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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1994
Commission file number 1-6450
GREAT LAKES CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-1765035
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
ONE GREAT LAKES BOULEVARD
P. O. BOX 2200
WEST LAFAYETTE, INDIANA 47906
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 317-497-6100
___________________________
Not Applicable
________________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X
_____
No
_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
One Class - 69,696,362 Shares as of June 30, 1994
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Part 1 - Financial Statements
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
------- -----------
(thousands of dollars)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 214,085 $ 179,734
Accounts receivable, less allowance
of $8,312 (1993 - $7,088) 492,537 383,129
Inventories
Finished products 230,563 190,867
Raw materials 53,908 54,333
Supplies 31,612 29,862
---------- ----------
Total inventories 316,083 275,062
Prepaid Expenses 22,987 18,994
---------- ----------
Total current assets 1,045,692 856,919
Plant and Equipment 924,303 830,784
Less allowance for depreciation (394,844) (362,774)
---------- ----------
Net plant and equipment 529,459 468,010
Excess of Investment over Net Assets of
Subsidiaries Acquired 379,452 341,079
Investments in and Advances to
Unconsolidated Affiliates 192,889 185,789
Other Assets 53,757 49,067
---------- ----------
$2,201,249 $1,900,864
========== ==========
</TABLE>
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GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
------- -----------
(thousands of dollars)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ 11,502 $ 10,253
Accounts payable 171,100 136,957
Accrued expenses 138,536 92,612
Income taxes 126,007 109,746
Dividends payable 6,621 6,415
Current portion of long-term debt 55,506 11,757
---------- ----------
Total current liabilities 509,272 367,740
Long-Term Debt, less Current Portion 164,279 61,041
Other Non-Current Liabilities 131,675 123,618
Deferred Income Taxes 78,097 73,298
Minority Interest 20,976 18,604
Stockholders' Equity
Common stock, $1 par value, authorized
200,000,000 shares, issued
71,931,962 shares
(1993 - 71,817,996 shares) 71,932 71,818
Paid-in capital 109,266 107,268
Retained earnings 1,281,404 1,160,173
Cumulative translation adjustment (46,776) (54,563)
Treasury stock at cost 2,235,600 shares
(1993 - 543,200 shares) (118,876) (28,133)
---------- ----------
Total stockholders' equity 1,296,950 1,256,563
---------- ----------
$2,201,249 $1,900,864
========== ==========
</TABLE>
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GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ -------------------
1994 1993 1994 1993
------- ------- ------- ------
(In Thousands except Per Share Data)
<S> <C> <C> <C> <C>
Revenues
Net sales $525,893 $461,839 $974,569 $892,015
Equity in earnings
of affiliates and
other income 9,901 8,924 20,963 15,330
-------- -------- -------- --------
535,794 470,763 995,532 907,345
-------- -------- -------- --------
Costs and Expenses
Cost of products
sold 352,487 288,415 641,092 561,410
Selling, adminis-
trative and
research expenses 64,716 62,196 120,767 121,766
Interest and other
expenses 13,212 14,410 23,629 21,705
-------- -------- -------- --------
430,415 365,021 785,488 704,881
Income Before Taxes
and Minority
Interest 105,379 105,742 210,044 202,464
Minority Interest in
Income of
Subsidiaries 7,532 8,136 15,514 15,916
-------- -------- -------- --------
Income Before Taxes 97,847 97,606 194,530 186,548
Income Taxes 30,100 27,500 59,900 52,200
-------- -------- -------- --------
Net Income $ 67,747 $ 70,106 $134,630 $134,348
======== ======== ======== ========
Net Income per Share $ 0.96 $ 0.98 $ 1.90 $ 1.88
Average Shares
Outstanding 70,594 71,370 70,949 71,399
</TABLE>
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GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
---------------------
1994 1993
------ ------
(thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $134,630 $134,348
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 47,251 43,932
Unremitted earnings of affiliates (6,829) (3,453)
Changes in deferred items and other 3,282 (180)
-------- --------
Cash provided by operations
excluding changes in working capital 178,334 174,647
Changes in working capital other than
debt, net of effects from business
combinations (45,229) (55,056)
-------- --------
Net Cash Provided by Operating Activities 133,105 119,591
INVESTING ACTIVITIES
Plant and equipment additions (48,162) (34,797)
Business combinations, net of cash
acquired (110,544) (82,896)
Other 9,471 6,800
-------- --------
Net Cash Used in Investing Activities (149,235) (110,893)
FINANCING ACTIVITIES
Net repayment and borrowings under
short-term credit lines 70 (1,230)
Proceeds from long-term borrowings 42,663 6,287
Net increase in commercial paper
and other long-term obligations 105,557 36,316
Payments of other non-current
liabilities (254) (2,614)
Minority Interest 2,372 (2,642)
Repurchase of common stock (90,743) (11,212)
Cash dividends declared (13,399) (12,138)
-------- --------
Net Cash Provided by Financing Activities 46,266 12,767
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 4,215 (2,946)
-------- --------
Increase in Cash and Cash Equivalents 34,351 18,519
Cash and Cash Equivalents at
Beginning of Year 179,734 140,801
-------- --------
Cash and Cash Equivalents at End of
Period $214,085 $159,320
======== ========
</TABLE>
4
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GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position and
results of operations.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring accruals) have been made which are necessary for a fair
financial statement presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
Effective January 1, 1994, the Company adopted FAS No. 112 "Employers'
Accounting for Postemployment Benefits." Implementation of the standard
resulted in an after-tax charge of approximately $1 million.
For further information, refer to the consolidated financial statements and
footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 1993.
NOTE B - Income Taxes
The provision for income taxes at the effective tax rates reconciles with the
statutory U.S. Federal tax rate as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------
1994 1993
---- ----
<S> <C> <C>
Statutory U.S. Federal tax rate 35.0% 34.0%
Increase (decrease) in taxes resulting from:
FAS No. 109 --- (1.6)
Other (4.2) (4.4)
---- ----
30.8% 28.0%
==== ====
</TABLE>
The Company adopted FAS No. 109, "Accounting for Income Taxes" January 1, 1993.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE SIX MONTHS ENDED JUNE 30, 1994
RESULTS OF OPERATIONS
Revenues for the 1994 second quarter amounted to $536 million, an increase of
14% over the $471 million reported in 1993. Net income for the quarter was $68
million, or $0.96 per share, a 3% decrease from the $70 million, or $0.98 per
share, in 1993. For the six months, revenues amounted to $996 million, a 10%
increase over the $907 million reported in 1993. Net income of $135 million
improved slightly over the $134 million last year. Year-to-date net income per
share was $1.90 for 1994 compared to $1.88 for 1993.
Second quarter sales of $526 million increased $64 million, or 12.2%, over the
$462 million in the 1993 period. Year-to-date sales increased $83 million.
Comparative sales by product group are as follows (in millions):
<TABLE>
<CAPTION>
Second Quarter Year-to-Date
1994 1993 1994 1993
------ ------ ------- ------
<S> <C> <C> <C> <C>
Performance Chemicals $173 $151 $338 $294
Water Treatment 132 122 223 206
Petroleum Additives 130 135 251 270
Specialized Services and
Manufacturing 91 54 163 122
---- ---- ---- ----
$526 $462 $975 $892
==== ==== ==== ====
</TABLE>
The components of the sales increase are shown in the following table (in
millions):
<TABLE>
<CAPTION>
Second Year-to-
Quarter Date
------- --------
<S> <C> <C>
Selling Price $12 $27
Volume 38 34
Acquisitions 32 52
Divestitures (9) (17)
Foreign Exchange (9) (13)
--- ---
$64 $83
=== ===
</TABLE>
For the second quarter, selling price gains in Octel's alkyl lead antiknock
compound product line were offset in part by price competition in the
recreational water treatment area and by continued price erosion in
furfural-based products. All of the Company's businesses registered volume
improvements except Performance Chemicals due to the halting of Halon
production as of December 31, 1993. Major volume gains were achieved by the
Company's chemical trading business, Chemol, and in the
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recreational water treatment business.
Acquisitions reflected in the periods include AquaChem, a supplier of swimming
pool and spa chemicals to mass merchants, completed in May 1993; CPC Hydrachem,
a UK-based distributor of recreational water treatment chemicals, completed in
May 1994; Chemische Werke Lowi, a German-based producer of antioxidants and UV
absorbers, acquired in June 1993; and EniChem Synthesis SPA, an Italian-based
manufacturer of antioxidants and UV absorbers in April 1994.
Negative currency impact relates primarily to the Hungarian Forint and the
British Pound Sterling.
In the Company's Performance Chemicals product group, strong demand for flame
retardants kept operating rates at maximum levels. Selective price increases
have been initiated and incremental capacity expansions continue to be made.
During the quarter, the Company began supplying Ethyl Corporation's alkyl lead
requirements which resulted in an overall increase in tonnage of approximately
5%. In the Petroleum Additives product group, alkyl lead additive volumes sold
to the retail market declined approximately 30% in the quarter and is down
approximately 28% year-to-date. The decline in the second quarter reflects low
bulk deliveries in part attributable to distribution patterns and to a lesser
degree due to anticipated declining customer demand. Price increases to retail
customers averaged about 17% for both the quarter and year-to-date periods.
Water Treatment product sales gains reflect both market expansion and excellent
weather conditions.
In addition to the substantial increase in Chemol sales, the Specialized
Services and Manufacturing product group experienced strong sales in its
environmental services, toxicological testing and engineered surface treatments
businesses.
Equity in earnings of affiliates and other income of $10 million for the second
quarter increased $1 million from the prior-year period, reflecting continued
improvement in operating results at Huntsman Chemical Corporation. The $6
million year-to-date increase resulted from both improved Huntsman results and
several one-time gains, including that recognized on the sale of the Purex
Swimming Pool Equipment business.
Gross profit margins were down 4.6 percentage points in the quarter and 2.9
percentage points year-to-date. The declines resulted from lower alkyl lead
sales to retail customers, increased low margin chemical trading sales, and
cost increases in chlorine and energy used in bromine production.
Selling, administrative and research expenses of approximately 12%
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of sales are in absolute terms relatively unchanged from the prior-year
period.
The effective tax rate for 1994 is 30.8%, 2.8 percentage points higher
than the prior year. The increase in the tax rate results from a one percent
increase in the U.S. Federal statutory rate, a shift in the mix of income from
lower to higher tax jurisdictions, and the nonrecurrence of benefits obtained
from the adoption of FAS 109 in 1993.
FINANCIAL CONDITION
Cash provided by operating activities for the six months amounted to $133
million, an increase of $13 million over the prior-year period. Working
capital, excluding the effects of debt and business combinations, increased $45
million, in part, reflecting the seasonal requirement of the recreational water
treatment business and, in part, higher levels of inventories and receivables
in the fuel additives business due to distribution patterns.
Plant and equipment additions were $48 million and remain in line with
projected capital spending in the $100 million range for the year.
Proceeds from borrowing during the period amounted to $148 million and were
used to finance acquisitions, repurchase Company shares, supplement seasonal
cash flows, and for interest rate arbitrage opportunities.
Through June 30, 1994, the Company has purchased this year nearly 1.7 million
shares of its stock at a total cost of just over $90 million. Management's
intention is to acquire up to approximately 3,000,000 additional shares, in
line with its Board of Director's authorization, as market conditions warrant.
A dividend of $0.095 per share was declared in the quarter and paid on August
2, 1994 for a total of $6.6 million.
OTHER MATTERS
The Company completed the acquisition of EniChem Synthesis SPA (renamed
GLCI) on April 21, 1994, for approximately $90 million in cash. Headquartered
in Milan, Italy, GLCI is a leading manufacturer of antioxidants and UV
absorbers. Annual revenues should approach $90 million. GLCI operates
manufacturing facilities in Pedrengo and Ravenna, Italy, and a research and
development center in Bolgiano. The acquisition complements the Company's
existing polymer additives business by bringing an extensive line of new
products and technology. Also, the acquisition creates synergies and cost
reduction opportunities in
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supplying a worldwide customer base.
On May 10, 1994, the Company completed the acquisition of CPC Hydrachem, a
UK-based packager and distributor of pool and spa chemicals and equipment, for
approximately $3 million. CPC, with annual sales of approximately $7 million,
provides an important addition to the Company's position in the European
recreational water treatment market.
9
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Part II. Other Financial Information
Item 6. Exhibits and Reports on Form 8-K
The Company did not file, nor was it required to file, a Form 8-K because of a
change in independent auditors or because of any material unusual charges or
credits to income occurring during the quarter for which this report was filed.
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.
Date August 5, 1994 By /s/ Robert T. Jeffares
----------------- ---------------------------------
Robert T. Jeffares, Executive Vice
President and Chief Financial
Officer
Date August 5, 1994 By /s/ Robert J. Smith
----------------- -----------------------------
Robert J. Smith, Controller
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