid-in capital 276.1 276.1
Treasury stock (1,314,864 shares at cost) (18.9) (13.2)
Retained earnings 82.5 39.9
Accumulated other comprehensive income (25.9) (1.8)
- ------------------------------------------------------------------------
Total stockholders' equity 313.9 301.1
- ------------------------------------------------------------------------
$849.5 $ 806.7
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in millions)
Years ended December 31 1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 42.6 $ 70.4 $ 117.7
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 68.4 59.7 46.8
Deferred income taxes 14.5 1.5 13.3
Other (1.2) (0.9) 0.5
Changes in operating assets and
liabilities:
Accounts receivable (14.2) 53.6 26.6
Inventories 31.6 (5.7) 1.6
Accounts payable and accrued expenses (6.1) 35.7 (2.6)
Income taxes and other current liabilities (14.0) 45.0 (11.6)
Other non-current assets and liabilities (12.9) (21.0) (24.8)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 108.7 238.3 167.5
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (8.4) (23.5) (17.8)
Business combinations, net of cash acquired 11.8 (26.4) (130.8)
Other (6.4) 1.0 1.6
- -------------------------------------------------------------------------------
Net cash used in investing activities (3.0) (48.9) (147.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash paid to GLCC -- (468.5) (31.4)
Minority interest 2.4 -- 3.3
Receipt of long-term borrowings 106.0 441.0 --
Repayment of long-term borrowings (93.5) (140.2) --
Repayment of short-term credit (90.0) -- --
Deferred finance costs (Note 8) -- (15.2) --
Net repurchase of common stock (Note 13) (5.7) (13.2) --
- -------------------------------------------------------------------------------
Net cash used in financing activities (80.8) (196.1) (28.1)
Effect of exchange rate changes on cash (14.2) 3.5 (17.6)
Net change in cash and cash equivalents 10.7 (3.2) (25.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26.5 29.7 54.9
- -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 37.2 $ 26.5 $ 29.7
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions)
<TABLE>
<CAPTION>
Great Additional Cumulative Total
Lakes Common Treasury Paid-in Retained Translation Comprehensive
Investment Stock Stock Capital Earnings Adjustment Income
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $ 584.6 $ -- $ -- $ -- $ -- $ -- $ --
Net income -- -- -- -- 117.7 -- 117.7
Payments to GLCC (31.0) -- -- -- -- -- --
Net CTA* change -- -- -- -- -- (18.5) (18.5)
- -------------------------------------------------------------------------------------------------------------------------------
Total 553.6 -- -- -- 117.7 (18.5) 99.2
Transfer (Note 12) 99.2 -- -- -- (117.7) 18.5 (99.2)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 652.8 -- -- -- -- -- --
Net income -- -- -- -- 70.4 -- 70.4
Net CTA* change -- -- -- -- -- (1.8) (1.8)
"Spin-off" (Note 1) (652.8) 0.1 -- 276.1 (30.5) -- (30.5)
Repurchase of treasury stock (Note 13) -- -- (14.0) -- -- -- --
Share issue (Note 13) -- -- 0.8 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 -- 0.1 (13.2) 276.1 39.9 (1.8) 38.1
Net income -- -- -- -- 42.6 -- 42.6
Net CTA* change -- -- -- -- -- (24.1) (24.1)
Repurchase of treasury stock -- -- (5.7) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ -- $ 0.1 $ (18.9) $ 276.1 $ 82.5 $(25.9) $ 56.6
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* cumulative translation adjustment
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES ON CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies
- ---------------------------
BASIS OF PREPARATION
Until May 22, 1998 the Company was a wholly-owned subsidiary of GLCC. On May 22,
1998 GLCC consummated the "spin-off" of its petroleum additives business by
distributing shares in the Company to the stockholders of GLCC in a ratio of one
Company share for every four GLCC shares held (the "spin-off"). In connection
with the "spin-off," the Company issued 14,762,417 shares of common stock on May
26, 1998.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include all subsidiaries of the
Company. All significant intercompany accounts and balances have been eliminated
upon consolidation.
All acquisitions are accounted for as purchases and the results of operations of
the acquired businesses are included in the combined financial statements from
the date of acquisition.
The combined financial statements presented herein for the year ended December
31, 1997 give effect to the "spin-off" as a transfer of ownership interests
between entities under common control. Accordingly, the financial statements
reflect the assets, liabilities, revenues and expenses of GLCC's petroleum
additives business, adjusted only for those parts of that business which
remained part of GLCC after the "spin-off." The financial statements have been
prepared as if the Company had existed as an independent entity for all years
and include allocations of certain GLCC expenses prior to the "spin-off."
Management believes these allocations are reasonable.
The financial information relating to the pre "spin-off" period may not
necessarily be indicative of the financial position, results of operations or
cash flows of the Company that would have been achieved if the Company had been
a separate, independent company.
NATURE OF OPERATIONS
The Company is a major manufacturer and distributor of TEL and Specialty
Chemicals. Its primary manufacturing operation is located at Ellesmere Port in
the United Kingdom. The Company's products are sold globally, primarily to oil
refineries. Principal product lines are TEL, other petroleum additives and
performance chemicals.
On October 1, 1998, the Company entered into sales and marketing agreements with
Ethyl Corporation (Ethyl) to market and sell TEL in all areas of the world
except North America and the European Economic Area (the Territory) for the
period to December 31, 2009. All marketing and sales effort made under the
arrangement is made in the name of Octel. Octel will continue to produce all
<PAGE>
TEL marketed under the agreements and also provide marketing and other services.
Ethyl will continue to provide bulk distribution services, marketing and other
services related to sales made within the Territory. The net proceeds under the
agreements are paid to Octel and Ethyl as compensation for services and are
based on an agreed-upon formula with Octel receiving 68% of the total
compensation for services provided. No separate legal entity or joint venture
has been established as a consequence of the agreement. Sales and expenses
incurred under the agreement are included within Octel's income statement. These
comprise all revenues and costs incurred directly by Octel, together with costs
recharged by Ethyl for distribution and other services provided under the terms
of the agreements. Ethyl's share of the net proceeds for services is charged as
a distribution expense within cost of goods sold.
USE OF ESTIMATES
The preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the amount reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
REVENUE RECOGNITION
Revenue from sales of products is recognized at the time products are shipped to
the customer or, in the case of bulk shipments, at the time of delivery to the
customer.
CASH EQUIVALENTS
Investment securities with maturities of three months or less when purchased are
considered to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (FIFO method) or market price.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the assets using the
straight-line method. The cost of additions, improvements and interest on
construction are capitalized. Maintenance and repairs are charged to expenses
when required.
GOODWILL
Goodwill, the excess of investments over the net assets of subsidiaries
acquired, is amortized over periods of up to 35 years. The majority of goodwill
relates to the TEL business and is being amortized over 10 years from January 1,
1998, the expected remaining life of the business. The Company regularly
evaluates the realizability of goodwill based on projected undiscounted cash
flows and operating income for each business with material goodwill balances.
DEFERRED FINANCE COSTS
The costs related to the debt financing are classified as intangible assets and
separately disclosed in the balance sheets. All are amortized over the life of
the debt.
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company re-evaluates long-lived assets based on undiscounted operating cash
flows whenever significant events or changes occur which might impair recovery
of recorded costs and writes down net recorded costs to fair value (based on
discounted cash flows or market values) if recorded costs, prior to impairment,
are higher.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses various derivative instruments including forward contracts and
options to manage certain foreign currency exposures. These instruments are
entered into under the Company's corporate risk management policy to minimize
exposure and are not for speculative trading purposes. Management periodically
reviews the effectiveness of the use of the derivative instruments.
Derivatives used for hedging purposes must be designed as, and effective as, a
hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in the value of the derivative contract must be highly
correlated with changes in the market value of the underlying hedged item at the
inception of the hedge and over the life of the hedge contract. Any derivative
instrument designated but no longer effective as a hedge would be reported at
market value and the related gains and losses recognized in earnings.
Derivatives that are designated as, and effective as, a hedge of foreign
currency commitments are accounted for using the deferral method. Gains and
losses from instruments that hedge firm commitments are deferred and recognized
as part of the economic basis of the transactions underlying the commitments
when the associated hedged transaction occurs. Gains and losses from instruments
that hedge foreign currency denominated receivables, payables and debt
instruments are reported in earnings and offset the effects of foreign exchange
gains and losses from the associated hedged items.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental compliance costs include ongoing maintenance, monitoring and
similar costs. Environmental costs are accrued when environmental assessments or
remedial efforts are probable and the cost can be reasonably estimated. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future obligations are not discounted to their present values.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common
shares outstanding during the period, while diluted earnings per share includes
the effect of options and restricted stock that are dilutive and outstanding
during the period.
Prior to the "spin-off" the Company was not a separate operating company with a
capital structure of its own. Weighted average shares outstanding for 1997 have
been calculated by applying the distribution ratio (one Company share for every
four GLCC shares) to average GLCC shares outstanding.
FOREIGN CURRENCIES
The local currency has been used as the functional currency throughout the
group. Exchange differences arising on the retranslation of opening balance
sheets of overseas subsidiaries are taken to a separate equity reserve, the
cumulative translation adjustment. Gains and losses on foreign currency
transactions are included in other expenses in the income statement.
<PAGE>
STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations
in accounting for its employee stock options. Under APB 25, when the exercise
price of employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provision of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (FAS 123).
PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITS
Annual costs of pension plans are actuarially determined based on FAS 87,
Employers' Accounting for Pensions. The Company has conformed its pension and
other post-retirement disclosures to comply with FAS 132, Employers' Disclosures
about Pensions and other Post-Retirement Benefits.
Note 2. Business Segment and Geographical Area Data
- ---------------------------------------------------
The Company has adopted FAS 131, Disclosures about Segments of an Enterprise and
Related Information, for its annual financial statements.
The Company's operations consist of one dominant industry segment: petroleum
additives.
Within the industry segment the Company has identified two main product groups:
TEL and Specialty Chemicals. The following table analyzes sales and other
financial information by product group:
Product Group Data
- ------------------
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
<S> <C> <C> <C>
NET SALES:
TEL $396.1 $383.7 $454.1
Specialty Chemicals 120.7 81.3 85.0
- ------------------------------------------------------------------------
$516.8 $465.0 $539.1
- ------------------------------------------------------------------------
GROSS PROFIT:
TEL $155.5 $203.1 $244.9
Specialty Chemicals 34.5 17.6 19.8
- ------------------------------------------------------------------------
$190.0 $220.7 $264.7
- ------------------------------------------------------------------------
OPERATING INCOME:
TEL $ 85.4 $139.6 $196.8
Specialty Chemicals 6.9 (4.7) (2.1)
- ------------------------------------------------------------------------
$ 92.3 $134.9 $194.7
- ------------------------------------------------------------------------
IDENTIFIABLE ASSETS AT YEAR END:
TEL $728.6 $733.2 $766.5
Specialty Chemicals 120.9 73.5 66.4
- ------------------------------------------------------------------------
$849.5 $806.7 $832.9
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
No segmental analysis was carried out below gross profit level prior to 1999.
Comparative amounts have been analyzed retrospectively, using criteria adopted
in 1999, to provide details of 1998 and 1997 to operating income level.
Comparatives have been restated to reflect the aggregation of Petroleum
Specialties and Performance Chemicals into a combined Specialty Chemicals
Business Unit which represents the markets where Octel Corp. is focusing on
building its position. Within these categories the sodium and chlorine products,
which are manufactured as raw materials for the TEL business but are also sold
on the open market, have been reclassified. They were part of the Performance
Chemicals Business Unit but have now been included as TEL to reflect their close
relationship with TEL markets and the manufacturing cycle.
The majority of the Company's operations are conducted by its UK enterprises.
Sales are reported in the geographic area where the transaction originates,
rather than where the final sale to customers is made. Intercompany sales are
priced to recover cost plus an appropriate mark-up for profit and are eliminated
in the consolidated financial statements.
Identifiable assets are those directly associated with the operations of the
geographical area.
Geographical Area Data
- ----------------------
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
<S> <C> <C> <C>
NET SALES:
United States $ 73.9 $ 36.1 $ 39.0
United Kingdom 436.9 421.6 512.2
Rest of Europe 97.0 70.1 103.5
Sales between areas (91.0) (62.8) (115.6)
- --------------------------------------------------------------------------------
$516.8 $465.0 $ 539.1
- --------------------------------------------------------------------------------
INCOME (LOSS) BEFORE
INCOME TAXES:
United States $ 0.8 $ (1.6) $ (1.2)
United Kingdom 64.8 109.4 173.8
Rest of Europe 9.7 4.1 1.8
- --------------------------------------------------------------------------------
$ 75.3 $111.9 $ 174.4
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS AT
YEAR END:
United States $ 41.5 $ 34.7 $ 30.8
United Kingdom 642.8 725.1 741.2
Rest of Europe 165.2 46.9 60.9
- --------------------------------------------------------------------------------
$849.5 $806.7 $ 832.9
- --------------------------------------------------------------------------------
</TABLE>
Note 3. Stock Option Plans
- --------------------------
Prior to the "spin-off," certain employees of the Company participated in GLCC's
employee stock option plans which covered officers and key employees of GLCC.
The Octel Corp. Savings Related Stock Plan became effective from October, 1998.
This is a stock purchase plan, open to all employees at the offer date, whereby
employees may save up to $416 per month over a three-year period. Stock options
may then be exercised for a period of six months, after
<PAGE>
which the options expire. In october, 1998, 141,683 options were granted under
the scheme at a price of $13.20 per share, the market price of the shares at the
grant date, and are exercisable from November 2001 through May 2002. During the
year 14,944 options lapsed, leaving 126,739 outstanding at December 31, 1999.
In August, 1998 the Company granted 40,663 options at a price of $19.60 under
the terms of the Octel Corp. Non Employee Directors Stock Option Plan. The
options are exercisable from January 1, 2001 through December 31, 2007. None
have been exercised or have lapsed.
In February, 1999 the Company granted zero cost share options to senior
management under the terms of the Octel Corp. Time Restricted Stock Option Plan
(TRSOP) and the Octel Corp. Performance Related Stock Option Plan (PRSOP).
181,521 options were granted under the TRSOP. They are exercisable from December
31, 1999 through December 31, 2007. 3,159 options lapsed during the year,
leaving 178,362 outstanding at December 31, 1999. The 107,079 options granted
under the PRSOP are exercisable from January 1, 2001 through January 1, 2008.
None have been exercised or have lapsed.
In April, 1999 the Company granted zero cost options to senior management under
the terms of the PRSOP scheme. The 167,826 options granted are exercisable from
January 1, 2002 through December 31, 2008. None have been exercised or have
lapsed.
Also in April, 1999 the Company granted options at the price of $13.275 per
share to non-employee directors under the terms of the Octel Corp. Non Employee
Directors Stock Option Plan. The 57,807 options granted are exercisable from
January 1, 2002 through December 31, 2008. None have been exercised or have
lapsed.
In August, 1999 the Company granted 405,726 options to senior management at the
price of $13.275 under the terms of the Octel Corp. Company Share Option Plan.
Also in August, 1999 the Company granted 28,903 options at a price of $13.275
under the terms of the Octel Corp. Non Employee Directors Stock Option Plan. The
options are exercisable from January 1, 2003 through August 8, 2009. None have
been exercised or have lapsed.
No stock options were exercised under any Company scheme in the year.
The weighted average exercise price and the weighted average grant date fair
value of options issued in the year were as follows:
<TABLE>
<CAPTION>
Exercise Fair
options granted Price Value
<S> <C> <C>
At a discount to the market price $19.60 $6.83
At a premium to the market price $13.28 $4.71
</TABLE>
The fair value of options granted was estimated using the Black-Scholes model
with the following assumptions: divided yield 0%, expected life of 3.82 years,
volatility 40% and risk free interest rate 5.87%.
Had compensation expense for the Company's stock-based compensation plan been
recorded based on the fair value of the stock options at grant date consistent
with the method prescribed by FAS 123, the effect on the Company's net income
and earnings per share for 1999 would not have been material.
Note 4. Pension Plans
- ---------------------
The Company maintains three contributory defined benefit pension plans covering
substantially all UK employees. The Projected Benefit Obligation ("PBO") is
based on final salary and
<PAGE>
years of credited service, reduced by social security benefits according to a
plan formula. Normal retirement age is 65, but provisions are made for early
retirement.
The Company's funding policy is to contribute amounts to the plans to cover
service costs to date as recommended by the Company's actuary. Based on this
advice, no contributions were made by the Company in 1999, 1998 and 1997. The
plans' assets are invested by two investment management companies in funds
holding UK and overseas equities, UK and overseas fixed interest securities,
index linked securities, property unit trusts and cash or cash equivalents.
Assumptions for the plans as of the end of the last three years were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Weighted average discount rate 6.25% 6.25% 7.75%
Rate of increase in compensation levels 4.0% 4.0% 5.5%
Rate of return on plan assets 7.0% 7.0% 8.5%
</TABLE>
Movements in PBO and the fair value of plan assets, and the funded status and
prepaid pension cost of the plans are as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998
<S> <C> <C>
Change in PBO
Balance at January 1 $ 547.5 $494.6
GLCC transfer (19.6) --
Interest cost 31.4 37.8
Service cost 11.2 10.6
Benefits paid (23.1) (22.2)
Actuarial gains/losses (6.3) 20.2
Exchange variance (17.1) 6.5
- --------------------------------------------------------------------------------
Balance at December 31 524.0 547.5
- --------------------------------------------------------------------------------
Fair value of plan assets
Balance at January 1 700.6 708.2
GLCC transfer (24.2) --
Actual benefits paid (23.1) (22.2)
Actual return on assets 140.0 5.6
Exchange variance (22.5) 9.0
- --------------------------------------------------------------------------------
Balance at December 31 770.8 700.6
- --------------------------------------------------------------------------------
Plan assets excess over PBO 246.8 153.1
Unrecognized net gain (179.9) (82.0)
Unrecognized prior service cost 5.3 7.1
- --------------------------------------------------------------------------------
Prepaid pension cost 72.2 78.2
Estimated transfer -- (4.7)
- --------------------------------------------------------------------------------
$ 72.2 $ 73.5
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
The GLCC transfer represents prepaid pension cost attributable to employees who
participate in the Octel Pension Plan that remained with GLCC after the "spin-
off." The effect of the transfer was included in 1998 on a net estimated basis
and the final amounts have been included in 1999 as movements in PBO and the
fair value of plans assets.
Net pension cost for the UK pension plans is as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
<S> <C> <C> <C>
Service cost $ 11.1 $ 10.6 $ 13.4
Interest cost on PBO 31.4 37.8 39.7
Actual return on plan assets (44.3) (5.6) (103.4)
Net amortization and deferral 1.6 (49.9) 50.8
- --------------------------------------------------------------------------------
$ (0.2) $ (7.1) $ 0.5
- --------------------------------------------------------------------------------
</TABLE>
Note 5. Income Taxes
- --------------------
Income taxes are accounted for using the asset and liability method pursuant to
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
(FAS 109). Deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory rates applicable to future years to
differences between the financial statements carrying amounts and the tax bases
of existing assets and liabilities. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date. In addition, FAS 109 requires the recognition of future tax benefits to
the extent that realization of such benefits is more likely than not.
The sources of income (loss) before income taxes were as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
<S> <C> <C> <C>
Domestic $ 0.2 $ (1.6) $ (1.2)
Foreign 75.1 113.5 175.6
- --------------------------------------------------------------------------------
$75.3 $111.9 $174.4
- --------------------------------------------------------------------------------
</TABLE>
The components of income tax charges are summarized as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
<S> <C> <C> <C>
CURRENT:
Federal $ (0.2) $ 0.1 $ 0.1
Foreign 18.7 39.8 43.3
- --------------------------------------------------------------------------------
18.5 39.9 43.4
- --------------------------------------------------------------------------------
DEFERRED:
Federal -- -- --
Foreign 14.2 1.6 13.3
- --------------------------------------------------------------------------------
14.2 1.6 13.3
- --------------------------------------------------------------------------------
$ 32.7 $ 41.5 $ 56.7
- --------------------------------------------------------------------------------
</TABLE>
Cash payments/(receipts) for income taxes were $31.6 million, $(5.7) million and
$62.0 million during 1999, 1998 and 1997, respectively. Tax payments in respect
of 1998 were made by GLCC.
<PAGE>
The effective tax rate varies from the US federal statutory rate because of the
factors indicated below:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
Foreign tax rate differential (4.9) (4.9) (3.5)
Amortization of intangible assets 14.8 11.3 2.1
Other (1.5) (4.3) (1.1)
- --------------------------------------------------------------------------------
43.4% 37.1% 32.5%
- --------------------------------------------------------------------------------
</TABLE>
Details of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998
<S> <C> <C>
DEFERRED TAX ASSETS:
Closure costs $ 1.6 $12.9
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Pension costs 22.1 22.1
Other 15.3 12.4
- --------------------------------------------------------------------------------
37.4 34.5
- --------------------------------------------------------------------------------
Total net provision $35.8 $21.6
- --------------------------------------------------------------------------------
</TABLE>
Note 6. Acquisitions
- --------------------
The Company's 100% ownership interest in Octel Associates and The Associated
Octel Company Limited was acquired in three transactions. The Company acquired a
51.15% interest in 1989, a further 36.67% interest in 1992 and the balance in
1997. The 1989 agreement provides for profit participation payments to be made
to certain former owners (The Vendor Partners) through 2006. Such payments are
treated as an adjustment to the purchase price. Profit participation payments
for 1999 amounted to $7.8 million (1998 -- $9.0 million).
On December 1, 1998 the Company completed the acquisition of Chemische Betriebe
Pluto GmbH, a petroleum specialties company formerly owned by Veba Oel AG.
On November 9, 1999 Octel completed its acquisition of all the outstanding
shares of OBOAdler Company Limited (OBOAdler) for payment of $94.5 million.
OBOAdler acquired the Alcor group of companies on June 4, 1999. The OBOAdler
group includes a sales office in Baar, Switzerland and a TEL manufacturing plant
in Germany.
The business combination has been accounted for as a purchase, and the results
of the OBOAdler group are included in Octel Corp.'s financial statements from
November 9, 1999.
An intangible asset of $25 million at acquisition date has been recognized in
the balance sheet related to unexpired customer contracts and is being amortized
over 2.25 years, the average of the relevant contract periods.
Consolidated goodwill of $51.8 million arose (including goodwill in the OBOAdler
group balance sheet) and is being amortized on a straight-line basis over 8.17
years in line with other TEL related goodwill.
<PAGE>
The following unaudited summarized information illustrates the results of
operations for the years ended December 31, 1999 and December 31, 1998 as if the
acquisition had occurred on January 1 of each year. They have been adjusted to
give effect to (i) the amortization expense generated by the acquisition of
OBOAdler, (ii) the related financing transactions and interest expense, and
(iii) the elimination of sales and purchases between Octel and the OBOAdler
group. OBOAdler group's historical financial statements were for the fiscal year
ended June 30 and have been conformed to Octel's calendar year for pro forma
presentation.
The unaudited pro forma financial statements are for illustrative purposes only
and are not meant to be indicative of actual results that may have been achieved
had the transaction occurred as of the date indicated above, nor do they purport
to indicate results which may be attained in the future.
Unaudited Pro forma Information
- -------------------------------
<TABLE>
<CAPTION>
(in millions except per share amounts)
Year ended December 31 1999 1998
<S> <C> <C>
Net sales $ 569.9 $ 544.9
Net income 52.0 78.2
- --------------------------------------------------------------------------------
Earnings per share -- basic $ 3.76 $ 5.39
-- diluted $ 3.72 $ 5.39
- --------------------------------------------------------------------------------
</TABLE>
Note 7. Goodwill
- ----------------
Goodwill comprises the following:
<TABLE>
<CAPTION>
(in millions) 1999 1998
<S> <C> <C>
Gross cost $ 580.0 $ 522.1
Accumulated amortization (200.8) (161.6)
- --------------------------------------------------------------------------------
$ 379.2 $ 360.5
- --------------------------------------------------------------------------------
</TABLE>
Based on its most recent analysis the Company believes that no impairment of
goodwill exists as of December 31, 1999.
Amortization of goodwill was $42.4 million, $39.9 million and $27.6 million in
1999, 1998 and 1997, respectively.
Note 8. Deferred Finance Costs
- ------------------------------
Costs of $16.9 million related to the "spin-off" from GLCC were incurred during
1998 and a further $2.0 million arose in relation to the acquisition of
OBOAdler. Both are amortized over the related debt profile.
<TABLE>
<CAPTION>
(in millions) 1999 1998
<S> <C> <C>
Gross cost $ 18.7 $ 16.9
Accumulated amortization (6.0) (1.2)
- --------------------------------------------------------------------------------
$ 12.7 $ 15.7
- --------------------------------------------------------------------------------
</TABLE>
Amortization of deferred finance costs was $4.7 million and $1.2 million in 1999
and 1998, respectively.
<PAGE>
Note 9. Property, Plant and Equipment
- -------------------------------------
The estimated useful lives of the major classes of depreciable assets are as
follows:
Buildings 7 to 25 years
Equipment 3 to 10 years
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
(in millions) 1999 1998
<S> <C> <C>
Land $ 2.6 $ 2.9
Buildings 2.6 1.1
Equipment 122.9 112.0
Work in progress 15.8 31.0
- --------------------------------------------------------------------------------
143.9 147.0
Less accumulated depreciation 39.4 30.9
- --------------------------------------------------------------------------------
$ 104.5 $ 116.1
- --------------------------------------------------------------------------------
</TABLE>
Depreciation charges were $19.6 million, $17.0 million and $19.2 million in
1999, 1998 and 1997.
The estimated additional cost to complete work in progress is $5.9 million
(1998, $6.1 million).
Note 10. Plant Closure Provisions
- ---------------------------------
The liability for estimated closure costs of Octel's TEL manufacturing
facilities includes costs for personnel reductions (severance) and
decontamination and environmental remediation activities (remediation) when
demand for TEL diminishes.
The Company has and will continue to downsize and restructure its operation
consistent with declining demand for TEL. Octel closed its German manufacturing
facility in 1989 and ceased production in Italy and France in 1996. All of the
Company's TEL is now produced at its manufacturing plants at Ellesmere Port in
the UK and at Doberitz in Germany. In December, 1998, one of the three TEL
plants at the Ellesmere Port site was closed.
Movements in the provisions are summarized as follows:
<TABLE>
<CAPTION>
1999 1999 1999 1998
(in millions) Severance Remediation Total Total
<S> <C> <C> <C> <C>
Balance at January 1 $ 17.1 $30.0 $ 47.1 $ 57.2
Exchange effect 0.1 -- 0.1 2.0
Charge for the year 18.9 4.6 23.5 15.7
Acquisition -- 11.2 11.2 --
Expenditure (17.0) (9.3) (26.3) (27.8)
- ------------------------------------------------------------------------------------
Balance at December 31 $ 19.1 $36.5 $ 55.6 $ 47.1
- ------------------------------------------------------------------------------------
</TABLE>
Severance:
No provision is made for estimated future costs for severance until the
employees concerned have been notified and the expenditure is committed. All
employees for whom severance provision had been made at January 1, 1999 left the
group during the year. In the fourth quarter 1999 a further voluntary severance
program was announced at the group's Ellesmere Port site and expenditure has
been
<PAGE>
committed, and provision made, for 330 employees. No further severance
programs are planned. Severance expenditure against provisions in 1999, 1998 and
1997 was $17.0 million, $14.9 million and $21.8 million, respectively.
Remediation:
Total costs for remediation are evaluated on a regular basis to take account of
expenditure incurred and to amend the scope of future activities in the light of
findings from projects carried out. Management's estimate at December 31, 1999
(which includes $11.2 million relating to OBOAdler) is analyzed as follows:
<TABLE>
<CAPTION>
(in millions) Decontamination Remediation Other Total
<S> <C> <C> <C> <C>
Total estimated future costs $ 47.3 $13.1 $ 28.8 $ 89.2
Operating capital costs -- -- (20.8) (20.8)
Discretionary contingent costs (25.9) (6.0) -- (31.9)
- -----------------------------------------------------------------------------------------
Provision $ 21.4 $ 7.1 $ 8.0 $ 36.5
- -----------------------------------------------------------------------------------------
</TABLE>
Decontamination costs relate to the post-operational cleaning and disposal of
equipment and the demolition of buildings. Remediation costs relate to soil and
groundwater contamination. Other costs include operational compliance with
environmental regulations and project management expenses.
Operational capital costs of $20.8 million are expected to arise during the
useful life of the plant. They will be included in property, plant and equipment
as expenditure is incurred and depreciated over the remaining useful life of the
related plant.
Total costs include $31.9 million, which comprise the potential cost of vacating
the Ellesmere Port site. Management has no present intention to adopt this
course of action and intends to continue manufacturing other products at
Ellesmere Port when production of TEL ceases. Consequently management views
these costs as a contingent liability and no provision is made for them.
Capital expenditure relating to environmental matters in 1999, 1998 and 1997 was
$0.7 million, $2.7 million and $0.6 million, respectively.
Note 11. Long-Term Debt
- -----------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(in millions) 1999 1998
<S> <C> <C>
Senior term loan -- 1998 $ 73.3 $139.8
-- 1999 90.0 --
Credit facility -- 11.0
Senior notes 150.0 150.0
- --------------------------------------------------------------------------------
313.3 300.8
Less current portion (80.0) (71.0)
- --------------------------------------------------------------------------------
$233.3 $229.8
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Payments of interest on long-term debt were $25.5 million and $20.3 million in
1999 and 1998, respectively.
On April 27, 1998 the Company entered into a $300 million secured credit
facility consisting of a $280 million senior secured term loan and a $20 million
revolving credit facility. The credit facility will mature on December 31, 2001
and the term loan is amortized in quarterly installments to December 31, 2001
subject to early repayment conditions. The term loan is secured on the Company's
UK assets. Loans under the credit facility bear interest at LIBOR plus 1.75
percent, reducing to LIBOR plus 1.25 percent when the outstanding balance under
the credit facility is below $140 million.
Also on April 27, 1998 the Company issued $150 million of senior notes due 2006.
The Company is required to redeem $37.5 million principal amount of notes in
each of the years 2003, 2004 and 2005. The notes bear interest at a fixed rate
of 10 percent.
The proceeds of the credit facility and the notes were used principally to repay
an intercompany loan to GLCC and to pay a special dividend to GLCC in connection
with the "spin-off."
The credit facility and the notes both contain substantial restrictions on the
Company's operations, including the ability to pay dividends.
On June 3, 1999 the Company entered into a further $100 million term loan
repayable in semi annual installments to December 31, 2002:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
1999 $ 10
2000 20
2001 30
2002 40
- --------------------------------------------------------------------------------
$100
- --------------------------------------------------------------------------------
</TABLE>
The loan is secured in the same way as the 1998 loan and bears interest at LIBOR
plus 1.5 percent, reducing to LIBOR plus 1.25 percent when the aggregate of
outstanding balances under the 1998 and 1999 agreements is below $140 million.
The following table presents the projected annual maturities for the next five
years after 1999:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
2000 $ 80.0
2001 43.3
2002 40.0
2003 37.5
2004 37.5
Thereafter 75.0
- --------------------------------------------------------------------------------
$313.3
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Note 12. GLCC Investment
- ------------------------
GLCC investment comprised all share capital, reserves and intercompany balances
and debt prior to the "spin-off" (see Note 1).
Payments to GLCC included exchange effect of $4.7 million and $0.4 million in
1998 and 1997, respectively.
The net payment of $31.0 million in 1997 includes the receipt of a short-term
loan from GLCC of $116.8 million used to fund the acquisition of a minority
interest.
Note 13. Stockholders' Equity
- -----------------------------
On May 26, 1998 the Company issued 14,762,417 shares of common stock with a par
value of $0.01, nil paid, in connection with the "spin-off" (see Note 1).
A further 969 shares were subsequently issued in respect of late notified
changes in GLCC stockholders at the record date of the "spin-off" issue.
The Company also issued 53,228 shares to Directors and senior management at an
aggregate cost of $0.8 million, comprising 3,000 new shares and 50,228 issues
from treasury stock.
During 1998 and 1999 the Company's Board of Directors approved stock buy back
programs, authorizing the repurchase of up to $15 million of its stock each
year, as allowed under its debt covenants. At December 31, 1999 1,314,864 shares
had been repurchased at an aggregate cost of $18.9 million (1998 -- 832,052
shares at a cost of $13.2 million).
Note 14. Fair Value of Financial Instruments
- --------------------------------------------
The following table presents the carrying amount and fair values of the
Company's financial instruments at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Non-derivatives:
Cash and cash equivalents $ 37.2 $ 37.2 $ 26.5 $ 26.5
Long-term debt 313.3 312.7 300.8 306.8
Derivatives:
Miscellaneous -- 0.2 -- (1.2)
</TABLE>
The following methods and assumptions were used to estimate the fair values of
financial instruments:
Cash and cash equivalents: The carrying amount approximates fair value because
of the short-term maturities of such instruments.
Long-term debt: The carrying amount of term borrowings at variable interest
rates approximate fair value. The fair value of fixed interest rate debt is
based on the quoted market prices for the same or similar debt.
Derivatives: The fair value of derivatives, including forward exchange contracts
and interest rate swaps, was estimated based on current settlement prices and
comparable contracts using current assumptions.
Note 15. Financial Instruments and Risk Management
- --------------------------------------------------
The Company has limited involvement with derivative financial instruments and
does not trade them. The Company does use derivatives to manage well defined
interest rate and foreign exchange exposures.
The Company invoices over half of its sales in US dollars, the balance mainly
invoiced in pounds sterling to match the Company's sterling costs.
<PAGE>
The Company uses interest rate swap, floor and collar and cap agreements to
reduce the impact of changes in interest rates on its floating rate debt. The
swap agreements are contracts to exchange floating rate for fixed interest
payments periodically over to the life of the agreements without the exchange of
the underlying notional amounts. The notional amounts of interest rate
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss.
As of December 31, 1999 the Company had the following interest rate instruments
in effect (notional amounts in millions; cap, floor and collar rates based on
three-month LIBOR):
<TABLE>
<CAPTION>
Notional Strike
Amount Rate Period
<S> <C> <C> <C>
Interest swap $60.0 5.87% 12/99-12/01
Interest collar 31.0 5.75% 12/99-12/00
5.45%
</TABLE>
The Company sells a range of TEL and petroleum additives to major oil refineries
throughout the world. Credit limits, ongoing credit evaluation and account
monitoring procedures are utilized to minimize risk. Collateral is not generally
required.
Approximately 60% of the Company's workforce are represented by trade unions.
The previous collective bargaining agreement expired on January 1, 2000. An
interim agreement is in place which is based on successful implementation of
organization changes at the Ellesmere Port site. This will be replaced by a
further agreement later in fiscal 2000.
Note 16. Related Party Transactions
- -----------------------------------
The Company sells significant quantities of TEL to refineries wholly or partly
owned by BP, Texaco and Mobil (The Vendor Partners) and Chevron Chemical
Company, who ceased to be related parties on October 31, 1997 and November 20,
1997, respectively. Sales were made at arm's length and at prices which varied
according to individual customers and the market in which they operated. In 1997
such sales amounted to $80.2 million.
Until the "spin-off" GLCC was a related company. Sales to GLCC are included in
the accounts at estimated market value, and in 1998 (to the "spin-off" date) and
1997 amounted to $3.3 million and $7.4 million, respectively. Purchases from
GLCC for the same periods amounted to $7.1 million and $18.5 million,
respectively.
Interest charges from GLCC in respect of funding provided for acquisitions in
1998 (to the "spin-off" date) and 1997 amounted to $3.4 million and $2.1
million, respectively.
Note 17. Recently Issued Accounting Pronouncements
- --------------------------------------------------
In June, 1998 the Financial Accounting Standards Board ("FASB") issued FAS 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. In June, 1999 FASB issued FAS 137,
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No.133. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company is at
present evaluating the impact of FAS 133 on its operations.
<PAGE>
QUARTERLY SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(dollar amounts in millions except per share data)
<S> <C> <C> <C> <C>
1999
Net sales $128.0 $129.8 $126.9 $132.1
Operating income 24.1 25.5 26.1 16.6
Net income 10.4 11.7 12.2 8.2
Net cash provided by operating activities 22.7 17.3 32.2 36.5
Per common share:
Earnings
-- basic 0.74 0.84 0.88 0.60
-- fully diluted 0.73 0.81 0.86 0.58
Market price
-- high 15.3 14.9 13.0 12.7
-- low 12.2 11.9 11.2 9.7
1998
Net sales $123.2 $115.6 $113.4 $112.8
Operating income 41.0 35.9 28.0 29.9
Net income 25.6 16.6 10.6 17.7
Net cash provided by operating activities 47.9 66.9 70.3 53.2
Per common share:
Earnings
-- basic 1.73 1.12 0.73 1.26
-- fully diluted 1.73 1.12 0.73 1.26
Market price
-- high -- 22.7 20.6 16.2
-- low -- 18.2 13.7 11.6
</TABLE>
<PAGE>
Octel Corp.
BOARD OF DIRECTORS CORPORATE OFFICERS
Dr. Robert E. Bew Chairman and Director Dennis J. Kerrison
Chairman of European Process Industries President
Competitiveness Centre Retired CEO of and Chief Executive Officer
ICI Chemical & Polymer Division and
Chairman of Phillips Imperial Petroleum Ltd. Alan G. Jarvis
Vice President
Dennis J. Kerrison President and Chief and Chief Financial Officer
Executive Officer
Previously Executive Vice President, John P. Tayler
Great Lakes Chemical Corporation Corporate Secretary
Former CEO of Hickson International PLC and General Counsel
Martin M. Hale Director Steven W. Williams
Chairman of Great Lakes Chemical Corporation Vice President
Former Executive Vice President and Director Group Operations
of Hellman, Jordan Management Co. Inc.
Former President and CEO of Marsh & McClennan H. Alan Hanslip
Asset Management Company Vice President
Human Resources
Thomas M. Fulton Director
Retired President and CEO Dr. Geoffrey J. Hignett
of Landauer Inc. Vice President
Director of Landauer Inc. Specialty Chemicals
Director of Great Lakes Chemical Corporation
James Puckridge Director
Chairman of Ato Findley UK Ltd.
Director of Thomas Swan & Co. Ltd.
Retired Chairman of Elf Atochem UK Ltd.
Dr. Benito Fiore Director
Former Chairman and CEO of Enichem UK Ltd.
Charles M. Hale Director
Chairman of Donaldson, Lufkin & Jenrette International
Former General Partner of Lehman Brothers Kuhn Loeb
Former Managing Director of AG Becker International
[LOGO OF OCTEL]
<PAGE>
Corporate Offices
Octel Corp.
200 Executive Drive
Newark, DE 19702
USA
Shareholder Inquiries
First Chicago Trust Co. of New York
- --a Division of Equiserve
P.O. Box 2500
Jersey City, NJ 07303
USA
Tel: (201) 324 1644
Independent Accountants
PricewaterhouseCoopers, London, UK
Legal Counsel
Kirkland & Ellis, London, UK
Linklaters & Paines, London, UK
Investor Relations Inquiries
Octel Corp.
European Headquarters
Bailey Lane
Manchester M90 4AA
UK
Tel: +44(0)161 498 8889
Octel Corp. Common Stock
New York Stock Exchange
Symbol: OTL
Corporate Website
http://www.octel-corp.com
Form 10-K and Additional Information
Form 10-K is the company's annual report filed with the Securities and Exchange
Commission.
Copies of the Form 10-K and other financial information are available from the
Office of Investor Relations.
<PAGE>
EXHIBIT 13.2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Octel Corp.
We have audited the accompanying combined balance sheet of the businesses that
comprise Octel Corp. as of December 31, 1997, and the related combined
statements of income, cash flows and stockholders' equity for each of the two
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the businesses that
comprise Octel Corp. at December 31, 1997, and the combined results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Indianapolis, Indiana
April 4, 1998
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
1. Octel Corp., a Delaware corporation.
2. Octel L.L.C., a Delaware corporation.
3. Octel America Inc., a Delaware corporation.
4. Octel International Ltd., a United Kingdom corporation.
5. Octel Developments PLC, a United Kingdom corporation.
6. Octel Trading Ltd., a United Kingdom corporation.
7. Octel Resources Ltd., a United Kingdom corporation.
8. Octel Associates, a United Kingdom corporation.
9. The Associated Octel Co. Ltd., a United Kingdom corporation.
10. Associated Octel Co. (Plant) Ltd., a United Kingdom corporation
11. AKC Trading Ltd., a United Kingdom corporation
12. AKC GmbH, a German corporation.
13. Octel France SAS, a French corporation.
14. Societa Italiana Additivi per Carburanti srl, an Italian corporation.
15. Octel Deutschland GmbH, a German corporation.
16. OBOAdler Company Ltd., a United Kingdom corporation.
17. Alcor Chemie AG, a Swiss corporation.
18. Alcor Chemie Vertriebs AG, a Swiss corporation.
19. Novoktan GmbH, a German corporation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, STATEMENTS OF INCOME, AND STATEMENTS OF CASH FLOWS
AND IS EQUIVALENT IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 37,200
<SECURITIES> 0
<RECEIVABLES> 152,700
<ALLOWANCES> 2,200
<INVENTORY> 64,300
<CURRENT-ASSETS> 255,800
<PP&E> 143,900
<DEPRECIATION> 39,400
<TOTAL-ASSETS> 849,500
<CURRENT-LIABILITIES> 206,800
<BONDS> 233,300
0
0
<COMMON> 100
<OTHER-SE> 313,800
<TOTAL-LIABILITY-AND-EQUITY> 849,500
<SALES> 516,800
<TOTAL-REVENUES> 530,200
<CGS> 326,800
<TOTAL-COSTS> 424,500
<OTHER-EXPENSES> 28,500
<LOSS-PROVISION> 1,400
<INTEREST-EXPENSE> 25,900
<INCOME-PRETAX> 75,300
<INCOME-TAX> 32,700
<INCOME-CONTINUING> 42,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,600
<EPS-BASIC> 3.08
<EPS-DILUTED> 3.05
</TABLE>
