SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-30270
CROMPTON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2183153
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One American Lane, Greenwich, Connecticut 06831-2559
(Address of principal executive offices) (Zip Code)
(203) 552-2000
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
The number of shares of common stock outstanding is as follows:
Class Outstanding at October 31, 2000
Common Stock - $.01 par value 112,671,636
CROMPTON CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Accompanying Notes
Consolidated Statements of Operations (Unaudited) - Third
quarter and nine months ended 2000 and 1999 2
Consolidated Balance Sheets - September 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Cash Flows (Unaudited) - Nine
months ended 2000 and 1999 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure of Market Risk 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
CROMPTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Third quarter and nine months ended 2000 and 1999
(In thousands of dollars, except per share data)
Third quarter ended Nine months ended
2000 1999 2000 1999
Net sales $ 738,456 $ 500,429 $ 2,310,360 $1,305,895
Cost of products sold 510,914 329,630 1,559,424 825,507
Selling, general and
administrative 95,736 79,588 318,482 200,244
Depreciation and amortization 45,284 30,459 135,968 67,962
Research and development 20,609 16,374 66,145 38,960
Acquired in-process research &
development - 195,000 - 195,000
Equity (income) loss 701 164 (10,833) (9,270)
Operating profit (loss) 65,212 (150,786) 241,174 (12,508)
Interest expense 30,944 17,611 88,839 43,718
Other expense (income) (a) 2,803 2,465 5,076 (37,790)
Earnings (loss) before income
taxes and extraordinary loss 31,465 (170,862) 147,259 (18,436)
Income taxes 9,905 9,058 54,485 64,312
Earnings (loss) before
extraordinary loss 21,560 (179,920) 92,774 (82,748)
Extraordinary loss on early
extinguishment of debt - (208) - (1,293)
Net earnings (loss) $ 21,560 $(180,128) $ 92,774 $ (84,041)
Basic earnings per common share:
Earnings (loss) before
extraordinary loss $ .19 $ (2.21) $ .81 $ (1.15)
Extraordinary loss - - - (.02)
Net earnings (loss) $ .19 $ (2.21) $ .81 $ (1.17)
Diluted earnings per common share:
Earnings (loss) before
extraordinary loss $ . 19 $ (2.21) $ .81 $ (1.15)
Extraordinary loss - - - (.02)
Net earnings (loss) $ .19 $ (2.21) $ .81 $ (1.17)
Dividends declared per
common share $ .05 $ - $ .15 $ .05
(a) The nine months ended 1999 includes a gain of $42,060 ($26,813 after-tax)
from the sale of the specialty ingredients business.
See accompanying notes to consolidated financial statements.
CROMPTON CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999
(In thousands of dollars)
September 30, December 31,
2000 1999
ASSETS
CURRENT ASSETS
Cash $ 1,627 $ 10,543
Accounts receivable 406,112 411,536
Inventories 551,978 523,363
Other current assets 138,178 174,311
Total current assets 1,097,895 1,119,753
NON-CURRENT ASSETS
Property, plant and equipment 1,185,887 1,262,345
Cost in excess of acquired net assets 941,117 969,625
Other assets 350,503 374,895
$ 3,575,402 $ 3,726,618
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 36,193 $ 81,162
Accounts payable 241,982 330,591
Accrued expenses 316,639 422,252
Income taxes payable 99,398 121,366
Other current liabilities 26,254 22,599
Total current liabilities 720,466 977,970
NON-CURRENT LIABILITIES
Long-term debt 1,483,355 1,309,812
Postretirement health care
liability 210,111 216,797
Other liabilities 412,111 462,127
STOCKHOLDERS' EQUITY
Common stock 1,194 1,191
Additional paid-in capital 1,051,630 1,047,518
Accumulated deficit (124,714) (200,374)
Accumulated other comprehensive
income (104,453) (61,238)
Treasury stock at cost (74,298) (27,185)
Total stockholders' equity 749,359 759,912
$ 3,575,402 $ 3,726,618
See accompanying notes to consolidated financial statements.
CROMPTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended 2000 and 1999
(In thousands of dollars)
Increase (decrease) in cash 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 92,774 $ (84,041)
Adjustments to reconcile net
earnings (loss) to net
cash provided by operations:
Acquired in-process research
and development - 195,000
Gain on sale of specialty ingredients - (42,060)
Extraordinary loss on early
debt extinguishment - 1,293
Depreciation and amortization 135,968 67,962
Equity income (10,833) (9,270)
Changes in assets and
liabilities, net (105,349) (100,304)
Net cash provided by operations 112,560 28,580
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of specialty
ingredients - 103,000
Capital expenditures (108,136) (65,436)
Acquired cash of Witco Corporation - 236,658
Merger related expenditures (48,798) -
Other investing activities (25,303) (19,309)
Net cash (used in) provided
by investing activities (182,237) 254,913
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on senior notes 593,754 -
Payments on long-term borrowings (413,972) (122,758)
Payments on short-term borrowings (46,052) (3,031)
Repurchases of accounts receivable (12,928) -
Treasury stock acquired (48,453) (74,596)
Dividends paid (17,114) (3,272)
Other financing activities 6,203 (4,478)
Net cash provided by (used in)
financing activities 61,438 (208,135)
CASH
Effects of exchange rate
changes on cash (677) 931
Change in cash (8,916) 76,289
Cash at the beginning of period 10,543 12,104
Cash at the end of period $ 1,627 $ 88,393
See accompanying notes to consolidated financial statements.
CROMPTON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
MERGER OF EQUALS
On September 1, 1999, the shareholders of Crompton and Knowles Corporation
(Crompton) and Witco Corporation (Witco) approved a tax-free stock-for-stock
merger of equals of Crompton and Witco (the "Merger"). The terms of the Merger
provided that (a) Crompton merge with and into Crompton Corporation, formerly
known as CK Witco Corporation (the "Company") and (b) immediately thereafter,
Witco merge with and into the Company, so that the Company is the surviving
corporation. Also, under the terms of the Merger, each share of Crompton's
common stock was automatically converted into one share of the Company's common
stock, and each share of Witco's common stock was exchanged for 0.9242 shares
of the Company's common stock.
The Merger was accounted for as a purchase and accordingly, the results of
operations of Witco have been included in the consolidated financial statements
from the date of acquisition. An allocation of the purchase price resulted in
cost in excess of the estimated fair value of acquired net assets (goodwill) of
approximately $830 million. This is being amortized on a straight-line basis
over forty years.
As a result of the Merger, the Company recorded merger related accruals as a
component of goodwill, of which $110.7 million remained at December 31, 1999.
During the first nine months of 2000, these accruals were reduced by payments
of $48.8 million and non-cash charges of $19.0 million. The payments related
primarily to severance and related accruals.
Also, as a result of the Merger, the Company recorded other accruals of which
$20 million remained at December 31, 1999. During the first nine months of
2000, payments of $5.3 million were made against these other accruals.
PRO FORMA FINANCIAL INFORMATION
The following pro forma unaudited results of operations for the third quarter
and nine months ended 1999 assumes the Merger had been consummated as of
January 1, 1999, and excludes the write-off of acquired in-process research and
development of $195 million.
(In thousands of dollars, except per share data) 1999
Third quarter Nine months
Net sales $ 826,774 $ 2,635,188
Net earnings $ 14,216 $ 127,919
Net earnings per common share: Basic $ 0.12 $ 1.07
Net earnings per common share: Diluted $ 0.12 $ 1.06
Weighted average shares outstanding: Basic 118,940 119,677
Weighted average shares outstanding: Diluted 120,661 121,133
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
Acquired in-process research and development (IPR&D) represents the value
assigned in a purchase business combination to research and development projects
of the acquired business that had commenced, but had not yet been completed at
the date of acquisition, and which, if unsuccessful, have no alternative future
use in research and development activities or otherwise. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 2 "Accounting for
Research and Development Costs" as clarified by Financial Accounting Standards
Board (FASB) Interpretation No. 4, amounts assigned to purchased IPR&D that meet
the above criteria must be charged to expense as part of the allocation of the
purchase price of the business combination. Accordingly, charges totaling $195
million were recorded in the third quarter of 1999 as part of the allocation of
the purchase price related to the acquisition of Witco.
PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The information in the foregoing consolidated financial statements is unaudited,
but reflects all of the adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of operations for the interim
periods presented.
Included in accounts receivable are allowances for doubtful accounts of $24.7
million at September 30, 2000 and $23.4 million at December 31, 1999.
Accumulated depreciation amounted to $502.9 million at September 30, 2000 and
$448.3 million at December 31, 1999.
Accumulated amortization of cost in excess of acquired net assets amounted to
$67.2 million at September 30, 2000 and $49.4 million at December 31, 1999.
Accumulated amortization of patents, trademarks and other intangibles included
in other assets amounted to $144.6 million at September 30, 2000 and $135.5
million at December 31, 1999.
It is suggested that the interim consolidated financial statements be read in
conjunction with the consolidated financial statements and notes included in the
Company's 1999 Annual Report on Form 10-K.
Effective with the Merger, the Company adopted a fiscal year ending
on December 31. Prior to the Merger, Crompton's fiscal year ended on the last
Saturday in December.
COMMON STOCK
As of September 30, 2000, there were 119,372,359 common shares issued and
113,369,554 common shares outstanding at $.01 par value.
INVENTORIES
Components of inventories are as follows:
(In thousands) September 30, December 31,
2000 1999
Finished goods $ 408,817 $ 410,513
Work in process 34,040 27,394
Raw materials and supplies 109,121 85,456
$ 551,978 $ 523,363
EARNINGS PER COMMON SHARE
The computation of basic earnings per common share is based on the weighted
average number of common shares outstanding. The computation of diluted earnings
per common share is based on the weighted average number of common and common
equivalent shares outstanding. The following is a reconciliation of the shares
used in the computations:
(In thousands) Third quarter ended Nine months ended
2000 1999 2000 1999
Weighted average common
shares outstanding 113,599 81,619 113,938 71,788
Effect of dilutive stock
options and other equivalents 502 - 1,211 -
Weighted average common
and common equivalent
shares outstanding 114,101 81,619 115,149 71,788
COMPREHENSIVE INCOME (LOSS)
An analysis of the Company's comprehensive income (loss) follows:
(In thousands) Third quarter ended Nine months ended
2000 1999 2000 1999
Net earnings (loss) $ 21,560 $(180,128) $ 92,774 $ (84,041)
Other comprehensive
income (expense)
Foreign currency
translation adjustments (31,377) (522) (43,320) (12,688)
Other 34 - 105 -
Comprehensive income (loss) $ (9,783) $(180,650) $ 49,559 $ (96,729)
The components of accumulated other comprehensive income (loss) at September 30,
2000 and December 31, 1999 are as follows:
September 30, December 31,
(In thousands) 2000 1999
Foreign currency translation adjustments $(102,922) $ (59,602)
Other (1,531) (1,636)
Accumulated other comprehensive income (loss) $(104,453) $ (61,238)
BUSINESS SEGMENT DATA
(In thousands) Third quarter ended Nine months ended
2000 1999 2000 1999
Net Sales
Polymer Products
Polymer Additives $ 238,454 $ 152,813 $ 748,952 $ 351,984
Polymers 82,040 72,467 249,355 230,613
Polymer Processing Equipment 82,464 61,485 231,594 231,724
Eliminations (2,766) (981) (10,195) (981)
400,192 285,784 1,219,706 813,340
Specialty Products
OrganoSilicones 119,044 38,331 367,734 38,331
Crop Protection 91,362 73,992 330,706 221,050
Other 127,858 102,322 392,214 233,174
338,264 214,645 1,090,654 492,555
Total Net Sales $ 738,456 $ 500,429 $2,310,360 $1,305,895
(In thousands) Third quarter ended Nine months ended
2000 1999 2000 1999
Operating Profit
Polymer Products
Polymer Additives $ 18,883 $ 17,166 $ 63,176 $ 42,729
Polymers 17,335 15,990 55,907 61,879
Polymer Processing Equipment 7,902 1,998 20,090 18,899
44,120 35,154 139,173 123,507
Specialty Products
OrganoSilicones 19,358 4,267 66,664 4,267
Crop Protection 14,328 14,671 74,690 68,953
Other 6,591 4,219 22,149 19,495
40,277 23,157 163,503 92,715
General corporate expense,
including amortization (19,185) (14,097) (61,502) (33,730)
Acquired in-process research
and development - (195,000) - (195,000)
Total Operating Profit (Loss) $ 65,212 $ (150,786) $ 241,174 $ (12,508)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIRD QUARTER RESULTS
Overview
Consolidated net sales of $738.5 million for the third quarter of 2000 increased
$238.0 million from the comparable period in 1999. After adjusting 1999 net
sales to exclude $36.1 million from the divestiture of the textile colors
business, and to include $281.3 million from Witco continuing operations for
July and August of 1999, net sales decreased 1%. This decrease was primarily the
result of continued negative foreign currency impact, mainly the Euro.
International sales, including U.S. exports, were 46% of total sales, up from
42% in the third quarter of 1999. After adjusting third quarter 1999
international sales to include Witco sales for July and August, international
sales, including U.S. exports, were unchanged at 46%.
Net earnings for the third quarter were $21.6 million, or $0.19 per common share
diluted, as compared to a net loss of $180.1 million, or $2.21 per common share
diluted, in the third quarter of 1999. Net earnings before after-tax special
items were $21.6 million, or $0.19 per common share diluted, as compared to
$15.1 million, or $0.18 per common share diluted in the third quarter of 1999.
Gross margin as a percentage of sales was 30.8% for the third quarter of 2000 as
compared to 34.1% for the third quarter of 1999. The decrease was primarily due
to the impact of including Witco operations for the entire quarter of 2000, an
increase in raw material and energy costs and an unfavorable foreign currency
impact. Consolidated operating profit, excluding the $195 million charge for
acquired IPR&D in 1999, increased 47% versus the third quarter of 1999. After
adjusting 1999 operating profit to exclude $0.5 million from the divestiture of
the textile colors business and to include $6.5 million from Witco continuing
operations for July and August of 1999, operating profit before special items
increased 30%. This increase was primarily due to increased unit volume and
lower operating costs, partially offset by higher raw material and energy costs
and an unfavorable foreign currency impact.
Third quarter ended
(In thousands)
Witco
Continuing
1999 Operations Textile 1999
As Months of Colors As
2000 Reported July & August Business Adjusted
Net Sales
Polymer Products
Polymer Additives $ 238,454 $ 152,813 $ 108,212 $ - $ 261,025
Polymers 82,040 72,467 - - 72,467
Polymer Processing
Equipment 82,464 61,485 - - 61,485
Eliminations (2,766) (981) - - (981)
400,192 285,784 108,212 - 393,996
Specialty Products
OrganoSilicones 119,044 38,331 76,393 - 114,724
Crop Protection 91,362 73,992 25,366 - 99,358
Other 127,858 102,322 71,326 (36,081) 137,567
338,264 214,645 173,085 (36,081) 351,649
Total Net Sales $ 738,456 $ 500,429 $ 281,297 $(36,081) $ 745,645
Third quarter ended
(In thousands)
Witco
Continuing
1999 Operations Textile 1999
As Months of Colors As
2000 Reported July & August Business Adjusted
Operating Profit
Polymer Products
Polymer Additives $ 18,883 $ 17,166 $ 8,605 $ - $ 25,771
Polymers 17,335 15,990 - - 15,990
Polymer Processing
Equipment 7,902 1,998 - - 1,998
44,120 35,154 8,605 - 43,759
Specialty Products
OrganoSilicones 19,358 4,267 6,706 - 10,973
Crop Protection 14,328 14,671 619 - 15,290
Other 6,591 4,219 625 (473) 4,371
40,277 23,157 7,950 (473) 30,634
General corporate
expense, including
amortization (19,185) (14,097) (10,019) - (24,116)
Total operating profit
before special items 65,212 44,214 6,536 (473) 50,277
Acquired in-process
research and
development - (195,000) - - (195,000)
Total Operating
Profit (Loss) $ 65,212 $(150,786) $ 6,536 $ (473) $(144,723)
Polymer Products
Polymer additives sales of $238.5 million declined 9% from third quarter 1999
adjusted sales of $261.0 million, of which 3% was due to lower foreign currency
translation. Plastic additives sales decreased 10% mainly as a result of lower
unit volume and unfavorable foreign currency translation of 4%. Rubber
chemicals sales were up 1% with higher unit volume and pricing more than
offsetting lower foreign currency translation of 2%. Urethane chemicals sales
declined 18% as a result of lower unit volume (due primarily to the
rationalization of lower margin business) and lower foreign currency translation
of 5%. Operating profit of $18.9 million was down 27% from an adjusted $25.8
million in the third quarter of 1999 primarily due to higher raw material and
energy costs and lower sales volume.
Polymers sales of $82.0 million were up 13% from the third quarter of 1999.
EPDM sales rose 14% primarily due to higher unit volume and a partial recovery
of higher raw material and energy costs through increased pricing. Urethane
sales increased 12% due primarily to greater industry demand, particularly in
the recreation market. Operating profit of $17.3 million was 8% above the third
quarter of 1999 primarily due to increased sales, partially offset by higher raw
material and energy costs.
Polymer processing equipment sales of $82.5 million rose 34% from the third
quarter of 1999 due primarily to greater unit volume. Operating profit of $7.9
million increased approximately threefold from the prior year due primarily to
higher sales. Backlog at the end of September was $113 million, unchanged from
the end of 1999.
Specialty Products
OrganoSilicones sales of $119.0 million increased 4% from an adjusted $114.7
million in the third quarter of 1999. The increase was due to greater unit
volume attributable to industry wide growth and increased market share,
partially offset by lower foreign currency translation of 3%. Operating profit
of $19.4 million was up 76% from an adjusted $11.0 million in the third quarter
of 1999 mainly due to higher sales and lower operating costs.
Crop protection sales of $91.4 million declined 8% from adjusted third quarter
1999 sales of $99.4 million, of which 2% was due to lower foreign currency
translation. Actives and surfactants sales were both down primarily as a result
of lower unit volume and unfavorable foreign currency translation. Operating
profit of $14.3 million was 6% below an adjusted $15.3 million in the third
quarter of 1999 due primarily to the decline in sales, offset in part by lower
operating costs.
Other sales of $127.9 million declined 7% from adjusted third quarter 1999 sales
of $137.6 million. Petroleum additives sales decreased 12% due to lower unit
volume primarily attributable to the rationalization of lower margin business
associated with the shutdown of the Gretna plant. Refined products sales were
down 2% as lower unit volume more than offset higher selling prices (which
partially offset increased raw material costs). Industrial Colors and
Glycerine/fatty acids sales declined 7% and 11%, respectively, mainly due to
lower unit volume. Operating profit of $6.6 million was 51% higher than
adjusted 1999 operating profit of $4.4 million primarily as a result of reduced
operating costs.
Other
Selling, general and administrative expenses of $95.7 million increased $16.1
million, or 20%, versus the third quarter of 1999 primarily as a result of the
inclusion of a full quarter of Witco operations. This increase was partially
offset by a $4.8 million credit attributable to the reversal of performance
based compensation costs recorded in prior quarters. Depreciation and
amortization (up 49%) and research and development costs (up 26%) also increased
primarily as a result of the inclusion of a full quarter of Witco operations.
Interest expense of $30.9 million increased 76% primarily as a result of the
inclusion of a full quarter of Witco operations. The effective tax rate of
31.5% decreased from 37.5%, excluding the impact of acquired IPR&D in 1999,
primarily due to an effective tax rate adjustment in the third quarter of 2000
that reduced the effective tax rate for the nine months of 2000 to 37%.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales of $2,310.4 million for the first nine months of 2000
increased $1,004.5 million from the comparable period in 1999. After adjusting
1999 net sales to exclude $116 million from the divestiture of the textile
colors business, and to include $1,148.7 million from Witco continuing
operations for the first eight months of 1999, net sales decreased 1%. This
decrease was primarily the result of negative foreign currency impact, mainly
the Euro. International sales, including U.S. exports, were 46% of total sales,
up from 43% in the first nine months of 1999. After adjusting international
sales for the first nine months of 1999 to include Witco sales for the first
eight months of 1999, international sales, including U.S. exports, decreased 1%
in 2000.
Net earnings for the first nine months were $92.8 million, or $0.81 per common
share diluted, as compared to a net loss of $84.0 million, or $1.17 per common
share diluted, in the first nine months of 1999. Net earnings before after-tax
special items were $92.8 million, or $0.81 per common share diluted, as compared
to $85.4 million, or $1.19 per common share diluted, in the first nine months of
1999.
Gross margin as a percentage of sales was 32.5% for the first nine months of
2000 as compared to 36.8% for the first nine months of 1999. The decrease was
primarily due to the impact of including Witco operations for the entire nine
months of 2000, the increase in raw material and energy costs and an unfavorable
foreign currency impact. Consolidated operating profit, excluding the $195
million charge for acquired IPR&D in 1999, increased 32.2% versus the first nine
months of 1999. After adjusting 1999 operating profit to exclude $7.9 million
from the divestiture of the textile colors business and to include $62.4 million
from Witco continuing operations for the first eight months of 1999, operating
profit before special items increased less than 2%.
Nine months ended
(In thousands)
Witco
Continuing
Operations
1999 (January Textile 1999
As through Colors As
2000 Reported August) Business Adjusted
Polymer Products
Polymer Additives $ 748,952 $ 351,984 $ 430,440 $ - $ 782,424
Polymers 249,355 230,613 - - 230,613
Polymer Processing
Equipment 231,594 231,724 - - 231,724
Eliminations (10,195) (981) - - (981)
1,219,706 813,340 430,440 - 1,243,780
Specialty Products
OrganoSilicones 367,734 38,331 306,630 - 344,961
Crop Protection 330,706 221,050 116,438 - 337,488
Other 392,214 233,174 295,164 (115,983) 412,355
1,090,654 492,555 718,232 (115,983) 1,094,804
Total Net Sales $2,310,360 $1,305,895 $1,148,672 $ (115,983) $2,338,584
Operating Profit
Polymer Products
Polymer Additives $ 63,176 $ 42,729 $ 34,164 $ - $ 76,893
Polymers 55,907 61,879 - - 61,879
Polymer Processing
Equipment 20,090 18,899 - - 18,899
139,173 123,507 34,164 - 157,671
Specialty Products
OrganoSilicones 66,664 4,267 40,055 - 44,322
Crop Protection 74,690 68,953 13,411 - 82,364
Other 22,149 19,495 10,264 (7,898) 21,861
163,503 92,715 63,730 (7,898) 148,547
General corporate
expense, including
amortization (61,502) (33,730) (35,467) - (69,197)
Total operating
profit before
special items 241,174 182,492 62,427 (7,898) 237,021
Acquired in-process
research and
development - (195,000) - - (195,000)
Total Operating
Profit (Loss) $ 241,174 $ (12,508) $ 62,427 $ (7,898) $ 42,021
Polymer Products
Polymer additives sales of $749.0 million were down 4% from an adjusted $782.4
million for the first nine months of 1999, of which 3% was due to an unfavorable
foreign currency translation. Plastic additives sales declined 5% primarily
due to a lower foreign currency translation of 4%. Rubber chemicals sales were
down 2% due to lower pricing and a 1% negative foreign currency translation,
partially offset by higher unit volume. Urethane chemicals sales decreased 7%
mainly as a result of a 3% adverse foreign currency translation and lower unit
volume (due primarily to the rationalization of lower margin business).
Operating profit of $63.2 million declined 18% from an adjusted $76.9 million
for the first nine months of 1999 primarily due to lower rubber chemicals
selling prices and higher raw material and energy costs.
Polymer sales of $249.4 million rose 8% from $230.6 million for the first nine
months of 1999. EPDM sales increased 6% mainly as a result of higher unit
volume and a partial recovery of increased raw material and energy costs through
higher pricing. Urethane sales rose 11% mainly due to an industry wide increase
in demand, particularly in the recreation market. Operating profit of $55.9
million was 10% lower than the prior year mainly due to higher raw material and
energy costs, partially offset by the impact of increased sales.
Polymer processing equipment sales of $231.6 million were relatively unchanged
from $231.7 million for the first nine months of 1999. An increase in unit
volume was offset by a 3% unfavorable foreign currency translation. Operating
profit of $20.1 million increased 6% over the first nine months of 1999 mainly
due to an increase in unit sales volume.
Specialty Products
OrganoSilicones sales of $367.7 million increased 7% from adjusted sales of
$345.0 million for the first nine months of 1999. The growth was primarily due
to an increase in industry demand and a greater market share, partially offset
by a 2% lower foreign currency translation. Operating profit of $66.7 million
was up 50% from an adjusted $44.3 million for the first nine months of 1999
primarily due to higher unit sales volume and lower costs.
Crop protection sales of $330.7 million were 2% behind an adjusted $337.5
million for the first nine months of 1999. The decline was mainly due to an
adverse foreign currency translation of 1% and an unfavorable product mix.
Operating profit of $74.7 million declined 9% from an adjusted $82.4 million
for the first nine months of 1999 mainly due to higher raw material costs and
an unfavorable product sales mix.
Other sales of $392.2 million decreased 5% from an adjusted $412.4 million for
the first nine months of 1999. Petroleum additives sales were down 7% due to
lower unit volume mainly associated with the closure of the Gretna plant.
Refined products sales declined 3% of which 2% was attributable to lower foreign
currency translation. Industrial Colors and Glycerin/fatty acids sales
decreased 4% and 6% respectively, due to lower selling prices and reduced unit
volume. Operating profit of $22.1 million was up 1% from an adjusted $21.9
million for the first nine months of 1999 mainly due to reduced operating costs,
partially offset by higher raw material and energy costs and lower sales.
Other
Selling, general and administrative expenses of $318.5 million increased 59%
versus the first nine months of 1999 primarily as a result of the inclusion of
an additional eight months of Witco operations. Depreciation and amortization
(up 100%) and research and development costs (up 70%) also increased primarily
as a result of the inclusion of an additional eight months of Witco operations.
Interest expense of $88.8 million increased 103% primarily as a result of the
inclusion of Witco operations. Other expense of $5.1 million increased 19% from
1999, after excluding the gain of $42.1 million from the divestiture of the
specialty ingredients business, primarily due to the inclusion of an additional
eight months of Witco operations. The effective tax rate of 37.0% increased
slightly from 36.4%, excluding the impact of acquired IPR&D in 1999, for the
first nine months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The September 30, 2000 working capital balance of $377.4 million increased
$235.6 million from the year-end 1999 balance of $141.8 million, and the current
ratio increased to 1.52 from 1.14. The increases in working capital and the
current ratio were primarily due to the decrease in total current liabilities,
including accrued expenses, accounts payable and short-term borrowings. Days
sales in receivables increased to 48 days for the first nine months of 2000,
versus 44 days for the first nine months of 1999, mainly due to the inclusion of
an additional eight months of Witco operations. Inventory turnover increased to
3.7, compared to 3.1 for the same period of 1999, primarily the result of
including an additional eight months of Witco operations.
Net cash provided by operations of $112.6 million increased $84.0 million from
the net cash provided by operations of $28.6 million in the first nine months of
1999, mainly due to a $48.2 million income tax payment in 1999 related to the
1998 Gustafson gain, and the inclusion of an additional eight months of Witco
operations in 2000. Cash provided by operations and the proceeds from the
issuance of the 8.5% Senior Notes were used primarily to reduce borrowings under
the Company's revolving credit agreements, finance capital expenditures, pay
merger costs, repurchase common shares, make dividend payments and repurchase
accounts receivable under the Company's accounts receivable programs. The
Company's debt to total capital ratio increased to 67% from 65% at year-end
1999. The Company's future liquidity needs are expected to be financed from
operations.
On March 7, 2000, the Company issued $600 million of Senior Notes due 2005 with
a coupon rate of 8.5%. Effective March 24, 2000, the Company swapped $300
million of this amount into a variable interest rate contract (three month LIBOR
plus fixed spread of 1.2225%) that expires on March 15, 2005. The rate on the
swap contract was 7.9% at September 30, 2000. On June 9, 2000, the Company
exchanged the $600 million Senior Notes, which were not registered with the
Securities and Exchange Commission for public trading, for identical securities
that are registered.
On March 10, 2000, the Company amended the amount of its $1 billion senior
unsecured revolving credit facility to $600 million. Of this amount, $200
million is available through October 2000 and $400 million through October 2004.
On October 26, 2000, the Company renewed $192 million of its $200 million
facility, which will be available through October 2001. Borrowings on these
facilities are at various rate options to be determined on the date of
borrowing. Borrowings under these agreements amounted to $265 million at
September 30, 2000 and carried a weighted average interest rate of 7.4%.
In addition, the Company has available accounts receivable securitization
programs to sell up to $182 million of domestic accounts receivable to agent
banks. As of September 30, 2000, $151.8 million of domestic accounts receivable
had been sold under these programs.
On April 19, 2000, the Company announced that it was exploring strategic
alternatives, including the possible sale, for its Refined Products business.
On May 22, 2000, the Company announced that it was in preliminary discussions
with a select group of strategic buyers for the sale of its Industrial
Specialties business. The Company has made progress with respect to both
divestitures, albeit at a slower pace than originally anticipated. The Company
expects the divestitures to be completed early in 2001, with the proceeds used
to pay down debt and to repurchase common shares.
In November 1999, the Board of Directors approved a share repurchase program for
10% of the common shares then outstanding, or approximately 11.9 million shares.
During the first nine months of 2000, the Company repurchased 3.9 million common
shares, and from November 1999 to date, has repurchased 6.8 million shares at an
average price of $11.91 per share.
Capital expenditures for the first nine months of 2000 amounted to $108.1
million as compared to $65.4 million during the same period of 1999. The
increase is primarily due to the inclusion of an additional eight months of
Witco operations. Capital expenditures are expected to approximate $160 million
in 2000, primarily related to the Company's replacement needs and expansion and
improvement of domestic and foreign facilities.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" which delays the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued SFAS No. 138 "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" which amends some of the provisions of SFAS 133.
While the impact of these pronouncements is dependent on the fair value of our
derivatives and related financial instruments on the date of adoption, it is
not expected to have a material impact on the earnings and financial position
of the Company. The Company will adopt the provisions of SFAS 133 and SFAS
138 on January 1, 2001.
ENVIRONMENTAL MATTERS
The Company is involved in claims, litigation, administrative proceedings and
investigations of various types in a number of jurisdictions. A number of such
matters involve claims for a material amount of damages and relate to or allege
environmental liabilities, including clean-up costs associated with hazardous
waste disposal sites, natural resource damages, property damage and personal
injury. The Company and some of its subsidiaries have been identified by
federal, state or local governmental agencies, and by other potentially
responsible parties (PRP) under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or comparable state
statutes, as a PRP with respect to costs associated with waste disposal sites at
various locations in the United States. In addition, the Company is involved
with environmental remediation and compliance activities at some of its current
and former sites in the United States and abroad.
The Company continually evaluates and reviews estimates for future remediation
and other costs to determine appropriate environmental reserve amounts. For
each site, a determination is made of the specific measures that are believed to
be required to remediate the site, the estimated total cost to carry out the
remediation plan, the portion of the total remediation costs to be borne by the
Company and the anticipated time frame over which payments toward the
remediation plan will occur. As of September 30, 2000, the Company's reserves
for environmental remediation activities totaled $176.5 million. It is
reasonably possible that the Company's estimates for environmental remediation
liabilities may change in the future should additional sites be identified,
further remediation measures be required or undertaken, the interpretation of
current laws and regulations be modified or additional environmental laws and
regulations be enacted.
The Company intends to assert all meritorious legal defenses and all other
equitable factors which are available to it with respect to the above matters.
The Company believes that the resolution of these environmental matters will not
have a material adverse effect on its consolidated financial position or
liquidity. While the Company believes it is unlikely, the resolution of these
environmental matters could have a material adverse effect on the Company's
consolidated results of operations or cash flows in any given year if a
significant number of these matters are resolved unfavorably.
EURO CONVERSION
On January 1, 1999, certain member countries of the European Union adopted the
Euro as their common legal currency. Between January 1, 1999 and July 1, 2002,
transactions may be conducted in either the Euro or the participating countries
national currency. However, by July 1, 2002, the participating countries will
withdraw their national currency as legal tender and complete the conversion to
the Euro.
The Company conducts business in Europe and does not expect the conversion to
the Euro to have an adverse effect on its competitive position or consolidated
financial position.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-Q are forward looking statements that
involve risks and uncertainties. These statements are based on currently
available information and the Company's actual results may differ significantly
from the results discussed. Investors are cautioned that there can be no
assurances that the actual results will not differ materially from those
suggested in such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Refer to the Market Risk & Risk Management Policies section of Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's annual report on Form 10-K for the year ended December
31, 1999.
The fair market value of long-term debt is subject to interest rate risk. The
Company's long-term debt amounted to $1,483.4 million at September 30, 2000.
The fair market value of such debt was $1,495.4 million, and with respect to
notes, has been determined based on quoted market prices.
On March 7, 2000, the Company issued $600 million of Senior Notes due 2005 with
a coupon rate of 8.5%. Effective March 24, 2000, the Company swapped $300
million of this amount into a variable interest rate contract (three month LIBOR
plus fixed spread of 1.2225%) that expires on March 15, 2005. The rate on the
swap contract was 7.9% at September 30, 2000.
There have been no other significant changes in market risk since December 31,
1999.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
27* Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
* Copies of these Exhibits are annexed to this report on Form 10-Q provided to
the Securities and Exchange Commission.
CROMPTON CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROMPTON CORPORATION
(Registrant)
/s/ Peter Barna
Date: November 13, 2000 Peter Barna
Senior Vice President and
Chief Financial Officer
/s/ Barry J. Shainman
Date: November 13, 2000 Barry J. Shainman
Secretary
