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 June 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 July 31, 2000
Common Stock - $.01 par value 113,913,742
CROMPTON CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Accompanying Notes
Consolidated Statements of Operations (Unaudited) - Second
quarter and six months ended 2000 and 1999 2
Consolidated Balance Sheets - June 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Cash Flows (Unaudited) - Six
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 8
Item 3. Quantitative and Qualitative Disclosure of Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
CROMPTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Second quarter and six months ended 2000 and 1999
(In thousands of dollars, except per share data)
Second quarter ended Six months ended
2000 1999 2000 1999
Net sales $ 802,886 $ 409,174 $ 1,571,904 $ 805,466
Cost of products sold 530,794 248,582 1,048,510 495,877
Selling, general and
administrative 110,302 60,066 222,746 120,656
Depreciation and amortization 44,920 18,666 90,684 37,503
Research and development 23,094 11,278 45,536 22,586
Equity income (3,989) (2,379) (11,534) (9,434)
Operating profit 97,765 72,961 175,962 138,278
Interest expense 29,674 12,953 57,895 26,107
Other expense (income) (a) 924 451 2,273 (40,255)
Earnings before income taxes
and extraordinary loss 67,167 59,557 115,794 152,426
Income taxes 25,626 21,588 44,580 55,254
Earnings before extraordinary
loss 41,541 37,969 71,214 97,172
Extraordinary loss on early
extinguishment of debt - (1,085) - (1,085)
Net earnings $ 41,541 $ 36,884 $ 71,214 $ 96,087
Basic earnings per common share:
Earnings before
extraordinary loss $ .36 $ .58 $ .62 $ 1.46
Extraordinary loss - (.02) - (.02)
Net earnings $ .36 $ .56 $ .62 $ 1.44
Diluted earnings per common share:
Earnings before
extraordinary loss $ .36 $ .57 $ .62 $ 1.43
Extraordinary loss - (.02) - (.02)
Net earnings $ .36 $ .55 $ .62 $ 1.41
Dividends declared per
common share $ .05 $ .05 $ .10 $ .05
(a) The six 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
June 30, 2000 (Unaudited) and December 31, 1999
(In thousands of dollars)
June 30, December 31,
2000 1999
ASSETS
CURRENT ASSETS
Cash $ 12,981 $ 10,543
Accounts receivable 438,841 411,536
Inventories 571,447 523,363
Other current assets 145,168 174,311
Total current assets 1,168,437 1,119,753
NON-CURRENT ASSETS
Property, plant and equipment 1,224,164 1,262,345
Cost in excess of acquired net assets 952,031 969,625
Other assets 365,163 374,895
$ 3,709,795 $ 3,726,618
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 56,071 $ 81,162
Accounts payable 279,447 330,591
Accrued expenses 374,587 422,252
Income taxes payable 129,672 121,366
Other current liabilities 27,987 22,599
Total current liabilities 867,764 977,970
NON-CURRENT LIABILITIES
Long-term debt 1,454,821 1,309,812
Postretirement health care liability 213,215 216,797
Other liabilities 404,272 462,127
STOCKHOLDERS' EQUITY
Common stock 1,194 1,191
Additional paid-in capital 1,051,648 1,047,518
Accumulated deficit (140,578) (200,374)
Accumulated other comprehensive income (73,110) (61,238)
Treasury stock at cost (69,431) (27,185)
Total stockholders' equity 769,723 759,912
$ 3,709,795 $ 3,726,618
See accompanying notes to consolidated financial statements.
CROMPTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six months ended 2000 and 1999
(In thousands of dollars)
Increase (decrease) in cash 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 71,214 $ 96,087
Adjustments to reconcile net earnings to net
cash provided by (used in) operations:
Gain on sale of specialty ingredients - (42,060)
Extraordinary loss on early debt
extinguishment - 1,085
Depreciation and amortization 90,684 37,503
Equity income (11,534) (9,434)
Changes in assets and liabilities, net (67,378) (85,078)
Net cash provided by (used in) operations 82,986 (1,897)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of specialty ingredients - 103,000
Capital expenditures (68,030) (34,078)
Merger related expenditures (45,244) -
Other investing activities (24,553) (3,100)
Net cash (used in) provided by investing
activities (137,827) 65,822
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on senior notes 593,754 -
(Payments) proceeds on long-term borrowings (446,594) 22,118
Payments on short-term borrowings (26,273) (1,978)
Repurchases of accounts receivable (12,928) -
Treasury stock acquired (43,464) (74,596)
Dividends paid (11,418) (3,272)
Other financing activities 4,428 (4,558)
Net cash provided by (used in) financing
activities 57,505 (62,286)
CASH
Effects of exchange rate changes on cash (226) 500
Change in cash 2,438 2,139
Cash at the beginning of period 10,543 12,104
Cash at the end of period $ 12,981 $ 14,243
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 $834 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 six months of 2000, these accruals were reduced by payments
of $45.2 million and non-cash charges of $7.4 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 six months of
2000, payments of $3.7 million were made against these other accruals.
PRO FORMA FINANCIAL INFORMATION
The following pro forma unaudited results of operations for the second quarter
and six months ended 1999 assumes the Merger had been consummated as of
January 1, 1999.
(In thousands of dollars,
except per share data) 1999
Second quarter Six months
Net sales $ 917,348 $ 1,808,414
Net earnings $ 46,730 $ 113,703
Net earnings per common share: Basic $ 0.39 $ 0.95
Net earnings per common share: Diluted $ 0.39 $ 0.94
Weighted average shares outstanding: Basic 118,952 120,066
Weighted average shares outstanding: Diluted 120,098 121,388
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 $26.2
million at June 30, 2000 and $23.4 million at December 31, 1999.
Accumulated depreciation amounted to $487.6 million at June 30, 2000 and
$448.3 million at December 31, 1999.
Accumulated amortization of cost in excess of acquired net assets amounted to
$61.1 million at June 30, 2000 and $49.4 million at December 31, 1999.
Accumulated amortization of patents, trademarks and other intangibles included
in other assets amounted to $141.8 million at June 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 June 30, 2000, there were 119,372,359 common shares issued and
113,907,554 common shares outstanding at $.01 par value.
INVENTORIES
Components of inventories are as follows:
(In thousands) June 30, December 31,
2000 1999
Finished goods $ 440,940 $ 410,513
Work in process 29,318 27,394
Raw materials and supplies 101,189 85,456
$ 571,447 $ 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) Second quarter ended Six months ended
2000 1999 2000 1999
Weighted average common
shares outstanding 113,884 65,488 114,109 66,603
Effect of dilutive stock
options and other equivalents 1,316 1,147 1,565 1,322
Weighted average common
and common equivalent
shares outstanding 115,200 66,635 115,674 67,925
COMPREHENSIVE INCOME (LOSS)
An analysis of the Company's comprehensive income follows:
(In thousands) Second quarter ended Six months ended
2000 1999 2000 1999
Net earnings $ 41,541 $ 36,884 $ 71,214 $ 96,087
Other comprehensive income
(expense):
Foreign currency translation
adjustments (413) (262) (11,943) (12,166)
Other 36 - 71 -
Comprehensive income $ 41,164 $ 36,622 $ 59,342 $ 83,921
The components of accumulated other comprehensive income (loss) at June 30,
2000 and December 31, 1999 are as follows:
June 30, December 31,
(In thousands) 2000 1999
Foreign currency translation adjustments $ (71,545) $ (59,602)
Other (1,565) (1,636)
Accumulated other comprehensive income (loss) $ (73,110) $ (61,238)
BUSINESS SEGMENT DATA
(In thousands) Second quarter ended Six months ended
2000 1999 2000 1999
Net Sales
Polymer Products
Polymer Additives $ 252,665 $ 99,426 $ 510,498 $ 199,171
Polymers 85,899 79,410 167,315 158,145
Polymer Processing Equipment 80,049 82,092 149,130 170,239
Eliminations (3,885) - (7,429) -
414,728 260,928 819,514 527,555
Specialty Products
OrganoSilicones 121,655 - 248,690 -
Crop Protection 133,882 81,340 239,344 147,058
Other 132,621 66,906 264,356 130,853
388,158 148,246 752,390 277,911
Total Net Sales $ 802,886 $ 409,174 $1,571,904 $ 805,466
Operating Profit
Polymer Products
Polymer Additives $ 21,956 $ 13,085 $ 44,293 $ 25,562
Polymers 19,253 23,587 38,572 45,890
Polymer Processing Equipment 7,936 5,732 12,188 16,901
49,145 42,404 95,053 88,353
Specialty Products
OrganoSilicones 25,538 - 47,306 -
Crop Protection 36,385 31,146 60,362 54,283
Other 8,524 8,326 15,558 15,273
70,447 39,472 123,226 69,556
General corporate expense,
including amortization (21,827) (8,915) (42,317) (19,631)
Total Operating Profit $ 97,765 $ 72,961 $ 175,962 $ 138,278
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND QUARTER RESULTS
Overview
Consolidated net sales of $802.9 million for the second quarter of 2000
increased $393.7 million from the comparable period in 1999. After adjusting
1999 net sales to exclude $41.2 million from the divestiture of the textile
colors business, and to include $440.7 million from Witco continuing
operations for the second quarter of 1999, net sales decreased 1%. This
decrease is primarily the result of continued negative foreign currency
impact, mainly the Euro. International sales, including U.S. exports, were
43% of total sales, up from 42% in the second quarter of 1999.
Net earnings for the second quarter were $41.5 million, or $0.36 per common
share diluted, as compared to net earnings of $36.9 million, or $0.55 per
common share diluted, in the second quarter of 1999. Earnings before the
extraordinary loss on early extinguishment of debt were $41.5 million, or
$0.36 per common share diluted, as compared to $38 million, or $0.57 per
common share diluted, in the second quarter of 1999.
Gross margin as a percentage of sales was 33.9% for the second quarter of 2000
as compared to 39.2% for the second quarter of 1999. The decrease is
primarily due to the impact of including Witco results, and the increase in
raw material and energy costs. Consolidated operating profit of $97.8 million
increased 34% versus the second quarter of 1999. The increase in operating
profit is primarily due to the inclusion of Witco results of $33.7 million,
offset by a $3.8 million decrease due to the divestiture of the textile colors
business.
Second quarter ended
(In thousands) 1999
Witco Textile
As Continuing Colors As
2000 Reported Operations Business Adjusted
Net Sales
Polymer Products
Polymer Additives $ 252,665 $ 99,426 $ 163,652 $ - $ 263,078
Polymers 85,899 79,410 - - 79,410
Polymer Processing
Equipment 80,049 82,092 - - 82,092
Eliminations (3,885) - - - -
414,728 260,928 163,652 - 424,580
Specialty Products
OrganoSilicones 121,655 - 115,248 - 115,248
Crop Protection 133,882 81,340 48,537 - 129,877
Other 132,621 66,906 113,224 (41,187) 138,943
388,158 148,246 277,009 (41,187) 384,068
Total Net Sales $ 802,886 $ 409,174 $ 440,661 $ (41,187) $ 808,648
Second quarter ended
(In thousands) 1999
Witco Textile
As Continuing Colors As
2000 Reported Operations Business Adjusted
Operating Profit
Polymer Products
Polymer Additives $ 21,956 $ 13,085 $ 15,272 $ - $ 28,357
Polymers 19,253 23,587 - - 23,587
Polymer Processing
Equipment 7,936 5,732 - - 5,732
49,145 42,404 15,272 - 57,676
Specialty Products
OrganoSilicones 25,538 - 17,386 - 17,386
Crop Protection 36,385 31,146 7,849 - 38,995
Other 8,524 8,326 4,914 (3,759) 9,481
70,447 39,472 30,149 (3,759) 65,862
General corporate expense,
including amortization (21,827) (8,915) (11,696) - (20,611)
Total Operating Profit $ 97,765 $ 72,961 $ 33,725 $ (3,759) $102,927
Polymer Products
Polymer additives sales of $252.7 million declined 4%, of which 3% was due to
lower foreign currency translation, from an adjusted $263.1 million in the
second quarter of 1999. Plastic additives sales decreased 5% primarily due to
lower foreign currency translation. Rubber chemicals sales rose 1% despite
lower pricing of 7%. Urethane chemicals sales declined 7% primarily due to
lower unit volume. Operating profit of $22 million declined 23% from an
adjusted $28.4 million in 1999 primarily due to the impact of lower selling
prices, lower foreign currency translation and increased raw material and
energy costs.
Polymers sales of $85.9 million rose 8% from $79.4 million in the second
quarter of last year. EPDM sales were 3% ahead of the prior year primarily
due to higher selling prices. Urethane sales rose 15% primarily due to
increased demand, reflecting a recovery from the industry wide slowdown
experienced in 1999 and continued growth in golf ball applications. Operating
profit of $19.3 million was 18% lower than the $23.6 million in the second
quarter of 1999 primarily due to higher EPDM raw material and energy costs not
fully recovered in selling prices.
Polymer processing equipment sales of $80 million declined 2% from $82.1
million in the second quarter of 1999. Although sales were down slightly from
the prior year, the strength of our orders and backlog indicates that the
plastics machinery market is recovering from the down cycle experienced over
the last year. Operating profit of $7.9 million increased 38% from the prior
year primarily as a result of lower operating costs and improved product mix.
Backlog at the end of June was $131 million, up 16% from the end of 1999.
Specialty Products
OrganoSilicones sales of $121.7 million were 6% ahead of adjusted sales of
$115.2 million in the second quarter of 1999. Increased demand in all major
markets contributed to the growth, which was partially offset by 2% lower
foreign currency translation. Operating profit of $25.5 million was up 47%
from an adjusted $17.4 million in the second quarter of 1999 due primarily to
improved volume and cost reductions.
Crop protection sales of $133.9 million increased 3% from second quarter 1999
adjusted sales of $129.9 million. The increase was due primarily to higher
surfactants sales (up 15%) offset in part by lower sales in actives (down 4%).
Operating profit of $36.4 million was 7% below an adjusted $39 million in the
second quarter of 1999 primarily due to higher costs and product mix.
Other sales of $132.6 million declined 5% from second quarter 1999 adjusted
sales of $138.9 million. Petroleum additives sales were down 7% primarily due
to lower volume, much of which was associated with the closure of the Gretna
manufacturing facility. Refined products sales declined 2%, of which a half
was due to lower foreign currency translation. Industrial colors sales were
down 11% mainly due to weakness in the paper and pulp markets.
Glycerine/fatty acids sales declined 3% due to lower prices, partially offset
by improved unit volume. Operating profit of $8.5 million was 10% lower than
the adjusted $9.5 million in the second quarter of 1999 primarily due to lower
volume and higher raw material and energy costs.
Other
Selling, general and administrative expenses of $110.3 million increased 84%
versus the second quarter of 1999 primarily due to the inclusion of Witco
operations, partially offset by the impact of the divestiture of the textile
colors business. Depreciation and amortization (up 141%) and research and
development costs (up 105%) also increased primarily as a result of the
inclusion of Witco operations. Interest expense of $29.7 million increased
129% as a result of the increase in debt, which is primarily due to the
inclusion of Witco operations. The effective tax rate of 38.2% increased from
36.2% in the comparable quarter of 1999, primarily due to the inclusion of
Witco operations.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales of $1,571.9 million for the first six months of 2000
increased $766.4 million from the comparable period in 1999. After adjusting
1999 net sales to exclude $79.9 million from the divestiture of the textile
colors business, and to include $867.4 million from Witco continuing
operations for the first six months of 1999, net sales decreased 1%. This
decrease is primarily the result of lower sales in the Polymer Processing
Equipment business and negative foreign currency impact, mainly the Euro.
International sales, including U.S. exports, were 45% of total sales, up from
43% in the first six months of 1999.
Net earnings for the first six months were $71.2 million, or $0.62 per common
share diluted, as compared to net earnings of $96.1 million, or $1.41 per
common share diluted, in the first six months of 1999. Earnings before
after-tax special items were $71.2 million, or $0.62 per common share diluted,
as compared with $70.4 million, or $1.04 per common share diluted, in the
first six months of 1999.
Gross margin as a percentage of sales was 33.3% for the first six months of
2000 as compared to 38.4% for the first six months of 1999. The decrease is
primarily due to the impact of including Witco results, and the increase in
raw material and energy costs. Consolidated operating profit of $176 million
increased 27.3% versus the first six months of 1999. The increase in
operating profit is primarily due to the inclusion of Witco results of $55.9
million, offset by a $7.4 million decrease due to the divestiture of the
textile colors business.
Six months ended
(In thousands) 1999
Witco Textile
As Continuing Colors As
2000 Reported Operations Business Adjusted
Net Sales
Polymer Products
Polymer Additives $ 510,498 $ 199,171 $ 322,229 $ - $ 521,400
Polymers 167,315 158,145 - - 158,145
Polymer Processing
Equipment 149,130 170,239 - - 170,239
Eliminations (7,429) - - - -
819,514 527,555 322,229 - 849,784
Specialty Products
OrganoSilicones 248,690 - 230,237 - 230,237
Crop Protection 239,344 147,058 91,072 - 238,130
Other 264,356 130,853 223,837 (79,902) 274,788
752,390 277,911 545,146 (79,902) 743,155
Total Net Sales $ 1,571,904 $ 805,466 $ 867,375 $ (79,902) $1,592,939
Six months ended
(In thousands) 1999
Witco Textile
As Continuing Colors As
2000 Reported Operations Business Adjusted
Operating Profit
Polymer Products
Polymer Additives $ 44,293 $ 25,562 $ 25,559 $ - $ 51,121
Polymers 38,572 45,890 - - 45,890
Polymer Processing
Equipment 12,188 16,901 - - 16,901
95,053 88,353 25,559 - 113,912
Specialty Products
OrganoSilicones 47,306 - 33,349 - 33,349
Crop Protection 60,362 54,283 12,791 - 67,074
Other 15,558 15,273 9,642 (7,425) 17,490
123,226 69,556 55,782 (7,425) 117,913
General corporate expense,
including amortization (42,317) (19,631) (25,450) - (45,081)
Total Operating Profit $175,962 $ 138,278 $ 55,891 $ (7,425) $186,744
Polymer Products
Polymer additives sales of $510.5 million were down 2% from an adjusted $521.4
million for the first six months of 1999 primarily due to lower foreign
currency translation. Plastic additives sales declined 2% primarily due to
negative foreign currency of 4%, partially offset by continuing high demand
for PVC. Rubber chemicals sales decreased 3% primarily due to lower pricing.
Urethane chemicals sales declined 1% due to a 3% negative foreign currency
translation, partially offset by higher unit volume. Operating profit of
$44.3 million was 13% behind an adjusted $51.1 million for the first six
months of 1999 primarily due to lower rubber chemicals sales prices.
Polymer sales of $167.3 million increased 6% from $158.1 million for the first
six months of 1999. EPDM sales increased 2% primarily due to a partial
recovery of increased raw material and energy costs through higher pricing,
partially offset by a 1% negative foreign currency translation. Urethane
sales rose 11% due to a recovery from the prior year global market slowdown
and greater sales to golf ball manufacturers. Operating profit of $38.6
million was 16% behind the prior year primarily due to higher raw material and
energy costs and first quarter start up costs at our nitrile rubber joint
venture in Mexico.
Polymer processing equipment sales of $149.1 million decreased 12% from $170.2
million for the first six months of 1999. The decline was attributable to
lower first quarter demand and a 2% lower foreign currency translation.
Volume rose during the second quarter reflecting a recovery from the slowdown
in the plastics machinery market experienced over the last year. Operating
profit of $12.2 million was $4.7 million below the first six months of 1999
primarily due to lower sales volume, partially offset by lower operating
costs.
Specialty Products
OrganoSilicones sales of $248.7 million grew 8% from adjusted sales of $230.2
million for the first six months of 1999. Greater demand in key markets
including greentyre, automotive clearcoat and personal care drove the
increase, which was partially offset by a 2% negative foreign currency
translation. Operating profit of $47.3 million was 42% ahead of an adjusted
$33.3 million for the first six months of 1999 primarily due to greater sales
volume and lower costs.
Crop protection sales of $239.3 million rose 1% from an adjusted $238.1
million for the first six months of 1999. The increase was due to greater
demand for surfactants partially offset by lower actives unit volume.
Operating profit of $60.4 million declined 10% from an adjusted $67.1 million
for the prior year primarily due to higher raw material costs and an
unfavorable sales mix.
Other sales of $264.4 million declined 4% from an adjusted $274.8 million for
the first six months of 1999. Petroleum additives sales declined 5% due to
lower unit volume primarily attributable to the Gretna plant closure. Higher
prices which were reflective of increased raw material costs partially offset
the lower volume. Refined products sales decreased 3% of which 2% was
attributable to lower foreign currency translation. Industrial colors sales
were down 3% due to lower prices. Glycerine/fatty acids sales declined 4% due
to lower sales prices, partially offset by higher unit volume. Operating
profit of $15.6 million decreased 11% from an adjusted $17.5 million for the
first six months of 1999 primarily due to higher raw material and energy costs
and lower sales volume.
Other
Selling, general and administrative expenses of $222.7 million increased 85%
versus the first six months of 1999 primarily due to the inclusion of Witco
operations, partially offset by the impact of the divestiture of the textile
colors business. Depreciation and amortization (up 142%) and research and
development costs (up 102%) also increased primarily as a result of the
inclusion of Witco operations. Interest expense of $57.9 million increased
122% as a result of the increase in debt, which is primarily due to the
inclusion of Witco operations. Other expense of $2.3 million increased 26%
from 1999, after excluding the gain of $42.1 million from the divestiture of
the specialty ingredients business, primarily due to the inclusion of Witco
operations. The effective tax rate of 38.5% increased from 36.2% in the
comparable period of 1999, primarily due to the inclusion of Witco operations.
LIQUIDITY AND CAPITAL RESOURCES
The June 30, 2000 working capital balance of $300.7 million increased $158.9
million from the year-end 1999 balance of $141.8 million, and the current
ratio increased to 1.35 from 1.14. The increases in working capital and the
current ratio were primarily due to the decrease in total current liabilities,
including short-term borrowings, and increases in accounts receivable and
inventories. Days sales in receivables increased to 48 days for the first six
months of 2000, versus 43 days for the first six months of 1999, mainly due to
the inclusion of Witco operations. Inventory turnover increased to 3.8,
compared to 3.0 for the same period of 1999, primarily the result of including
Witco operations.
Net cash provided by operations of $83 million increased $84.9 million from
the net cash used in operations of $1.9 million in the first half of 1999,
mainly due to a $48.2 million income tax payment in 1999 related to the 1998
Gustafson gain, and the inclusion 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, make dividend
payments and repurchase accounts receivable under the Company's accounts
receivable programs. The Company's debt to total capital ratio increased to
66% from 65% at year-end 1999, primarily as a result of the repurchase of
common shares. 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 8% at June 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. Borrowings on these facilities are at various rate options to be
determined on the date of borrowing. Borrowings under these agreements
amounted to $235 million at June 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 June 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 expects the divestitures of these businesses
to be completed by the end of the year, 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 half of 2000, the Company repurchased 3.3 million
common shares, and from November 1999 to date, has repurchased 5.5 million
shares at an average price of $12.70 per share.
Capital expenditures for the first six months of 2000 amounted to $68 million
as compared to $34.1 million during the same period of 1999. The increase is
primarily due to the Merger. Capital expenditures are expected to approximate
$175 million in 2000, primarily related to the Company's replacement needs 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 FASB 133. The Company plans to adopt the provisions of SFAS 133
and SFAS 138 in the first quarter of 2001. The Company is in the process of
determining what the effect of SFAS 133 and SFAS 138 will be on earnings and
financial position.
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 June 30, 2000, the Company's reserves for
environmental remediation activities totaled $182.8 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 $1,454.8 million at June 30, 2000. The
fair market value of such debt was $1,454.6 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 8.0% at June 30, 2000.
There have been no other significant changes in market risk since December 31,
1999.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On July 27, 2000, the Registrant signed a Consent Agreement with the U.S.
Environmental Protection Agency agreeing to pay a $100,000 fine for alleged
violations, since corrected, of the Clean Water Act at its Petrolia,
Pennsylvania facility.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
4* Form of $600 Million of 8.50% Senior Notes due
2005, dated June 9, 2000, registered
for public trading with the Securities and
Exchange Commission and issued in exchange for
identical securities sold in March 2000, which
were not registered for public trading.
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/ Brian Dick
Date: August 11, 2000 Brian Dick
Vice President, Finance and
Chief Accounting Officer
/s/ Barry J. Shainman
Date: August 11, 2000 Barry J. Shainman
Secretary
