<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common stock, $1.00 par value New York Stock Exchange
Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to the filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
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As of March 6, 1995, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $3,980,759,677.
As of March 6, 1995, 66,484,504 shares of the registrant's stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Stockholders are incorporated by
reference into Parts I, II and IV.
Portions of the annual proxy statement dated March 28, 1995 are incorporated by
reference into Part III.
<PAGE> 2
PART I
------
Item 1. BUSINESS
GENERAL
Great Lakes Chemical Corporation is a Delaware corporation incorporated in
1933, having its principal executive offices in West Lafayette, Indiana. The
Company's operations consist of one dominant industry segment - chemicals and
allied products. Within this segment the Company is well diversified focusing
on performance chemicals, water treatment chemicals, petroleum additives and
specialized services and manufacturing. The Corporate profile on page 3 and
the Review of Operations on pages 14 through 19 of the 1994 Annual Report to
Stockholders are incorporated herein by reference.
The term "Great Lakes" as used herein means Great Lakes Chemical Corporation
and Subsidiaries unless the context indicates otherwise.
Net sales by Business Unit are set forth in the following table (dollars in
millions):
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Flame Retardants $ 265 $ 240 $ 237
Intermediates and Fine Chemicals 262 240 255
Petroleum Additives 610 576 575
Polymer Stabilizers 162 81 16
Specialized Services and Manufacturing 383 294 154
Water Treatment 383 361 259
------ ------ ------
Total Net Sales $2,065 $1,792 $1,496
====== ====== ======
</TABLE>
PRODUCTS AND SERVICES
The following is a list of principal and certain other products and services
provided by Great Lakes:
<TABLE>
<CAPTION>
FLAME RETARDANTS
Plants & Major Raw
Products & Services Principal Markets Facilities Materials
------------------- ----------------- ---------- ---------
<S> <C> <C> <C>
Brominated and Computer and ElDorado, AR Bromine
intumescent flame Business Equipment, Newport, TN Bisphenol A
retardants Consumer Electronics, Aycliffe, U.K. Diphenyl Oxide
Textiles, Urethanes and
Construction Materials
POLYMER STABILIZERS
Antioxidants, UV Computer and Business Persan, France Alkylated
absorbers and Light Equipment, Consumer Catenoy, France Phenols,
Stabilizers Electronics, Packaging Waldkraiburg, Methyl Acrylate,
Textiles, Building and Germany Phosphorus
Construction Transportation Pedrengo, Italy Trichloride
Ravenna, Italy
</TABLE>
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<TABLE>
<CAPTION>
INTERMEDIATES AND FINE CHEMICALS
Plants & Major Raw
Products & Services Principal Markets Facilities Materials
------------------- ----------------- ---------- ---------
<S> <C> <C> <C>
Bromine, Bromine derivatives Foundry Industry, Lube Oil ElDorado, AR Bromine,
and Bromine-based specialty Refining, Pharmaceutical Marysville, AR Agricultural
chemicals, Furfural, Furfural Industry, Agrochemical Memphis, TN By-Products
derivatives and Furfural-based Industry, Electronics, Soil Omaha, NE Chlorine
specialty chemicals, including Crop and Structural Pest Geel, Belgium
furfuryl alcohol, Control, Production of Halebank, U.K.
POLYMEG(R) Polyols and Photographic Papers and Konstanz, Germany
Methyl Bromide Films and Rubber Newport, TN
Compounds
PETROLEUM ADDITIVES
Antiknock boosters for Major Oil Refineries and Fuel Ellesmere Port, U.K. Ethylene,
leaded gasoline, Cetane Blenders Worldwide Paimbouef, France Lead, Salt,
number improvers, Multi- Bussi, Italy Electricity
functional gasoline and diesel
fuel additives, Gasoline and
diesel detergents, Petroleum
anti-oxidants, stabilizers, and
corrosion inhibitors
WATER TREATMENT CHEMICALS
RECREATIONAL
Water sanitizers - Pool and Spa Dealers and Adrian, MI BCDMH
BioGuard(R), OMNI(R), Distributors, Mass Market Conyers, GA Chlorinated
Hydrotech(R), Guardex(R), Retailers, Builders Lake Charles, LA Isocyanurates
Pool Time(R), AquaChem(R) Munich, Germany Calcium
Algicides, oxidizers, pH 43 U.S. Distribution hypochlorite
balancers, mineral balancers locations Cyanuric acid
and specialty chemicals
pool equipment
INDUSTRIAL
BromiCide(R) and LiquiBrom(TM) Industrial Cooling Water Adrian, MI Bromine
Specialty Biocides, Treatment, Industrial and ElDorado, AR Sodium Bromide
Biocide dispensing Municipal Wastewater Treat-
equipment ment, Pulp and Paper and
Food Processing
</TABLE>
2
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<TABLE>
<CAPTION>
SPECIALIZED SERVICES AND MANUFACTURING
Plants & Major Raw
Products & Services Principal Markets Facilities Materials
------------------- ----------------- ---------- ---------
<S> <C> <C> <C>
ENVIRO-ENERGY PERFORMANCE GROUP
Completion fluids, Sand Worldwide Oil and Gas Lafayette, LA Bromine,
control and filtration, Industry Aberdeen, U.K. Zinc, Sodium,
Reservoir analysis, Calcium
Down-hole tools
Waste management, Petrochemical Companies, Greensboro, NC
Contamination assessment Waste Management Firms, Raleigh, NC
and remediation, Geotech- Oil Refineries, Forest Baton Rouge, LA
nical engineering, Resource Product Companies,
recovery and material Government Agencies
handling
TOXICOLOGICAL SERVICES
All phases of nonclinical Pharmaceutical, Chemical, Ashland, OH
toxicological testing and Veterinary, Medical, Agri-
bioanalytical services, cultural, Food and Consumer
Design of specialized Products Industries
toxicological, metabolic and
analytical chemistry programs
ENGINEERED SURFACE TREATMENTS
Dry film lubrication, corrosion Aerospace, Automotive, North Hollywood, Molysulfide,
and abrasion-resistant, chip- Railroad, Machine Tool, CA Various solvents
and scuff-proof coatings, All Manufacturing Fort Worth, TX and resins
Electrically conductive Industries Lombard, IL
coatings Roseville, MI
INTERNATIONAL TRADING
Organic and inorganic Central and Eastern Budapest, Hungary
chemicals, Plastic resins, European Chemical
Finished agrochemicals and Industry
fertilizers
FLUORINE CHEMISTRY
Fire extinguishing agent Data Processing ElDorado, AR Fluorine
FM-200(R), Organofluorine Telecommunications
compounds, Florinated Military
intermediates
</TABLE>
1994 DEVELOPMENTS
The Review of Operations on pages 14 through 19 of the 1994 Annual Report
to Stockholders are incorporated herein by reference.
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<PAGE> 5
Raw Materials
The sources of essential raw materials for bromine are the brine from
company-owned wells in Arkansas and sea water extraction plants in Europe. The
Arkansas properties are located atop the Smackover lime deposits, which
constitute a vast underground sea of bromine-rich brine. The area between
ElDorado and Magnolia, Arkansas, (located about 35 miles west of ElDorado)
provides the best known geological location for bromine production and both
major domestic bromine manufacturers are located there. Based on projected
production rates, the Company's brine reserves are conservatively estimated to
be adequate for the foreseeable future.
Furfural is extracted from agricultural by-products and waste materials such as
corncobs, sugar cane bagasse, rice hulls and oat hulls for which there are few
alternative uses. These raw material sources for furfural production are
expected to remain abundant and relatively inexpensive. Other materials used
in the chemical processes are obtained from outside suppliers through purchase
contracts. Supplies of these materials are believed to be adequate for the
Company's future operations.
International Operations
Great Lakes has a substantial presence in foreign markets. The Company's
investment in foreign countries is principally in Western Europe and represents
$1,073 million or 51 percent of total assets.
Sales to customers in foreign countries (primarily Europe and the Far East)
amount to 64, 62 and 61 percent of total sales for the years ended December 31,
1994, 1993, and 1992, respectively. Approximately 15, 15, and 19 percent of
these foreign sales, respectively for the three years shown, are products
exported from the U.S., with the balance of the Company's international sales
primarily being products manufactured and sold by the Company's European
subsidiaries and branches. The profitability on foreign sales (including U.S.
exports and foreign manufactured products, except Octel) approximates those for
domestic operations. Because of value-added pricing, Octel's alkyl lead
products have a higher profitability than do most of the Company's other
products.
The geographic segment data contained in the note "Industry Segments and
Foreign Operations" of Notes to Consolidated Financial Statements on page 37 of
the 1994 Annual Report to Stockholders is incorporated herein by reference.
Customers and Distribution
During the last three years, no single customer accounted for more than 10
percent of Great Lakes' total consolidated sales. The Company has no material
contracts or subcontracts with government agencies. A major portion of the
Company's sales are sold to industrial or commercial users for use in the
production of other products. Some products such as recreational water
treatment chemicals and supplies are sold to a large number of retail pool
stores, mass merchandizers and distributors. Some export sales are marketed
through distributors and brokers.
The Company's business does not normally reflect any material backlog of orders
at year-end.
Competition
Great Lakes is in competition with businesses producing the same or similar
products as well as businesses producing products intended for similar use.
There is one other major bromine producer in the United States which competes
with the Company in varying degrees, depending on the product involved, with
respect to the sale of bromine and bromine derivatives. There is also one
major overseas manufacturer of bromine and
4
<PAGE> 6
brominated products. In addition, there are several small producers in the
U.S. and overseas which are competitors in several individual products. The
Company is the only U.S. producer of furfural and furfuryl alcohol, and it
enjoys a significant market portion in every major geographic and product
market in which it competes. The Company is a major producer of alkyl lead.
The Company competes with several manufacturers and distributors of swimming
pool and spa chemicals and equipment. Through its Bio-Lab subsidiary, the
Company operates 43 branch distribution outlets for chemicals and pool and spa
equipment in the U.S. Products are differentiated by brand names to the
retail, wholesale and mass merchandising markets.
Principal methods of competition are price, product quality and purity,
technical services and ability to deliver promptly. The Company is able to
move quickly in providing new products to meet identified market demands, and
believes its production costs are among the lowest in the world. These
factors, combined with high technical skills, allow the Company to compete
effectively. One negative factor in its ability to compete with the major
overseas producer of bromine is the fact that this producer receives
significant subsidies from its government, and enjoys favorable duty advantages
on its exports to certain markets.
Seasonality and Working Capital
The products, which the Company sells to the agricultural and swimming pool
markets, exhibit some seasonality; however, the effect on overall Company sales
and profits is not material. Seasonality results in the need to build
inventories for rapid delivery at certain times of the year. The pool product
season is strongest during the first six months, requiring a build-up of
inventory at the beginning of the year. Except for certain arrangements with
distributors and dealers of swimming pool and spa products, customers are not
permitted to return unsold material at the end of a season. Extended credit
terms are granted only in cases where the Company chooses to do so to meet
competition.
The alkyl lead products have somewhat larger working capital requirements than
do the Company's other major products, because of extended distribution lines
and credit terms for large volume refinery customers.
The effect of the above items on working capital requirements is not material.
Research and Development and Patents
Research and development expenditures are included in the note "Research and
Development Expense" of the Notes to Consolidated Financial Statements on page
37 of the 1994 Annual Report to Stockholders and is incorporated herein by
reference. The Company holds no patents, licenses, franchises or concessions
which are essential to its operations.
Environmental and Toxic Substances Control
The Company recognizes its responsibility for the sound environmental
management of its businesses and operations. In partial fulfillment of this
responsibility, the Company has subscribed to the comprehensive environmental
stewardship program developed by the Chemical Manufacturers Association known
as Responsible Care.
The Company is in material compliance with all environmental laws and
regulations to which it is subject.
Employees
The Company has approximately 7,900 employees.
5
<PAGE> 7
Item 2. PROPERTIES
Great Lakes has plants at 32 locations in 13 states and 15 plants in 9 foreign
countries. Most principal plants are owned. Listed under Item 1 above in a
table captioned Products and Services are the principal locations at which
products are manufactured, distributed or marketed.
The Company leases warehouses, distribution centers and space for offices
throughout the world. All of the Company's facilities are in good repair,
suitable for the Company's businesses, and have sufficient space to meet
present marketing demands at an efficient operating level.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings involving the Company, its
subsidiaries or any of its properties. Furthermore, no director, officer or
affiliate of the Company, or any associate of any director or officer is
involved, or has a material interest in, any proceeding which would have a
material adverse effect on the Company.
Item 103 of Regulation S-K requires disclosure of administrative or judicial
proceedings arising under any federal, state or local provisions dealing with
protection of the environment, if the monetary sanctions might exceed $100,000.
The following proceeding may result in sanctions exceeding $100,000.
In 1993, the Company and the United States Environmental Protection Agency
agreed in principle to settle an action brought by the EPA under Section
15(1)(c) of TOSCA for a payment of $125,000 and the performance of $2,000,000
of environmentally beneficial capital projects at the Company's ElDorado,
Arkansas, site. The proposed consent decree states that the Company does not
admit the allegations made by the EPA.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter ended
December 31, 1994.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 6, 1995, there were approximately 4,900 registered holders of Great
Lakes Common Stock. Additional information is contained in the 1994 Annual
Report to Stockholders, under the captions "Stock Price Data" and "Cash
Dividends Paid" on page 25 all of which are incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
This information is contained in the 1994 Annual Report to Stockholders, under
the caption "Financial Review" on pages 26 and 27, and is incorporated herein
by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" on pages 21 through 25 of the 1994 Annual Report to Stockholders, is
incorporated herein by reference.
6
<PAGE> 8
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements together with the report thereon of Ernst
& Young LLP dated January 30, 1995, appearing on pages 28 through 38 and the
"Quarterly Results of Operations" on page 39 of the 1994 Annual Report to
Stockholders, are incorporated herein by reference.
Item 9. DISAGREEMENT OF ACCOUNTING AND FINANCIAL DISCLOSURE
No change of auditors or disagreements on accounting methods have occurred
which would require disclosure hereunder.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
<TABLE>
<CAPTION>
Served as
Name and Age Office Officer Since
------------ ------ -------------
<S> <C> <C>
Robert B. McDonald, 58 President and Chief Executive Officer 1981
Robert T. Jeffares, 59 Executive Vice President and Chief Financial Officer 1983
David A. Hall, 50 Senior Vice President 1987
John S. Little, 63 Senior Vice President 1994
David R. Bouchard, 51 Vice President, Flame Retardants 1990
Steven D. Clark, 49 Vice President, Technology 1995
L. Donald Simpson, 59 Vice President, Intermediate and Fine Chemicals 1992
Lowell C. Horwedel, 62 Vice President 1984
Robert L. Hollier, 52 Vice President 1991
J. Larry Robertson, 46 Vice President, Environment and Engineering 1994
John B. Talpas, 51 Vice President, Manufacturing 1988
Richard R. Ferguson, 43 Vice President, Treasurer and Assistant Secretary 1991
Mary P. McClanahan, 51 Corporate Secretary 1994
David C. Sanders, 51 Associate Vice President, Research and Development 1990
Robert J. Smith, 48 Corporate Controller 1993
Stephen E. Brewer, 45 Assistant Treasurer 1994
John V. Lacci, 42 Assistant Secretary 1994
</TABLE>
Information with respect to directors of the Company is contained under the
heading "Proposal One: Election of Directors" in the Great Lakes' Proxy
Statement relating to the 1995 Annual Meeting of Stockholders dated March 4,
1995, which is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation and Other
Information" in the 1995 Proxy Statement is incorporated by reference in this
report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the 1995 Proxy Statement is included by reference in
this report.
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<PAGE> 9
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Compensation Committee Interlocks and
Insider Participation" in the 1995 Proxy Statement is included by reference in
this report.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of Great Lakes Chemical
Corporation and Subsidiaries and related notes thereto, together with the
report thereon of Ernst & Young LLP dated January 30, 1995, appearing on pages
28 through 38 of the 1994 Annual Report to Stockholders, are incorporated by
reference in Item 8:
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Income and Retained Earnings -
Years ended December 31, 1994, 1993, and 1992
Consolidated Statements of Cash Flows -
Years ended December 31, 1994, 1993, and 1992
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following additional information is filed as part of this report and should
be read in conjunction with the 1994 financial statements.
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore, have been omitted.
3. Exhibits
13. 1994 Annual Report to Stockholders
21. Subsidiaries - Incorporated herein by reference is
the list of subsidiaries appearing on page 40 of the
1994 Annual Report to Stockholders
23. Consents of Independent Auditors
(b) Reports on Form 8-K
There were no Form 8-K's filed during the quarter ended December 31, 1994.
(c) Exhibits
The response to this section of Item 14 is submitted as a separate section of
this report.
(d) Financial Statement Schedules
The response to this section of Item 14 is submitted as a separate section of
this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GREAT LAKES CHEMICAL CORPORATION
(Registrant)
Date March 6, 1995 /s/ Robert B. McDonald
-------------------------------------
Robert B. McDonald, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C>
Date March 6, 1995 /s/ Robert T. Jeffares
-------------------------------------
Robert T. Jeffares
Executive Vice President and
Chief Financial Officer
Date March 6, 1995 /s/ Robert J. Smith
-------------------------------------
Robert J. Smith, Corporate Controller
(Principal Accounting Officer)
Date March 6, 1995 /s/ William H. Congleton
-------------------------------------
William H. Congleton, Director
Date March 6, 1995 /s/ John S. Day
-------------------------------------
John S. Day, Director
Date March 6, 1995 /s/ Richard H. Leet
-------------------------------------
Richard H. Leet, Director
Date March 6, 1995 /s/ Martin M. Hale
-------------------------------------
Martin M. Hale, Director
Date
-------------------------------------
Leo H. Johnstone, Director
Date March 6, 1995 /s/ Robert B. McDonald
-------------------------------------
Robert B. McDonald, Director
Date
-------------------------------------
Emerson Kampen, Director
</TABLE>
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SCHEDULE II
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Additions
Balance at --------------------------------
Beginning Charges to Costs Charged to Balance at End
Description of Period and Expenses Other Accounts Deductions of Period
----------- ----------- ---------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
1994:
Reserve deducted from asset:
Allowance for doubtful accounts
receivable $ 7,088,000 $ 1,174,000 $ -0- $ 504,000 (B) $ 7,758,000
=========== ============= ============== ============ ============
Accumulated amortization of excess
of investment over net assets of
subsidiaries acquired $43,242,000 $ 20,699,000 $ -0- $ -0- $ 63,941,000
=========== ============= ============== ============ ============
1993:
Reserve deducted from asset:
Allowance for doubtful accounts
receivable $ 4,317,000 $ 2,833,000 $ 2,005,000 (A) $ 2,067,000 (B) $ 7,088,000
=========== ============= ============== ============ ============
Accumulated amortization of excess
of investment over net assets of
subsidiaries acquired $25,272,000 $ 17,970,000 $ -0- $ -0- $ 43,242,000
=========== ============= ============== ============ ============
1992:
Reserve deducted from asset:
Allowance for doubtful accounts
receivable $ 4,710,000 $ 9,428,000 $ -0- $ 9,821,000 (B) $ 4,317,000
=========== ============= ============== ============ ============
Accumulated amortization of excess
of investment over net assets of
subsidiaries acquired $17,624,000 $ 7,648,000 $ -0- $ -0- $ 25,272,000
=========== ============= ============== ============ ============
</TABLE>
(A) Reserve balance of Bayrol and Lowi at date of acquisition.
(B) Uncollectible accounts receivable written off, net of recoveries and
foreign currency translation.
10
<PAGE> 1
EXHIBIT 13
Review of Operations FLAME RETARDANTS
[PHOTO]
DAVID R. BOUCHARD, Vice President, Flame Retardants
Great Lakes established its place as the world's undisputed leader in flame
retardant technology through the introduction of innovative new products,
timely development of new markets, and continuous improvement of its
manufacturing operations. In 1994, this formidable combination produced yet
another year of progress with revenues and profits surpassing all previous
levels.
Strong worldwide demand for our bromine-based products continued
accelerating in 1994. We initiated a series of measures throughout the year
necessary to meeting our customers' future requirements. These moves ranged
from investing in incremental capacity expansions to completing debottlenecking
projects at our manufacturing facilities in Arkansas, Tennessee and the United
Kingdom. Late in the year, we raised prices on most of our flame retardants in
order to offset higher raw materials costs and to ensure an adequate return on
these investments.
Also during the year, we entered into a manufacturing joint venture with
Bromine Compounds Limited to produce tetrabromobisphenol-A (TBBA), a key flame
retardant and raw material for other flame retardants. This arrangement
positions Great Lakes to meet rapidly expanding market demand in a
cost-effective manner while maintaining our favorable competitive position for
this versatile product. Located in Israel, the plant is slated for completion
in late 1995 and will produce 25,000 metric tons annually, or nearly 30 percent
of the world's capacity.
In addition to meeting needs for existing products, we continue to
develop applications for vast new markets. Our most recent addition is
GPP-39(TM), a graft polymer of dibromostyrene and olefins. This product, used
in such applications as carpeting and commercial wall coverings, results in
textiles significantly more versatile and durable than those produced by
conventional systems.
Another dibromostyrene derivative, PDBS-80(TM), also continues to gain
market acceptance. Widely recognized for its thermal stability and color
consistency, this additive for engineered plastics and resins imparts critical
flame retardant characteristics into automotive and electronics components. Our
commercialization efforts have proven so successful that we will commission a
new manufacturing unit in early 1995. PDBS-80(TM) and other recently-developed
products promise to keep Great Lakes at the forefront of the brominated flame
retardant industry.
Later this year, the company also stands to gain a significant boost in
the important Pacific Rim marketplace when the Japanese government lifts
tariffs on most brominated flame retardants. U.S. bromine products previously
faced a competitive disadvantage in Japan due to the relatively large duties
imposed upon them. Without tariffs on bromine-based flame retardants used in
industrial and consumer electronics, aerospace and a host of other
applications, we will soon be competing on a level playing field in one of the
world's largest flame retardant markets.
Great Lakes also made further inroads in its polymer additives
diversification efforts during 1994 by entering into a joint venture with
Prochimie International, Inc., to construct an n-Phenylmaleimide plant.
Plastics manufacturers use this value-added specialty intermediate to improve
heat resistance in polymer systems. The plant, under construction in Abbeville,
Alabama, should be completed by the end of 1995.
OUTLOOK
With additional capacity in place, pricing actions successfully bringing
margins back to more normal levels, and new product introductions gaining
market acceptance, Great Lakes is poised to take full advantage of the strong
market demand for flame retardants anticipated in 1995 and beyond.
14
<PAGE> 2
Review of Operations INTERMEDIATES AND FINE CHEMICALS
[PHOTO]
L. DONALD SIMPSON, Vice President, Intermediates and Fine Chemicals
The Intermediates and Fine Chemicals business unit maximizes the company's
strong foundation in bromine and furfural, and applies its manufacturing
expertise to produce a wide range of fine chemicals, intermediates, and other
specialty compounds. This business posted solid results in 1994, led by strong
demand for a number of bromine and furfural compounds.
INTERMEDIATES
Extracted from brine in seawater or mineral deposits thousands of feet below
the earth's surface, bromine is a non-metallic element used in a variety of
specialty applications. This versatile chemical serves as the primary building
block for many of Great Lakes' value-added products, including flame
retardants, water treatment products and clear drilling fluids. Great Lakes
holds the unique position as the only bromine producer serving world markets
from manufacturing sites located on two continents.
Worldwide demand for bromine and its derivatives rose significantly in
1994, and projections call for that trend to continue. Keeping pace with
customers' accelerating requirements, we expanded bromine production at three
of our South Arkansas plants. In addition to the expansions, debottlenecking
helped keep production units running at or near maximum efficiencies. Since
mid-1993, our investments in the production of bromine and its derivatives,
including expansions planned for 1995, total more than $100 million. These
actions represent steps vital to supporting our strategies for keeping pace
with the expected growth of the bromine business in the years to come.
Another important leg of this diverse business unit is furfural which is
derived from readily-available agricultural by-products such as corn cobs,
grain hulls, and sugar cane bagasse. Furfural-based specialty chemicals find
use in such applications as engineered plastics, specialty resins to make sand
cores for the foundry industry, and solvents for industrial and retail paint
strippers. This highly-versatile chemistry makes an excellent base for
developing value-added products for a variety of industry applications.
One of the fastest growing furfural derivatives, PTMEG, is used
primarily by the polyurethane industry with end uses encompassing colorful
synthetic fibers used in athletic apparel, numerous engineered polymers, and
industrial wheels and belts. Strong business conditions in the polyurethane
industry resulted in sharply increased demand for PTMEG. We implemented several
engineering improvements at our Memphis, Tennessee, manufacturing facility to
increase production to meet customer requirements in the near-term. Additional
plant expansions will be completed as market conditions warrant.
FINE CHEMICALS
Great Lakes takes advantage of its strong raw material positions in bromine,
furfural, and other basic chemicals, to manufacture fine chemical intermediates
used by other companies to make products for the pharmaceutical, photographic,
and agricultural markets. The company meets customer requirements throughout
the world from state-of-the-art, ISO 9000 certified manufacturing facilities
located in the United Kingdom, Germany and the United States.
Additionally, we extend our manufacturing and engineering expertise to
single customer projects by creating and manufacturing custom compounds and
intermediates that meet individual customers' demanding performance,
environmental and quality requirements. The ability to manufacture customized
compounds quickly and cost effectively satisfies a growing need in the industry
and provides us with a profitable means of gaining experience in new
technologies. An example offering significant business potential is our
involvement with Johnson & Johnson's low-calorie sweetener, Sucralose(R). The
product is already approved in Canada and currently awaits FDA approval for use
in the United States.
OUTLOOK
All signs indicate demand for the company's bromine, furfural and other
value-added products will remain strong for some time to come. Through
investments in capacity expansions and other productivity enhancement measures,
we have taken the steps necessary to ensure Great Lakes remains a leading
manufacturer of specialty chemicals.
15
<PAGE> 3
Review of Operations PETROLEUM ADDITIVES
[PHOTO]
JOHN S. LITTLE, Senior Vice President
Through its Petroleum Additives business unit, Great Lakes is the world's
largest supplier of a wide range of fuel additives for over 200 refineries in
65 countries around the world. By expanding market penetration, broadening
research and development capabilities, and diversifying into new product areas,
this business unit again this year realized gains in revenues and profits.
Much of the year's success reflected the benefits from expanding this
business to better serve growing markets throughout the world. The latest step
in our diversification strategy occurred in 1994 when we formed Octel America,
Inc. This wholly-owned subsidiary complements the growth of Octel Associates
(Octel), our U.K.-based subsidiary recognized around the world as one of the
leading developers, manufacturers and marketers of motor fuel additives.
In its first move, Octel America acquired DuPont's petroleum additives
business, which significantly expands our existing product line with over 100
new products. This addition greatly enhances our ability to respond to changing
market and consumer needs by offering a full range of petroleum additives
designed to make engines run more efficiently. Our comprehensive product
offering now includes cetane enhancers, combustion improvers, and detergents
for gasoline and diesel, to name just a few.
Octel America also provides an outlet for introducing Octel's products
into North America, the largest market in the world for efficient,
environmentally-friendly petroleum additives. In the near future, our plans
call for establishing a U.S. manufacturing base for these products which will
enable the company to better serve U.S. and Canadian customers. Today, Great
Lakes is positioned to effectively serve all major world markets for petroleum
additives.
Greater global penetration brings new opportunities for meeting
differing fuel requirements. At the forefront of our fuel additives research is
Octel's Fuel Technology and Engine Laboratory in the U.K. At this
state-of-the-art engine facility, chemists and engineers design, develop, and
test custom-blended fuel additives to meet customer demands while satisfying
international fuel standards and requirements. With its expertise in gasoline
and diesel additives, and their understanding as to how these products affect
engine performance and exhaust emissions, Octel is well-suited to meet the
challenging needs for current and future fuel markets.
Octel also completed two major transactions in 1994, thereby enhancing
the future of antiknock compound. Concurrent with Octel America's actions,
Octel acquired DuPont's North American and South American tetraethyl lead
business. This acquisition, coupled with Octel's long-term agreement to supply
Ethyl Corporation's antiknock compound requirements, allows Octel to maintain
high manufacturing rates, and reduce overall unit costs at its three remaining
plants. With these moves, Octel solidified its position as being the only
remaining significant supplier of antiknock compound anywhere in the world.
Another key element in Octel's strategy for diversification entails
extending its manufacturing capabilities so that it can offer a wider range of
products. The company is broadening production capabilities at its Amlwch,
U.K., site to produce aqueous inorganic bromide solutions used in oil
extraction in the North Sea and other European locations. Octel also
commissioned the construction of two new facilities: one in Amlwch to
manufacture a wide variety of bromine-based chemicals, and another in Ellesmere
Port, U.K., for producing a new chemical intermediate. With its European
manufacturing base and international marketing and distribution network, Octel
is positioned to become a major producer of specialty chemicals and
intermediates.
OUTLOOK
Through a strategic focus on greater product diversification and further
penetration of growing global markets, the Petroleum Additives business unit is
taking full advantage of the expanding need for efficient,
environmentally-friendly fuel additives in today's engines.
16
<PAGE> 4
Review of Operations POLYMER STABILIZERS
[PHOTO]
GERD K. SCHUE, President, Great Lakes Chemical (Europe)
Great Lakes adapts its fundamental strengths and vast expertise in flame
retardant technology to an even broader part of the polymer additives industry.
In just two years, the company has emerged into a formidable, world-scale
supplier of a wide range of polymer stabilizers. In 1994, we posted our most
impressive gains yet, with revenues 100 percent higher than the previous year.
Acquiring EniChem Synthesis S.p.A.'s (Enichem) polymer additives and
associated specialty chemicals business represents not only the most recent,
but clearly the most significant action in our expansion strategy. Along with
broadening our product range and European manufacturing base, Enichem brings
complementary technologies and an experienced network of sales and technical
specialists. Integrating Italy-based Enichem with operations in France and
Germany creates an enviable foundation for expanding Great Lakes' position in
the $2 billion, global polymer stabilizer industry.
Accelerating this progress is market-driven research and development
which has identified new molecules and alternate physical forms for cleaner,
safer polymer processing. Many of these new blends and liquid forms also
eliminate or reduce potential problems linked to dust dispersion during
processing. In another area, humidity-resistant granular antioxidant blends
maximize perfor- mance, greatly simplify polymer processing operations and
improve dosage reliability. Our Silanox antioxidant family, currently under
development, offers solutions to a wide variety of plastics problems by
coupling excellent stabilization with extremely low extractability
characteristics.
One of our targeted market segments undergoing substantial expansion is
Hindered Amine Light Stabilizers (HALS), used to protect plastics from
ultraviolet (UV) ray degradation. We broadened our HALS manufacturing
capabilities in 1994 by modifying a multipurpose production facility in Persan,
France, to accommodate future growth from products such as our
recently-patented Uvasil 299 and other related UV stabilizers.
Finding new applications for polymer stabilizers like HALS starts with a
close relationship with the markets we serve. Because customers' requirements
vary geographically, Great Lakes operates Technical Service Centers on two
continents -- one in Milan, Italy, and another recently commissioned in West
Lafayette, Indiana. Scientists and technicians at these facilities work with
major polymer producers and compounders to tailor customized products, and
offer individual, customer- specific technical support. Future plans call for
additional Technical Service Centers to be established in growing markets
across the globe, thus providing progressively better service to our worldwide
customer base.
Our long-range plans also entail moving aggressively to ensure an
adequate supply of product. During the year, we expanded production capacities
for several antioxidants and UV stabilizers at manufacturing sites in Pedrengo
and Ravenna, Italy, and Catenoy, France. Our Waldkraiburg, Germany, plant
expansion ensures our ability to supply growing market needs for Lowilite(R)
77, another important product of the HALS family. Plus, to better serve our
growing U.S. customer base and achieve greater market penetration, we will
construct a new facility in the United States beginning mid-1995 to produce
high-performance phenolic antioxidants used in a variety of engineered
polymers.
OUTLOOK
The polymer stabilizers business represents one of Great Lakes' most dynamic
growth businesses. We have in place all the tools necessary to grow our share
of this $2 billion market: established technology, integrated manufacturing and
market-driven research and development. Great Lakes enjoys a unique competitive
advantage as the single source for customers requiring a bundle of products
that range from flame retardants to a host of performance-enhancing polymer
stabilizers.
17
<PAGE> 5
Review of Operations SPECIALIZED SERVICES AND MANUFACTURING
[PHOTO]
DAVID A. HALL, Senior Vice President
The Specialized Services and Manufacturing business unit showcases the benefits
of carefully-planned, highly-selective diversification. Consisting of several
key stand-alone businesses and other high growth technologies, the unit focuses
on emerging technologies which serve diverse markets. In 1994, revenues
increased in virtually every sector.
FLUORINE CHEMICALS
As a company driven by research and development, Great Lakes continually looks
for new growth opportunities. One natural extension is fluorine, an element
belonging to the same chemical family as bromine, the halogens. Fluorine
chemistry provides a multitude of opportunities for developing products that
serve wide ranging applications in refrigerants, medical, pharmaceutical, and
fire suppression markets.
One of the most promising fluorinated derivatives is our FM-200(TM) fire
extinguishant, a product that didn't exist as recently as three years ago. In
its first full year of commercialization, FM-200(TM) has received widespread
market acceptance with installations exceeding 5,000. Much of this success can
be attributed to the fact that an FM-200(TM) system became the first
halon-replacement engineered system to receive the Underwriters Laboratories
listing mark. Engineered systems safeguard such valuable assets as computer and
telecommunications facilities, and represent the largest market segment for
fire extinguishant agents.
ENVIRO-ENERGY PERFORMANCE GROUP
The company's Enviro-Energy Performance Group consists of two key Great Lakes
subsidiaries--OSCA, Inc. (OSCA), and Four Seasons Industrial Services, Inc.
Each holds a prominent position in growing world markets.
Four Seasons and its affiliate, Aquaterra, provide complete
environmental remediation and geo-technical consulting services, including
groundwater treatment systems, soil reclamation, waste minimization and
pollution prevention. During 1994, Four Seasons expanded its scope of service
capabilities, completing sizable projects ranging from site assessment to
complete remediation projects for major petrochemical and chemical processing
companies.
OSCA is a leading supplier of bromine-based clear workover and completion
fluids and ancillary well completion services used in the production of oil and
natural gas. OSCA extended its marketing and distribution opportunities in the
oil-rich North Sea region by purchasing the remaining 50 percent of OSCA
International, a joint venture between OSCA and M-I Drilling Fluids Company.
TOXICOLOGICAL TESTING
Great Lakes' wholly-owned WIL Research Laboratories, Inc., subsidiary is one of
the few fully-integrated interdisciplinary research services firms that
performs private and government-mandated toxicological assessments. WIL
provides data essential to the development, and later, the approval of new
chemical, pharmaceutical, and food additive products. Increasingly stringent
requirements adopted in countries around the world have heightened the demand
for toxicological services. With a multi-million dollar expansion of its
facilities nearing completion, WIL will be able to offer expanded capabilities
to a growing customer base.
ENGINEERED SURFACE TREATMENTS
E/M Corporation, a Great Lakes subsidiary since the early 1970's, is a leading
developer and applicator of engineered surface treatments that impart such
properties as corrosion control, lubricity and electromagnetic interference
shielding. Extending its leadership positions to markets outside the
traditional aerospace and transportation industries, E/M continues to adapt its
products to new applications. One case in point, the company began in 1994 a
long-term supply contract to provide lubricating blocks for London's
underground transport system.
INTERNATIONAL TRADING
Through Great Lakes' 78 percent ownership, Chemol RT provides an outstanding
avenue for introducing and distributing our products and services into emerging
Central and Eastern European markets. The former state-owned trading company of
Hungary, Chemol is a leading distributor of inorganic and organic chemicals,
and petrochemicals. The combination of Chemol's extensive presence and a keen
understanding of the chemical industry in this part of the world makes it a
vital part of Great Lakes' international expansion.
OUTLOOK
The Specialized Services and Manufacturing business unit appears well-equipped
to continue its progress. We have established leadership positions in specialty
markets that promise to grow well into the future.
18
<PAGE> 6
Review of Operations WATER TREATMENT
[PHOTO]
Marshall E. Bloom, Chairman and Chief Executive Officer, Bio-Lab, Inc.
Great Lakes divides its Water Treatment business unit into two market segments,
each providing excellent prospects for growth. The company is the premier
supplier of chemicals and key operating equipment to the world's multi-billion
dollar recreational water treatment market. Great Lakes also supplies specialty
biocides for a variety of industrial applications. Sales in 1994 grew more than
10 percent over last year's record levels, reflecting gains from extending
market penetration, expanding product applications and increasing manufacturing
capacity.
RECREATIONAL
Consistent with its long-range objectives, Great Lakes benefited from improved
manufacturing operations and broadened marketing and distribution capabilities.
Late in 1994, our wholly-owned Bio-Lab, Inc. (BioLab), subsidiary acquired Olin
Corporation's Lake Charles, Louisiana, trichloroisocyanuric (trichlor) dry
sanitizer plant. Adding the capacity to produce trichlor, a key ingredient of
many of our swimming pool and spa products, provides the vertical integration
necessary to strengthen BioLab's already enviable position in global water
treatment markets.
Complementing its enhanced manufacturing base, BioLab also continues to
find new avenues to access key market segments. During 1994, we added the
assets of Pioneer Pool Products' wholesale distribution business. This move
enhances our extensive coverage of the Southeast United States, one of the most
important geographic regions for swimming pool and spa products. Our ability to
control virtually every aspect of providing finished product to the pool owner
gives us a significant competitive advantage.
Along with strengthening our North American presence, BioLab tapped new
opportunities in growing international markets. Acquiring CPC-Hydrochem, Ltd.,
the United Kingdom's leading packager and distributor of recreational water
treatment chemicals and equipment, provides immediate access to the North Sea
region. Coupled with our Germany-based Bayrol Chemische Fabrik GmbH, this
newly-formed unit augments our ability to serve key markets in Central and
Eastern Europe as well as in Mediterranean countries.
Again in 1994, new product introduction enabled BioLab to penetrate new
market sectors and advance its competitive position. BioLab introduced three
self-contained systems, each targeted for specific distributor and dealer
networks. Synergy(TM), Snap(TM) and Simplicity(TM) offer the residential pool
owner effective water treatment capabilities with ease of handling
characteristics. Additionally, BioLab expanded its BioGuard(R) SoftSwim(TM) ABC
system of non-chlorine water treatment by adding SoftSwim(TM) C, a patented,
enhanced clarifier.
INDUSTRIAL
Great Lakes' biocides find use in a variety of industrial applications,
including cooling towers, the pulp and paper industry and wastewater treatment
facilities. The company's proprietary products replace traditional biocides
with environmentally-suitable alternatives that also eliminate safety and
handling problems encountered with conventional products.
Given this technology's performance advantages and its ability to meet
stringent toxicological and regulatory standards, demand for bromine-based
industrial water treatment products promises to continue rising for years to
come. To keep pace with current and future market requirements, the company
completed a series of capacity expansions and debottlenecking improvements at
our Adrian, Michigan, facility, with additional expansions anticipated in 1995.
Not satisfied with its progress to date, the company broadened its
industrial water treatment business in two new product areas. We introduced a
powdered form of BromiCide(R) with faster dissolution rates, providing a more
effective shock disinfecting treatment for the pulp and paper industry. And for
the first time, we extended our bromine technology into consumer water
sanitizing markets with the development of the first concentrated bromine-based
automatic toilet bowl cleaner for home use.
OUTLOOK
Just as it has in its other businesses, Great Lakes is moving its water
treatment business forward through efficient manufacturing, greater market
penetration and aggressive new product development. With BioLab leading the way
and new strategies in place for 1995, this business unit promises to remain on
its upward track.
19
<PAGE> 7
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS
[PHOTO]
ROBERT T. JEFFARES, Executive Vice President and Chief Financial Officer
The management of Great Lakes Chemical Corporation is responsible for the
preparation and presentation of the accompanying consolidated financial
statements and all other information in this Annual Report. The financial
statements are prepared in accordance with generally accepted accounting
principles and include amounts that are based on management's informed
judgments and estimates.
The company maintains accounting systems and internal accounting
controls which management believes provide reasonable assurance that the
company's financial reporting is reliable, that assets are safeguarded, and
that transactions are executed in accordance with proper authorization. This
internal control structure is supported by the selection and training of
qualified personnel, and an organizational structure which permits the
delegation of authority and responsibility. The systems are monitored worldwide
by an internal audit function that reports its findings to management.
The company's financial statements have been audited by Ernst & Young
LLP, independent accountants, in accordance with generally accepted auditing
standards. These standards provide for the review of internal accounting
control systems to plan the audit and determine auditing procedures, and tests
of transactions to the extent they deem appropriate.
The Audit Committee of the Board of Directors, which consists solely of
non-employee directors, is responsible for overseeing the functioning of the
accounting systems and related internal controls and the preparation of annual
financial statements. The Audit Committee periodically meets with management
and the independent accountants to review and evaluate their accounting,
auditing and financial reporting activities and responsibilities. The
independent accountants and internal auditors have full and free access to the
Audit Committee without management's presence to discuss internal accounting
controls, results of their audits, and financial reporting matters.
ROBERT T. JEFFARES
Robert T. Jeffares
Executive Vice President and Chief Financial Officer
FINANCIAL CONTENTS
20 Management's Statement of Responsibility for Financial Statements
21 Management's Discussion and Analysis of Results of Operations and
Financial Condition
26 Financial Review
28 Consolidated Statements of Income and Retained Earnings
29 Consolidated Balance Sheets
30 Consolidated Statements of Cash Flows
31 Notes to Consolidated Financial Statements
38 Report of Independent Auditors
39 Quarterly Results of Operations
20
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
OPERATING RESULTS 1994 COMPARED WITH 1993
Revenues for 1994 were a record $2,111 million, an increase of 16 percent over
the $1,828 million reported in 1993. For the five and ten-year periods ended in
1994, the Company's revenues have grown at annual compound rates of 20 percent
and 22 percent, respectively.
Net sales in 1994 were $2,065 million, an increase of $273 million, or 15
percent, over 1993 net sales of $1,792 million. Sales by business unit are set
forth in the following table (in millions):
<TABLE>
<CAPTION>
1994 1993 Percent
------------------- ------------------ Increase
$ % $ %
<S> <C> <C> <C> <C> <C>
Flame Retardants 265 13 240 13 10
Intermediates and
Fine Chemicals 262 13 240 13 9
Petroleum Additives 610 30 576 32 6
Polymer Stabilizers 162 8 81 5 100
Specialized Services
and Manufacturing 383 18 294 16 30
Water Treatment 383 18 361 21 6
------------------------------------------------------------------------------------------------
2,065 100 1,792 100 15
------------------------------------------------------------------------------------------------
</TABLE>
Factors contributing to the increase in sales include (in millions):
<TABLE>
<S> <C>
Selling Prices $ 48
Volume 114
Acquisitions 140
Divestitures (33)
Foreign Exchange 4
--------------------------------------------------------------------
$273
--------------------------------------------------------------------
</TABLE>
Flame Retardant sales reached $265 million for the year, a gain of $25 million
from the prior year, reflecting strong demand in North America and the Pacific
Rim. Capacity increases for several key products brought on stream during the
latter part of the year and price increases that became effective in the fourth
quarter contributed to the strong performance.
Intermediates and Fine Chemicals achieved sales of $262 million, a $22 million
improvement over the prior year. Volumes were strong and pricing flat to down
across all product lines except for agricultural chemicals whose volume was
constrained by legislated limitations on methyl bromide. Pricing for
agricultural chemicals showed improvement. Furfural and related derivative
products, which have been negatively impacted over the past few years by
recessionary economies in Europe and Japan and by competitive price pressures
from the foreign competition attempting to gain market share, saw price erosion
abate during the year and turn slightly positive in the fourth quarter.
Petroleum Additives sales gain for the year of $34 million includes about $20
million in sales attributable to the September acquisition of E. I. du Pont de
Nemours fuel additives business. The balance of the improvement came primarily
from price increases that more than offset lower volumes. During 1994, retail
(direct sales to refineries) compound volumes declined a total of 17 percent.
In the first half of the year, logistical problems and the temporary lack of
hard currency by customers in Iran and Russia combined to drive retail volumes
down 27 percent compared to the same period of 1993. In the second half of the
year, the rate of decline in the retail market was about seven percent, which
is on the low side of the expected seven percent to 10 percent annual market
decline. Pricing for retail compound improved about 15 percent for the year
which is consistent with historical trends.
During the second quarter of 1994, the Company entered into an agreement to
supply Ethyl Corporation's requirements for alkyl lead antiknock compound. As a
result of this agreement, wholesale volumes almost doubled during 1994 while
prices declined slightly. The ratio of retail to wholesale compound sales was
about 70/30 in 1994 compared to about 85/15 in 1993.
Polymer Stabilizers sales doubled during the period reflecting the acquisition
of EniChem Synthesis S.p.A.'s polymer additives and associated specialty
chemicals business in April 1994 and the full year effect of the acquisition of
Chemishe Werke LOWI Beteiligungs GmbH & Co. in June of 1993.
Specialized Services and Manufacturing posted an $89 million sales improvement
over 1993. While all operations in this business unit registered year-over-year
sales gains, the preponderance of the increase was derived from Chemol's
chemical trading activities in Eastern Europe and Four Seasons' environmental
remediation business.
Water Treatment, benefiting from excellent weather conditions during the pool
season and market expansion, improved sales by $22 million or six percent over
1993. Recreational water treatment chemical sales experienced strong volume
gains in 1994. This coupled with the 1994 acquisitions of a U.K.-based
distributor of pool and spa chemicals and a Southeastern U.S. distributor of
pool and spa chemicals and equipment, and the full-year effect of the 1993
acquisition of Aqua Chem contributed to the improvement. Volume gains and the
acquisitions more than offset the loss of about $25 million in sales associated
with the disposition of Purex(R) Pool Products. Pricing in the business unit
was slightly negative due to competitive activity.
21
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Gross Profit as a
Year Percentage of Net Sales
-------------------------------------------------------------------------
<S> <C>
1994 33.7
1993 36.8
1992 36.9
</TABLE>
Gross profits of $695 million were up $36 million over 1993; however, as a
percentage of sales, gross profits declined approximately 3 percentage points.
The margin compression is attributable to price increases in business units
other than Petroleum Additives not keeping pace with production cost increases
primarily related to raw materials such as chlorine and caustic soda, volume
gains coming predominantly in lower margin areas such as chemical trading and
certain environmental services, the cessation of the highly profitable halon
business at the end of 1993, increased alkyl lead compound sales to the
wholesale market, and recently acquired businesses that have yet to achieve
margins comparable with corporate norms.
Although the Company continues to have approximately 50 percent of its business
transacted in foreign currencies, particularly the pound sterling, currency
changes did not have a significant impact on profit margins. To minimize the
effect of currency fluctuations, the Company uses foreign exchange contracts,
average rate options, and other financial instruments. In early 1993, a dollar
billing program was implemented at Octel, and today approximately 50 percent of
this foreign subsidiary's sales are in dollars, effectively insulating Octel's
profits, measured in dollars, from fluctuations in the pound sterling.
<TABLE>
<CAPTION>
SAR Expense as a Percentage of Net Sales
Selling and
Year Administration R&D Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 9.5 2.9 12.4
1993 10.0 3.1 13.1
1992 9.5 3.1 12.6
</TABLE>
Selling, administrative and research (SAR) expenses in 1994 were $257 million,
an increase of $23 million over last year's $234 million. As a percentage of
sales, SAR expense increased at a rate less than sales. In absolute terms,
acquisitions account for about half of the increase. The balance of this
increase is commensurate with the growth of the business.
The Company continues to expand its investment in research and development.
Total research and development spending amounted to $59 million in 1994, an
increase of seven percent over the prior year. Efforts have focused on new and
improved flame retardants, halon replacements, furfural derivatives and
pharmaceutical intermediates, as well as new fuel additives and water treatment
products.
Equity in earnings of affiliates and other income amounted to $46 million, an
increase of $10 million over the $36 million recorded in 1993. The significant
earnings improvements at Huntsman Chemical Corporation (HCC), coupled with the
increased earnings from the KAO-Quaker joint venture, resulted in the Company's
share of affiliate earnings increasing $9 million to $20 million for the year.
Interest income for the year declined about $2 million to $9 million as a
result of lower average investments. Other income amounted to $17 million for
1994, an increase of $3 million over the prior year. One-time items in 1994
include insurance recoveries related to Octel's ethyl chloride plant fire, a
gain recognized on the sale of the Purex swimming pool equipment business, and
the settlement of a natural gas contract-related matter.
Interest and other expenses amounted to $48 million in 1994 compared to $46
million in 1993. Interest expense, net of amounts capitalized, was $10 million,
up from $7 million in 1993, reflecting increased borrowings in support of the
share repurchase program, capital projects, and acquisitions combined with
higher average interest rates. Amortization of intangible assets, primarily
goodwill, increased $2 million to $30 million due to acquisitions and profit
participation payments related to the Octel acquisition. Foreign currency
exchange gains and losses which are netted in other expenses were
insignificant. Other expenses declined $3 million to $8 million.
<TABLE>
<CAPTION>
Income Before Taxes and Minority
Year Interest as a Percentage of Revenue
-------------------------------------------------------------------------------------
<S> <C>
1994 20.7
1993 22.7
1992 23.5
</TABLE>
The minority interest in the income of subsidiaries, which includes both an
approximate 12 percent minority interest in Octel and a 22 percent minority
interest in Chemol, increased about $1 million to $33 million reflecting the
higher earnings of these operations. The minority interest in Octel is before
income taxes as earnings are predominantly from a partnership and, therefore,
taxes apply to each partner individually.
<TABLE>
<CAPTION>
Effective Tax Rate
Year Percentage
-------------------------------------------------------------------------------------
<S> <C>
1994 30.8
1993 28.8
1992 30.1
</TABLE>
Income taxes of $124 million increased $13 million over last year's $111
million. The effective tax rate for the year was 30.8 percent compared to 28.8
percent in 1993. The 2.0 point increase in the rate results from 1993
benefiting from adoption of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (FAS 109) and a shift in earnings to higher tax
jurisdictions.
22
<PAGE> 10
Net income for 1994 was $279 million, or $4.00 per share, compared to 1993 net
income of $273 million, or $3.82 per share. The year-over-year increase in net
income and earnings per share was 2.2 percent and 4.7 percent, respectively.
Share repurchases during 1994 increased earnings per share by approximately
$.05.
1993 COMPARED TO 1992
Revenues for 1993 were $1,828 million, an increase of 19 percent over the
$1,538 million reported in 1992. Net sales in 1993 were $1,792 million, an
increase of 20 percent over 1992 net sales of $1,497 million. Price and volume
gains in the core business amounted to approximately $95 million and
acquisitions contributed about $290 million. These gains were offset by $90
million of unfavorable currency effects. The acquisitions of Bayrol, Lowi, Four
Seasons and Aqua Chem, completed in 1993, added approximately $120 million in
sales. In addition, the full year effect of the 1992 acquisitions of Chemol,
Societe Francaise d'Organo-Synthese ( GLCF) and Octel Kuhlmann added
approximately $170 million in sales.
Gross margins of 37 percent remained essentially unchanged from 1992. Gross
profits of $659 million were up $106 million, or 19 percent over 1992 gross
profit of $552 million. On an overall basis, about half of the increase in
gross profits was contributed by recent acquisitions. Profit margins of these
businesses, especially the Hungarian trading company, are generally lower than
the Company's average. The remainder of the gross profit increase came from the
aforementioned price and volume improvements which more than offset negative
currency effects. Changes in production costs and purchased material prices
were not a significant factor on gross margin.
SAR expenses in 1993 were $234 million, an increase of $45 million, or 24
percent, over 1992. As a percentage of sales, SAR expense increased 0.5
percentage points to 13 percent. Acquisitions accounted for most of the
increase in expense and higher SAR percent to sales ratio.
Equity in earnings of affiliates and other income amounted to $36 million in
1993, down $6 million from the $42 million recorded in 1992 primarily due to
the decline in affiliate earnings and the late 1992 acquisition of a company
that had previously been 50 percent owned.
Interest and other expenses amounted to $46 million in 1993, compared to $44
million in 1992. Interest expense, net of amounts capitalized, declined $4
million, reflecting reduced borrowings at lower interest rates. Amortization of
intangible assets, primarily goodwill, increased $11 million to $28 million
from the $17 million recorded in 1992. In 1993, the Company accelerated the
amortization of goodwill related to the purchase of Octel to better match
amortization with the anticipated decline of the lead compound business
resulting in an additional $9 million charge. The balance of the goodwill
amortization increase is associated with recent acquisitions. In 1993, other
expenses declined $8 million from 1992, due in large part to the 1992 write-off
of a Russian receivable relating to sales made in 1991.
Income taxes of $111 million increased 11 percent over the prior year as a
result of higher net income offset by a lower effective tax rate. The effective
tax rate for the year was 28.8 percent, down 1.3 points from 1992. The rate
declined due to the adoption of FAS 109 partially offset by the cumulative
effect of the change in tax laws resulting from the passage of the 1993 Tax
Act.
Net income in 1993 was $273 million, a 17 percent increase over 1992 net income
of $233 million. Earnings per share increased to $3.82 per share, up 17 percent
from the $3.27 per share earned in 1992. Net income as a percentage of revenues
was 15 percent in both years.
FINANCIAL CONDITION AND LIQUIDITY
The Company's goal is to return 20 percent or more on stockholders' average
equity. This goal was again exceeded in 1994. Management continues to emphasize
allocating resources to capital projects and strategic acquisitions that meet
or exceed the Company's return on investment targets.
<TABLE>
<CAPTION>
Year Return on Equity
-----------------------------------------------------------------------------
<S> <C>
1994 21.7
1993 23.6
1992 23.8
</TABLE>
Cash provided by operating activities, exclusive of the special cash dividend
received from HCC, amounted to $296 million, slightly less than the $300
million generated in 1993. The Company utilized this strong cash flow
augmented by the special dividend and commercial paper borrowings to finance
the expansion of its core businesses productive capacity, make strategic
acquisitions, increase dividends to stockholders, and repurchase approximately
4.2 million shares of stock. Cash and cash equivalents were $145 million
including $97 million of short-term cash investments, a decrease of $35 million
from a year ago.
23
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The Company's investment in working capital, excluding cash and cash
equivalents, amounted to $407 million as of December 31, 1994, an increase of
$98 million from the prior year. Accounts receivable increased $110 million
since the end of 1993 and reflect the impact of recent acquisitions and strong
fourth quarter sales. Day sales outstanding in accounts receivable were 71
days, an improvement of 5 days compared to the 76 day sales outstanding at the
end of 1993. In part, the improvement resulted from a higher level of sales in
product areas where payment terms are shorter.
Inventories increased $42 million to $317 million at the end of 1994 primarily
due to acquisitions. Inventory turnover of 4.2 times improved slightly from
1993.
Spending for plant and equipment amounted to $123 million in 1994, an increase
of 55 percent over 1993. Capital investments centered on productive capacity
additions in key product areas like flame retardants. In 1995, the Company
anticipates capital spending in the $150 million range to expand productive
capacity including the production of elemental bromine, a key building block in
producing flame retardants, water treatment and other core products.
Spending on environmental related capital projects was approximately $10
million in 1994 which is slightly lower than the prior year. Capital for
environmental related projects in 1995 should be consistent with 1994 levels.
Investments in and advances to unconsolidated subsidiaries declined $119
million in 1994, due primarily to a special, one time, cash dividend received
from HCC in December 1994. The dividend declared by HCC's Board was payable in
the form of cash or stock at the election of each shareholder. HCC's only other
shareholder elected to receive additional shares of stock. The resultant effect
is that the Company's ownership interest in HCC was reduced to 17 percent from
40 percent. The Company intends to use a portion of the proceeds to repurchase
outstanding shares of common stock.
The Company continues to utilize commercial paper borrowing as its primary
source of external financing due to interest rate considerations. Commercial
paper borrowings at December 31, 1994, amounted to $87 million. No commercial
paper was outstanding at the end of 1993. At December 31, 1994, the level of
debt to total capitalization was 9.7 percent, up from 5.1 percent at December
31, 1993.
The Company recently negotiated a $250 million, five year credit facility with
various banks. The new facility replaced a three year, $190 million facility.
The credit facility provides backup to the commercial paper program.
Additionally, the Company has a shelf registration on file with the Securities
and Exchange Commission for $200 million of debt securities which could be
issued to finance acquisitions or fund other corporate requirements. Management
has no immediate plans to issue debt securities under the registration
statement.
Other noncurrent liabilities of $127 million include a $48 million reserve for
expected future personnel reductions, plant closures and decontamination costs
at Octel's alkyl lead plants in the United Kingdom, France, and Italy as demand
for these products diminishes. Approximately $7 million was expended in 1994,
compared to $4 million in 1993. The Company anticipates that operations in
France and Italy will cease over the next 12 to 36 months. Spending on plant
closures should be in the $7 million range in 1995 and the $10 million range in
1996. Production at the U.K. plants should continue into the next century at
the current rate of market decline.
Deferred revenues of $74 million included in other noncurrent liabilities
represent partial payments for future delivery of product under a long-term
supply agreement with a major customer. The Company recognizes revenue using
the units-of-production method to amortize deferred revenue for this product
over the expected life of the contract. There was no production under this
agreement in 1994. Under the terms of the contract, the Company is entitled to
retain the advanced payment regardless of production volumes.
Stockholders' equity was $1,311 million, or $19.48 per share, at December 1994,
compared to $1,257 million, or $17.63 per share, at the end of 1993. Over the
past ten years, stockholders' equity has grown at a compound rate of 22
percent.
Dividends increased for the twenty-second consecutive year totaling $27
million, or $.39 per share, compared with $25 million, or $.35 per share, in
the prior year.
In 1994, the Company purchased 4.2 million shares of its stock for a total cost
of $232 million under various share repurchase programs authorized by the Board
of Directors. The average price per share of the stock purchased was $55.47. At
December 31, 1994, management had a remaining authorization to repurchase 3.2
million shares. Management's intention is to acquire additional shares to the
extent of the authorization when market conditions warrant.
24
<PAGE> 12
The cumulative translation adjustment component of stockholders' equity
represents the remeasurement of foreign currency denominated assets and
liabilities into U.S. dollars. The change in the cumulative translation
adjustment increased stockholders' equity by $29 million in 1994. The increase
reflects the strengthening of European currencies, particularly the British
pound sterling, against the dollar. Approximately 50 percent of the Company's
net assets are in Europe, predominantly the United Kingdom.
OTHER MATTERS
The Company's operations, like those of most companies which use or make
chemicals, are subject to stringent laws and regulations relating to
maintaining or improving the quality of the environment. Such laws and
regulations, along with the Company's own internal compliance efforts, have
required and will continue to require capital expenditures and associated
operating costs. Normal spending for environmental compliance, including that
associated with waste minimization and pollution prevention programs, amounted
to approximately $28 million in 1994 and about $25 million in 1993, including
approximately $10 million and $12 million for capital equipment in 1994 and
1993, respectively. Spending for environmental compliance is anticipated to be
in the same range in 1995.
The Company is a party to various governmental and private environmental
actions associated with current and former manufacturing sites and waste
disposal sites, including some sites that are on the Environmental Protection
Agency's Superfund National Priority List. In most instances, the Company has
been viewed as a de minimis contributor and has not expended any significant
amounts for remediation. Future environmental compliance and remediation costs
are, at best, difficult to quantify with reasonable assurance. This is due to
many factors including the speculative nature of remediation methods and costs,
conflicting and imprecise data regarding the nature and extent of waste, the
number of other parties involved, and changing governmental regulations. Based
upon the information currently available, management believes that adequate
provisions have been made in the financial statements and future costs will not
have a materially adverse impact on the Company's consolidated financial
position.
Inflation has not been a significant factor for the Company over the last
several years. Management believes that inflation will continue to be moderate
over the next several years and can be offset through a combination of price
increases and productivity improvements.
With the Company's strong balance sheet, substantial free cash flow, and access
to low-cost external financing, the Company is well-positioned to capitalize on
opportunities that may arise in 1995.
<TABLE>
<CAPTION>
1994--Stock Price Data
Low High
------------------------------------------------------------------------
<S> <C> <C>
1st Quarter 67-1/2 82
2nd Quarter 48-3/4 71
3rd Quarter 53-5/8 61-1/2
4th Quarter 51-3/4 59-5/8
Year-End Close 57
</TABLE>
<TABLE>
<CAPTION>
1993--Stock Price Data
Low High
<S> <C> <C>
------------------------------------------------------------------------
1st Quarter 66-3/4 81-1/4
2nd Quarter 65-1/2 84
3rd Quarter 64-1/2 72-5/8
4th Quarter 70-3/4 79-1/4
Year-End Close 74-5/8
</TABLE>
<TABLE>
<CAPTION>
Cash Dividends Paid
1994 1993
------------------------------------------------------------------------
<S> <C> <C>
1st Quarter .09 .08
2nd Quarter .095 .085
3rd Quarter .095 .085
4th Quarter .10 .09
</TABLE>
<PAGE> 13
FINANCIAL REVIEW
<TABLE>
<CAPTION>
(in thousands of dollars, except per share data)
1994 1993 1992 1991
<S> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Revenues $2,110,653 1,827,796 1,538,169 1,347,881
Percent increase over previous year 15.5 18.8 14.1 21.0
Income before taxes and minority interest $ 435,902 415,023 361,022 320,321
Percent of revenues 20.7 22.7 23.5 23.8
Income taxes $ 124,000 110,600 100,000 68,000
Percent of income before taxes 30.8 28.8 30.1 30.2
Net income $ 278,675 272,784 232,735 157,473
Per share* $ 4.00 3.82 3.27 2.23
Percent of revenues 13.2 14.9 15.1 11.7
Percent of stockholders' average equity 21.7 23.6 23.8 19.2
FINANCIAL POSITION AT YEAR-END
Working capital $ 551,735 489,179 342,171 338,009
Current ratio 2.3 2.3 1.8 2.1
Capital expenditures $ 123,109 79,270 69,368 71,243
Total assets $2,111,465 1,900,864 1,731,989 1,649,132
Long-term debt $ 143,661 61,041 45,642 139,788
Percent of total capitalization 9.7 5.1 7.3 4.4**
SHARE DATA
Stockholders' equity $1,310,948 1,256,563 1,052,851 900,344
Per share* $ 19.48 17.63 14.75 12.69
Cash dividends per share*
Declared during year $ .39 .35 .31 .27
Paid during year $ .38 .34 .30 .26
Payout as percent of net income 9.8 9.2 9.5 12.1
Shares outstanding*
Average during year 69,658,653 71,329,145 71,164,010 70,700,332
At year-end 67,297,420 71,274,796 71,410,458 70,923,990
Stock price*
High $ 82 84 71-3/8 58
Low $ 48-3/4 64-1/2 50-1/4 30-3/8
At year-end $ 57 74-5/8 69-1/4 57-1/4
</TABLE>
*Restated to reflect the 100 percent stock dividends on January 30, 1992, and
October 31, 1989.
**Excludes debt of $125 million incurred to fund the acquisition of Shell's
interest in Octel.
26
<PAGE> 14
Great Lakes Chemical Corporation and Subsidiaries
<TABLE>
<CAPTION>
Ten-Year
Growth
1990 1989 1988 1987 1986 1985 1984 Percentage
<S> <C> <C> <C> <C> <C> <C> <C>
1,113,519 847,738 616,046 501,010 305,703 281,952 283,261 22.2
31.4 37.6 23.0 63.9 8.4 (.5) 24.1
289,890 201,671 143,488 85,036 42,717 45,368 56,543 22.7
26.0 23.8 23.3 17.0 14.0 16.1 20.0
68,600 45,000 40,200 29,500 15,900 16,550 20,975
32.8 26.8 28.0 34.7 37.2 36.5 37.1
140,849 122,918 103,288 55,536 26,817 28,818 35,568 22.9
2.00 1.76 1.48 .83 .44 .48 .60 20.9
12.6 14.5 16.8 11.1 8.8 10.2 12.6
21.1 22.9 23.6 18.2 13.0 15.7 22.6
301,092 236,648 100,238 101,083 113,370 78,009 66,728 23.5
2.0 2.1 1.8 1.9 2.4 2.3 2.4
48,565 40,466 47,017 35,186 18,327 25,601 28,770
1,406,296 1,097,400 663,838 577,087 491,567 323,121 284,414 22.2
76,657 113,700 19,266 42,149 163,319 36,862 35,011
12.8 17.5 3.7 9.4 40.1 15.5 15.6
744,158 590,861 482,225 392,602 216,265 195,416 172,750 22.5
10.56 8.42 6.91 5.64 3.60 3.26 2.89 21.0
.23 .20 .18 .16 .14 .12 .10 14.6
.22 .19 .17 .15 .13 .11 .09 15.5
11.5 11.1 11.8 18.6 30.2 23.8 16.0
70,287,088 69,885,212 69,658,840 66,469,556 59,992,472 59,841,260 59,654,404
70,443,150 70,098,826 69,653,184 69,580,948 60,044,516 59,908,468 59,741,792
34 24 16-1/2 19-1/4 11-1/8 11-1/8 9-5/8
20-3/8 14-1/8 12-1/8 9 7-1/2 7-7/8 6
31-7/8 23-5/8 14-5/8 13-1/2 9 9-3/4 8-3/8 21.1
</TABLE>
27
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Great Lakes Chemical Corporation and Subsidiaries
<TABLE>
<CAPTION>
(in thousands of dollars, except per share data)
YEAR ENDED DECEMBER 31 1994 1993 1992
<S> <C> <C> <C>
REVENUES
Net sales $2,065,008 $1,792,042 $1,496,478
Equity in earnings of affiliates and other income 45,645 35,754 41,691
---------- ---------- ----------
2,110,653 1,827,796 1,538,169
---------- ---------- ----------
COSTS AND EXPENSES
Cost of products sold 1,369,618 1,133,352 944,186
Selling, administrative and research expenses 256,701 233,909 189,282
Interest and other expenses 48,432 45,512 43,679
---------- ---------- ----------
1,674,751 1,412,773 1,177,147
---------- ---------- ----------
INCOME BEFORE TAXES AND MINORITY INTEREST 435,902 415,023 361,022
MINORITY INTEREST IN INCOME OF SUBSIDIARIES 33,227 31,639 28,287
---------- ---------- ----------
INCOME BEFORE TAXES 402,675 383,384 332,735
INCOME TAXES 124,000 110,600 100,000
---------- ---------- ----------
NET INCOME 278,675 272,784 232,735
---------- ---------- ----------
RETAINED EARNINGS AT BEGINNING OF YEAR 1,160,173 912,352 701,698
CASH DIVIDENDS DECLARED 26,958 24,963 22,081
---------- ---------- ----------
RETAINED EARNINGS AT END OF YEAR $1,411,890 $1,160,173 $ 912,352
========== ========== ==========
NET INCOME PER SHARE $ 4.00 $ 3.82 $ 3.27
CASH DIVIDENDS DECLARED PER SHARE $ .39 $ .35 $ .31
AVERAGE SHARES OUTSTANDING 69,658,653 71,329,145 71,164,010
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
Great Lakes Chemical Corporation and Subsidiaries
<TABLE>
<CAPTION>
(in thousands of dollars)
DECEMBER 31 1994 1993
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 144,666 $ 179,734
Accounts and notes receivable, less allowance of
$7,758 and $7,088, respectively 493,614 383,129
Inventories 316,623 275,062
Prepaid expenses 24,774 18,994
---------- ----------
TOTAL CURRENT ASSETS 979,677 856,919
---------- ----------
PLANT AND EQUIPMENT 605,924 468,010
EXCESS OF INVESTMENT OVER NET ASSETS OF SUBSIDIARIES ACQUIRED 411,028 341,079
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES 66,479 185,789
OTHER ASSETS 48,357 49,067
---------- ----------
$2,111,465 $1,900,864
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 7,793 $ 10,253
Accounts payable 184,823 136,957
Accrued expenses 101,615 92,612
Income taxes payable 118,203 109,746
Dividends payable 6,730 6,415
Current portion of long-term debt 8,778 11,757
---------- ----------
TOTAL CURRENT LIABILITIES 427,942 367,740
---------- ----------
LONG-TERM DEBT, LESS CURRENT PORTION 143,661 61,041
OTHER NONCURRENT LIABILITIES 126,907 123,618
DEFERRED INCOME TAXES 75,652 73,298
MINORITY INTEREST 26,355 18,604
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 200,000,000 shares,
issued 72,024,520 and 71,817,996 shares, respectively 72,025 71,818
Paid-in capital 112,667 107,268
Retained earnings 1,411,890 1,160,173
Cumulative translation adjustment (25,222) (54,563)
Less treasury stock, at cost, 4,727,100 and 543,200 shares, respectively (260,412) (28,133)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,310,948 1,256,563
---------- ----------
$2,111,465 $1,900,864
========== ==========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
Great Lakes Chemical Corporation and Subsidiaries
<TABLE>
<CAPTION>
(in thousands of dollars)
YEAR ENDED DECEMBER 31 1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $278,675 $272,784 $232,735
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and depletion 72,663 62,475 58,433
Amortization of intangible assets 29,634 27,541 16,450
Deferred income taxes 700 (3,000) 3,000
Net remitted (unremitted) earnings of affiliates 112,312 (4,348) (5,374)
Loss (gain) on sale of assets (65) (4,418) 114
Other (1,365) 2,792 (4,609)
Change in operating assets and liabilities,
net of effects from business combinations:
Accounts receivable (95,097) (33,281) (4,454)
Inventories (9,969) 6,670 3,484
Other current assets (6,602) 2,042 (9,265)
Accounts payable and accrued expenses 35,010 (51,048) (12,197)
Income taxes and other current liabilities 10,131 21,765 42,257
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 426,027 299,974 320,574
INVESTING ACTIVITIES
Plant and equipment additions (123,109) (79,270) (69,368)
Business combinations, net of cash acquired (198,494) (89,827) (204,087)
Use of time deposit to fund acquisition -- -- 114,000
Proceeds from sale of assets 11,700 14,024 480
Other 21,484 (8,449) 9,161
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (288,419) (163,522) (149,814)
FINANCING ACTIVITIES
Net (repayment) and borrowings under short-term credit lines 1,243 (11,941) 4,256
Net proceeds from (payments of) long-term borrowings (8,026) 15,234 9,047
Net increase (decrease) in commercial paper and
other long-term obligations 85,042 (49,995) (92,958)
Net decrease in other noncurrent liabilities (8,098) (4,015) (5,640)
Minority interest 9,751 (822) 6,301
Proceeds from stock options exercised 3,336 3,203 2,873
Cash dividends declared (26,958) (24,963) (22,081)
Repurchase of common stock (232,279) (25,540) --
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (175,989) (98,839) (98,202)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 3,313 1,320 (12,728)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (35,068) 38,933 59,830
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 179,734 140,801 80,971
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $144,666 $179,734 $140,801
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Parentheses indicate decrease in cash and cash equivalents.
30
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Great Lakes Chemical Corporation and Subsidiaries
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include all subsidiaries of the Company
after elimination of all significant intercompany accounts and transactions.
Investments in less than majority-owned companies in which the Company has the
ability to exercise significant influence over operating and financial policies
of the investees are recorded at cost, plus equity in their undistributed
earnings since acquisition.
Cash Equivalents
Investment securities with maturities of three months or less when purchased
are considered to be cash equivalents.
Inventories
Approximately 90 percent of inventories are stated at the lower of cost
(first-in, first-out method) or market.
Plant and Equipment
Plant and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line, declining-balance
and unit-of-production methods. The costs of gas wells, leases and royalty
interests are amortized by the unit-of-production method based upon estimated
recoverable reserves and annual volumes of production.
Excess of Investment Over Net Assets of Subsidiaries Acquired
Excess of investment over net assets of subsidiaries acquired (goodwill) is
amortized over periods of eight to 40 years. The Company regularly evaluates
the realizability of goodwill based on projected undiscounted cash flows and
operating income for each business having material goodwill balances. Based on
its most recent analysis, the Company believes that no impairment of goodwill
exists at December 31, 1994. As of December 31, 1994 and 1993, accumulated
amortization was $63,941,000 and $43,242,000, respectively.
Income Taxes
Income taxes are provided on the portion of the income of unconsolidated
affiliates that is expected to be remitted to the parent company and be
taxable.
Retirement Plans
Noncontributory defined benefit pension plans cover substantially all employees
located in the United States, and contributory defined benefit pension plans
cover substantially all employees in the United Kingdom. Accrued pension costs
of qualified plans are funded. Pension contributions are computed actuarially
using the projected unit credit cost method and include normal costs and
amortization of prior service costs over approximately 30 years.
Share Data
Net income per share is computed on the weighted average number of shares
outstanding for all periods presented. The effect on net income per share
resulting from the assumed issuance of shares reserved for stock options is not
material.
ACQUISITIONS
On September 7, 1994, the Company completed the acquisition of E. I. du Pont de
Nemours & Company's (DuPont) petroleum additives business including DuPont's
North and South American tetraethyl lead business for approximately
$50,000,000. Octel America, Inc., a wholly-owned subsidiary of Great Lakes,
acquired the non-tetraethyl lead portion of the business whose products
consist of corrosion inhibitors, petroleum dyes, conductivity improvers,
antioxidants, metal sequestering agents, diesel fuel stabilizers and valve seat
recession protectors. A wholly-owned subsidiary of The Associated Octel
Company, Ltd. (Octel), purchased the tetraethyl lead portion of the business.
Octel is a majority-owned subsidiary of the Company. The excess of purchase
price over the book value of net assets acquired totaled approximately
$35,000,000.
The Company's acquisition of EniChem Synthesis S.p.A. (renamed GLCI) was
completed on April 21, 1994, for approximately $90,000,000 in cash. The excess
of purchase price over the net assets acquired amounted to
$25,000,000. Headquartered in Milan, Italy, GLCI is a leading manufacturer of
antioxidants and UV absorbers with annual revenues approaching $90,000,000.
GLCI operates manufacturing facilities in Pedrengo and Ravenna, Italy, and a
research and development center in Bolgiano, Italy. The acquisition
complements the Company's existing polymer additives business by bringing an
extensive line of new products and technology. The acquisition creates
synergies and cost reduction opportunities in supplying a worldwide customer
base.
Other acquisitions completed in 1994 include a U.K.-based distributor of pool
and spa chemicals and equipment, a Southeastern U.S. distributor of pool
chemicals and spa equipment, a trichloroisocyanuric acid (trichlor) dry
sanitizer plant that provides a key raw material used in the production of
swimming pool products, and the 50 percent balance of a European joint venture
involved in providing oil field services. The acquisitions cost approximately
$43,000,000. The excess of purchase price over the net assets acquired amounted
to approximately $6,000,000.
In 1993, the Company completed four acquisitions described below at a total
cost of $72,000,000, including $10,000,000 in future payments to be made over
four years. The excess of purchase price over the net assets acquired amounted
to approximately $30,000,000.
31
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two of the acquisitions strengthened the Company's position in the recreational
water treatment market. On January 4, 1993, the Company completed the purchase
of Bayrol Chemische Fabrik GmbH (Bayrol). Bayrol's headquarters and
manufacturing plants are in Munich, Germany, and it maintains sales and
distribution centers in France and Spain. On May 3, 1993, the Company acquired
Aqua Chem, a supplier of swimming pool and spa chemicals to mass merchants in
the United States.
In January 1993, the Company completed the purchase of Four Seasons Industrial
Services, Inc., and two associated companies. Located at Greensboro, North
Carolina, Four Seasons provides environmental remediation, consulting and
on-site treatment services.
In June 1993, the Company acquired LOWI, a Germany-based manufacturer of
antioxidants and ultraviolet absorbers, to complement the Company's worldwide
polymer stabilizers business.
On October 2, 1992, the Company acquired Societe Francaise d'Organo-Syntheses
(GLCF). The purchase price consisted of approximately $55,000,000 in cash at
closing and annual cash payments for a period of five years totaling
approximately $9,000,000. The excess of purchase price over the book value of
net assets acquired amounted to approximately $12,000,000. GLCF, headquartered
near Paris with manufacturing facilities in Catenoy and Persan, France,
produces polymer additives and specialty polymers.
On March 16, 1992, the Company completed its purchase of Shell U.K. Limited's
(Shell) 36.67 percent interest in Octel Associates and The Associated Octel
Company, Limited. Together with the Company's previous acquisition of 51.15
percent on May 18, 1989, its total interest in Octel is 87.82 percent. The
purchase agreement had a July 1, 1991, effective date but closing was delayed
pending resolution of various partnership issues. The Company has included the
additional earnings from Octel effective January 1, 1992. At closing, the
Company paid Shell approximately $138,000,000 plus interest from July 1, 1991.
The Company received from Shell approximately $46,000,000 plus interest
representing Shell's share of partnership distributions since July 1, 1991.
Additionally, the Company compensated Shell for the related United Kingdom
income tax liability from July 1, 1991, to closing. The excess of purchase
price over the book value of net assets acquired was approximately $21,000,000,
including purchase accounting adjustments.
The Company's May 18, 1989, acquisition agreement for Octel with three major
oil companies provides for profit participation payments for specified periods
of time after the date of acquisition. Such profit participation is treated as
an adjustment to the purchase price. These payments amounted to approximately
$16,000,000 in 1994 and to approximately $149,000,000 since acquisition.
All acquisitions have been accounted for as purchases and the results of
operations of the acquired businesses are included in the consolidated
financial statements from the dates of acquisition. The following represents
the unaudited pro forma results of operations as if the above-noted business
combinations had occurred at the beginning of the respective year in which the
companies were acquired as well as at the beginning of the immediately
preceding year:
<TABLE>
<CAPTION>
(in thousands, except earnings per share)
Year Ended December 31 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $2,124,000 $1,926,500 $1,848,600
Net income $ 287,000 $ 283,000 $ 236,900
Earnings per share $ 4.12 $ 3.96 $ 3.33
</TABLE>
The pro forma results do not purport to present the Company's actual operating
results had the acquisitions been made at the beginning of 1994, 1993, and
1992, or the results which may be expected in the future.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993
-------------------------------------------------
<S> <C> <C>
Cash $ 47,171 $ 28,415
Time deposits 97,495 151,319
-------- --------
$144,666 $179,734
======== ========
</TABLE>
INVENTORIES
The major components of inventories are as follows:
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993
--------------------------------------------------------
<S> <C> <C>
Finished products $223,822 $190,867
Raw materials 62,478 54,333
Supplies 30,323 29,862
-------- --------
$316,623 $275,062
======== ========
</TABLE>
Cost of applicable inventories using the last-in, first-out valuation method
approximates current cost at December 31, 1994 and 1993.
32
<PAGE> 20
Great Lakes Chemical Corporation and Subsidiaries
PLANT AND EQUIPMENT
Plant and equipment consist of the following:
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993
----------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 24,229 $ 14,200
Buildings and land improvements 116,833 86,293
Equipment and
leasehold improvements 789,951 674,354
Gas wells, leases and royalty interests 4,791 4,670
Construction in progress (estimated
additional cost to complete at
December 31, 1994, $97,000) 102,297 51,267
---------- --------
1,038,101 830,784
Less allowances for depreciation,
depletion and amortization 432,177 362,774
---------- --------
$ 605,924 $468,010
========== ========
</TABLE>
The estimated useful lives for purposes of computing depreciation are:
buildings and land improvements, 7-40 years; equipment and leasehold
improvements, 2-17 years.
Maintenance and repairs charged to costs and expenses were $89,164,000,
$81,420,000, and $72,070,000 for 1994, 1993, and 1992, respectively.
Rent expense for all operating leases amounted to $20,747,000, $16,138,000, and
$12,248,000 for 1994, 1993, and 1992, respectively.
NOTES PAYABLE
Data concerning borrowings are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Amounts borrowed (in thousands):
Maximum during
the year $34,758 $31,082 $25,487
Average for the year $11,916 $17,734 $16,606
Weighted average interest rates:
At December 31 6.6% 8.5% 9.4%
On borrowings during the year 6.7% 7.6% 9.4%
</TABLE>
The Company has no confirmed short-term credit lines, but has available for its
use substantial non-confirmed credit lines.
LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Commercial paper, 1994 year-end
average interest rate of 5.7% $ 86,954 $ --
Industrial development bonds, at fixed
and variable interest rates from 3.0%
to 7.6% at December 31, 1994
(weighted average 4.1%) with
maturities to May 2025 21,685 22,335
Other 43,800 50,463
-------- -------
152,439 72,798
Less current portion 8,778 11,757
-------- -------
$143,661 $61,041
======== =======
</TABLE>
The Company maintains a five-year, $250,000,000 credit agreement with a group
of eight banks which serves as a backup facility for the Company's commercial
paper program. The agreement provides various interest rate options, including
the banks' prime interest rate, and contains restrictive financial covenants,
including a maximum leverage ratio and an interest coverage rate. The Company's
commercial paper is rated A-1 by Standard and Poor's and P-1 by Moody's.
The Company has on file a shelf registration with the Securities and Exchange
Commission for $200,000,000 of debt securities. Once issued, the security
proceeds will be utilized by the Company as required from time to time for
acquisitions and other corporate purposes.
Long-term debt matures as follows: 1995, $8,778,000; 1996, $7,925,000; 1997,
$6,181,000; 1998, $3,543,000; and 1999, $88,277,000.
During 1994, 1993, and 1992, interest costs were $11,856,000, $8,174,000 and
$12,383,000, respectively, of which $1,737,000, $928,000 and $1,023,000,
respectively, were capitalized as additional costs of equipment and leasehold
improvements in connection with the expansion of physical facilities. In these
years, interest payments were $12,075,000, $8,167,000 and $11,946,000,
respectively.
33
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following:
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993
----------------------------------------------------------------------------------------
<S> <C> <C>
Future estimated closing costs of Octel's
TEL manufacturing facilities $ 48,271 $ 48,646
Deferred revenue 74,116 62,433
Other 4,520 12,539
-------- --------
$126,907 $123,618
======== ========
</TABLE>
Deferred revenue represents funds provided as an advance partial payment for
product to be delivered under the terms of a long-term supply contract with a
major customer. The Company recognizes the deferred revenue in its earnings
using a units-of-production method.
INCOME TAXES
The following is a summary of domestic and foreign income before income taxes,
the components of the provisions for income taxes and deferred income taxes, a
reconciliation of the U.S. statutory income tax rate to the effective income
tax rate, and the components of deferred tax assets and liabilities. The 1994
and 1993 tax data is presented on the liability method. The 1992 data is on the
deferred method. The cumulative effect of adopting the liability method in 1993
was an increase in net income of $3,000,000.
Income Before Taxes:
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $145,351 $148,078 $127,745
Foreign 257,324 235,306 204,990
-------- -------- --------
$402,675 $383,384 $332,735
======== ======== ========
</TABLE>
Provisions for Income Taxes:
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31 1994 1993 1992
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 39,500 $ 39,600 $ 34,250
State 6,000 5,600 4,700
Foreign 77,800 68,400 58,050
-------- -------- --------
123,300 113,600 97,000
-------- -------- --------
Deferred:
Domestic (6,100) 1,300 1,200
Foreign 6,800 (4,300) 1,800
-------- -------- --------
700 (3,000) 3,000
-------- -------- --------
$124,000 $110,600 $100,000
======== ======== ========
</TABLE>
Provisions for Deferred Income Taxes:
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity in affiliates $(8,313) $ 559 $ 385
Depreciation 4,297 1,735 4,196
Other 4,716 (5,294) (1,581)
------- ------- -------
$ 700 $(3,000) $ 3,000
======= ======= =======
</TABLE>
Effective Income Tax Rates Reconciliation:
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory income tax rate 35.0% 35.0% 34.0%
Decrease resulting from:
SFAS 109 -- (0.8) --
Reversal of prior provisions (2.0) (2.3) --
Other (2.2) (3.1) (3.9)
---- ---- ----
Effective income tax rate 30.8% 28.8% 30.1%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Components of Deferred Tax Assets and Liabilities:
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993
--------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets $17,215 $15,339
======= =======
Deferred tax liabilities
Depreciation $54,997 $50,700
Foreign liabilities
pending settlements 20,000 20,000
Undistributed affiliate earnings 1,352 9,665
Other 11,224 4,632
------- -------
$87,573 $84,997
======= =======
</TABLE>
Cash payments for income taxes were $109,337,000, $105,169,000 and $55,988,000
in 1994, 1993, and 1992, respectively.
34
<PAGE> 22
Great Lakes Chemical Corporation and Subsidiaries
STOCKHOLDERS' EQUITY
Changes in common stock and paid-in capital accounts are summarized as follows:
<TABLE>
<CAPTION>
Common Stock Paid-In
(dollar amounts in thousands) Shares Amount Capital
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at
December 31, 1991 71,090,090 $71,090 $ 91,570
Exercise of stock
options, net of
shares exchanged 486,468 486 2,387
Tax benefit from
early disposition
of stock by optionees -- -- 7,000
---------- ------- --------
Balance at
December 31, 1992 71,576,558 71,576 100,957
Exercise of stock
options, net of
shares exchanged 241,438 242 2,961
Tax benefit from
early disposition
of stock by optionees -- -- 3,350
---------- ------- --------
Balance at
December 31, 1993 71,817,996 71,818 107,268
Exercise of stock
options, net of
shares exchanged 206,524 207 3,129
Tax benefit from
early disposition
of stock by optionees -- -- 2,270
---------- ------- --------
Balance at
December 31, 1994 72,024,520 $72,025 $112,667
========== ======= ========
</TABLE>
The Company has a Stockholder Rights Plan. Under the Plan, the stockholders
have received a right (the "Right") for each outstanding share of common stock
of the Company. Each Right entitles the holder to purchase from the Company at
an exercise price of $92.50 (after adjustment pursuant to the Plan), one unit
consisting initially of one-tenth of a share of the Company's common stock and
a note in a principal amount equal to nine-tenths of the market price of a
share of the Company's common stock on the date of exercise.
The Right becomes exercisable and transferable apart from the common stock only
if a person or group acquires, obtains a right to acquire, or announces and/or
commences a tender offer to acquire ("Acquiring Holder") beneficial ownership
of 15 percent or more of the Company's outstanding common stock. Under certain
conditions, the Right may be redeemed by the Company at a price of $.0025 per
Right (after adjustment pursuant to the Plan) prior to their expiration on
September 22, 1999.
If the Right becomes exercisable and is not redeemed, the holder of each Right,
except any Acquiring Holder, is entitled to purchase, at the Right's
then-current exercise price, the number of Great Lakes common shares having a
market value equal to twice the Right's exercise price.
If the Company is acquired in a merger or other business combination, and the
Right has not been redeemed, the holder of each Right is entitled to purchase,
at the Right's then-current exercise price, that number of the acquiring
company's common shares having a market value equal to twice the Right's
exercise price.
In 1994, the Company purchased 4,183,900 shares of its common stock for a total
cost of $232,279,000. During 1993, the Company purchased 377,100 shares of its
stock for a total cost of $25,540,000.
Changes in the cumulative translation adjustment account are as follows:
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31 1994 1993 1992
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $(54,563) $(29,441) $38,579
Translation adjustments
and gains and losses from
hedging transactions 29,341 (25,122) (64,720)
Allocated income taxes -- -- (3,300)
-------- -------- --------
Balance at end of year $(25,222) $(54,563) $(29,441)
======== ======== ========
</TABLE>
The 1994 increase in the cumulative translation adjustment account was
principally due to the effect of the weakening U.S. dollar in relation to the
currencies of the various foreign countries in which the Company operates,
particularly the pound sterling. Conversely, the U.S. dollar strengthened in
1993 and 1992 decreasing the cumulative translation adjustment account.
STOCK OPTIONS
In May 1993, the stockholders adopted the 1993 Employee Stock Compensation Plan
for officers and other key employees, authorizing the issuance of 2,000,000
shares of the Company's common stock upon exercise of incentive stock options,
non-qualified stock options or other stock-based awards. The Plan generally
replaces the 1984 Plan which expired in May 1994. Under the Plans, options are
granted at the market value at date of grant, become exercisable over periods
of one to three years after grant and expire ten years from the date of grant.
35
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the changes in options under the Plans for the years
1994 and 1993:
<TABLE>
<CAPTION>
Shares Option
Under Option Prices
---------------------------------------------------------------
<S> <C> <C>
Outstanding at
December 31, 1992 1,923,482 $5.88 to $69.25
Granted 227,100 67.63 to 78.25
Exercised (258,387) 5.88 to 61.88
Terminated (8,632) 5.88 to 78.25
--------- ---------------
Outstanding at
December 31, 1993 1,883,563 6.89 to 78.25
Granted 240,600 54.00 to 77.50
Exercised (233,315) 6.89 to 66.13
Terminated (40,211) 9.25 to 78.25
-------- ---------------
Outstanding at
December 31, 1994 1,850,637 $9.25 to $77.50
========= ===============
Currently Exercisable 1,409,791 $6.69 to $76.00
========= ===============
</TABLE>
Options outstanding at December 31, 1994, have an average option price of
$39.47 per share and expire from March 11, 1995, to December 6, 2004. A total
of 1,883,563 shares are reserved for future grants as of December 31, 1994.
RETIREMENT PLANS
The Company maintains several noncontributory defined benefit pension plans
covering substantially all U.S. employees. Benefits are based on total
compensation, as defined, and years of credited service reduced by social
security benefits according to a plan formula. Normal retirement age is 65, but
provisions are made for early retirement. The Company's funding policy is to
contribute amounts to the plans to meet the funding requirements of federal
laws and regulations, as determined by the Company's actuary. The plans' assets
are invested by an insurance company, one bank, and four investment management
companies in various commingled and segregated funds holding equities, bonds,
guaranteed income contracts and cash or cash equivalents.
The Company maintains two contributory defined benefit pension plans covering
substantially all United Kingdom employees. Benefits are based on final salary
and years of credited service, reduced by social security benefits according to
a plan formula. Normal retirement age is 65, but provisions are made for early
retirement. The Company's funding policy is to contribute amounts to the plans
to cover service costs to date as recommended by the Company's actuary. The
plans' assets are invested by two investment management companies in funds
holding U.K. and overseas equities, U.K. and overseas fixed interest
securities, index linked securities, property unit trusts and cash or cash
equivalents.
A summary of the components of net periodic pension cost for U.S. and U.K.
pension plans is as follows:
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 16,218 $ 14,160 $ 14,694
Interest cost on projected
benefit obligation 37,855 34,590 37,246
Actual return on plan assets (16,280) (119,219) (10,204)
Net amortization and deferral (28,317) 79,522 (33,709)
-------- --------- --------
Net pension cost $ 9,476 $ 9,053 $ 8,027
======== ========= ========
</TABLE>
The funded status and accrued pension cost for the U.S. pension plans are as
follows:
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value
of accumulated
plan benefits:
Vested $40,219 $37,447 $26,168
Non-vested 1,241 2,345 3,378
------- ------- -------
Total accumulated benefit obligation 41,460 39,792 29,546
Additional amounts related to projected salary increases 12,074 18,549 14,781
------- ------- -------
Total projected benefit obligation 53,534 58,341 44,327
Plan assets at fair value 50,975 43,982 36,470
------- ------- -------
Projected benefit obligation in excess of plan assets 2,559 14,359 7,857
Unrecognized net gain (loss) 3,418 (5,605) (279)
Unrecognized prior service cost (175) (13) 29
Unrecognized obligation
at January 1, 1987, net of amortization (1,643) (1,834) (2,025)
------- ------- -------
Accrued pension cost $ 4,159 $ 6,907 $ 5,582
======= ======= =======
</TABLE>
36
<PAGE> 24
Great Lakes Chemical Corporation and Subsidiaries
The funded status and prepaid pension cost for the U.K. pension plans are as
follows:
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of accumulated plan
benefits, all vested $384,140 $353,963 $322,989
Additional amounts related to projected
salary increases 13,310 34,997 25,519
-------- -------- --------
Total projected benefit obligation 397,450 388,960 348,508
Plan assets at fair value 486,242 448,028 352,887
-------- -------- --------
Plan assets in excess of projected
benefit obligation 88,792 59,068 4,379
Unrecognized net (gain) loss (56,532) (32,487) 24,160
Unrecognized prior service cost 10,649 10,928 12,080
-------- -------- --------
Prepaid pension cost $ 42,909 $ 37,509 $ 40,619
======== ======== ========
</TABLE>
Assumptions used in determining the actuarial present value of the projected
benefit obligations are set forth below. In 1994, the weighted average discount
rate for U.S. plans was increased from 7.5 percent to 8.7 percent thus reducing
the 1994 year-end projected benefit obligation by approximately $11,000,000. In
1993, the weighted average discount rate and the rates of increase in
compensation level assumptions were revised downward for all plans to be
consistent with prevailing market conditions. The changes resulted in
increasing the projected benefit obligation of the U.S. plans by approximately
$5,000,000.
Weighted average discount rates 8.7% to 9.0%
Rates of increase in compensation levels 4.8% to 7.0%
Expected long-term return on assets 9.0% to 10.25%
Supplemental defined benefit pension plans covering certain officers and
directors are also maintained. These plans are non-qualified and unfunded. The
pension liability associated with these plans is accrued using the same
actuarial methods and assumptions as those used in the qualified U.S. plans.
The cost for these plans which is included in the net pension cost shown above
amounted to $800,000, $900,000 and $200,000 in 1994, 1993 and 1992,
respectively. The unfunded projected benefit obligation, which is included in
the accrued pension cost above, amounted to $4,519,000, $4,930,000 and
$1,500,000 in 1994, 1993 and 1992. Benefits under these plans will be paid from
general Company funds.
The Company provides no significant postretirement benefits other than
pensions.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were approximately $59,090,000, $55,152,000,
and $46,579,000 in 1994, 1993 and 1992, respectively.
INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
The Company's operations consist of one dominant industry segment, chemicals
and allied products.
Net sales, income before taxes and minority interest, and identifiable assets
by geographic areas follow:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States $ 938,214 $ 846,876 $ 763,002
Foreign 1,126,794 945,166 733,476
---------- ---------- ----------
Total $2,065,008 $1,792,042 $1,496,478
========== ========== ==========
Intercompany sales between geographic areas:
United States $ 96,668 $ 103,151 $ 98,408
Foreign 26,418 4,581 905
---------- ---------- ----------
Total $ 123,086 $ 107,732 $ 99,313
========== ========== ==========
Income before taxes and minority interest:
United States $ 138,123 $ 144,722 $ 126,827
Foreign 291,506 270,337 232,286
Earnings of affiliates 14,765 5,535 9,738
Corporate interest expense (8,492) (5,571) (7,829)
---------- ---------- ----------
Total $ 435,902 $ 415,023 $ 361,022
========== ========== ==========
Identifiable assets at year-end:
United States $ 972,002 $ 922,091 $ 765,758
Foreign 1,072,984 792,984 780,161
Affiliates 66,479 185,789 186,070
---------- ---------- ----------
Total $2,111,465 $1,900,864 $1,731,989
========== ========== ==========
</TABLE>
Most of the Company's foreign operations are conducted by European subsidiaries
or U.S. branch offices. Sales between the United States and its foreign
operations are generally priced to recover cost plus an appropriate markup for
profit and are eliminated in the consolidated financial statements.
Identifiable assets include assets directly identified with operations,
principally: accounts receivable, inventories, and plant and equipment, plus an
allocation of cost in excess of net assets acquired.
Export sales for 1994, 1993 and 1992 amounted to approximately $199,000,000,
$167,000,000 and $172,000,000, respectively, of which 88 percent, 87 percent
and 88 percent, respectively, were outside the Western Hemisphere.
37
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENT IN UNCONSOLIDATED AFFILIATES
As of December 31, 1994, the Company's investment in unconsolidated affiliates
consists mainly of a 17 percent interest in Huntsman Chemical Corporation (HCC)
and a 50 percent interest in KAO-Quaker, Co. Ltd., a Japanese marketer of
furfural derivatives. Effective December 29, 1994, the Company's ownership
interest in HCC, a producer of polystyrene and compounded specialty plastics,
was reduced from 40 percent to 17 percent when the Company elected to receive a
$130,000,000 cash dividend while HCC's other shareholder elected to receive
additional shares. As a result of the reduced ownership interest in HCC, the
Company now accounts for the investment using the cost method.
The Company's equity in earnings of unconsolidated affiliates was $20,165,000,
$10,935,000 and $15,138,000 for 1994, 1993, and 1992, respectively.
FINANCIAL INSTRUMENTS AND CONCENTRATION
OF CREDIT RISK
The carrying amounts reported in the balance sheet of cash and cash
equivalents, notes payable and long-term debt do not materially differ from
their fair value at December 31, 1994. The fair value of the Company's debt was
estimated using a discounted cash flow analysis based upon the Company's
current incremental borrowing rates for similar borrowing arrangements.
The Company hedges certain portions of its exposure to foreign currency
fluctuations in revenues and net foreign investments through the use of options
and forward exchange contracts. Gains and losses arising from the use of such
instruments are recorded in the income statement concurrently with gains and
losses arising from the underlying hedged transactions.
The Company enters into currency option contracts to hedge anticipated export
sales that are exposed to foreign currency fluctuations over the next year. At
December 31, 1994 and 1993, the Company had outstanding option contracts with a
notional value of $67,000,000 and $76,000,000, respectively. At December 31,
1994, 64 percent of the contracts were for German marks with the balance
Japanese yen. At the end of 1993, 54 percent were for German marks and the
balance Japanese yen. The cost to acquire the contracts that hedge 1995 export
sales was approximately $2,100,000 and that amount was deferred as of December
31, 1994. Had these contracts been acquired at December 31, 1994, their cost,
fair value, would have been $553,000.
The Company uses currency swap contracts to hedge long-term intercompany loans
and the related interest. The terms of the swap contracts match the loan
payment terms. Swap contracts in existence at December 31, 1994, are for French
francs, German marks and Italian lira against the British pound sterling. The
U.S. dollar equivalent of the notional amount of the contracts outstanding as
of December 31, 1994, was $171,106,000. Liquidating the position at December
31, 1994, would cost the Company approximately $5,000,000. It is the Company's
intention to hold the swap contracts to maturity.
Counterparties to the foreign currency options and to the currency swap
agreements are major financial institutions. Credit losses from counterparty
non-performance are not anticipated.
The Company sells a broad range of products to a diverse group of customers
operating throughout the world. These industries generally are not
significantly affected by changes in economic or other factors. Credit limits,
ongoing credit evaluation and account monitoring procedures are utilized to
minimize the risk of loss. Collateral is generally not required.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of the Great Lakes
Chemical Corporation and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income and retained earnings and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1993 financial statements of Huntsman Chemical
Corporation and Arkansas Chemicals, Inc. The investment in and advances to
these unconsolidated affiliated companies represent 9 percent of 1993
consolidated assets. Those statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to the
1993 amounts included for Huntsman Chemical Corporation and Arkansas Chemicals,
Inc., is based solely on reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Great Lakes Chemical
Corporation and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
January 30, 1995
38
<PAGE> 26
QUARTERLY RESULTS OF OPERATIONS
Great Lakes Chemical Corporation and Subsidiaries
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1994
THREE MONTHS ENDED MAR. 31 JUN. 30 SEPT. 30 DEC. 31
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 448,676 $ 525,893 $ 525,216 $ 565,223
Equity in earnings of affiliates and other income 11,062 9,901 13,675 11,007
--------- --------- --------- --------
459,738 535,794 538,891 576,230
--------- --------- --------- --------
Costs and Expenses
Cost of products sold 288,605 352,487 346,342 382,184
Selling, administrative and research expenses 56,051 64,716 66,562 69,372
Interest and other expenses 10,417 13,212 12,244 12,559
--------- --------- --------- --------
355,073 430,415 425,148 464,115
--------- --------- --------- --------
Income Before Taxes and Minority Interest 104,665 105,379 113,743 112,115
Minority Interest in Income of Subsidiaries 7,981 7,532 9,204 8,510
--------- --------- --------- --------
Income Before Taxes 96,684 97,847 104,539 103,605
Income Taxes 29,800 30,100 32,200 31,900
--------- --------- --------- --------
Net Income $ 66,884 $ 67,747 $ 72,339 $ 71,705
========= ========= ========= ========
Net Income per Share $ .94 $ .96 $ 1.05 $ 1.05
========= ========= ========= ========
<CAPTION>
1993
Three Months Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 430,176 $ 461,839 $ 469,656 $ 430,371
Equity in earnings of affiliates and other income 6,406 8,924 6,586 13,838
--------- --------- --------- ---------
436,582 470,763 476,242 444,209
--------- --------- --------- ---------
Costs and Expenses
Cost of products sold 272,995 288,415 302,825 269,117
Selling, administrative and research expenses 59,570 62,196 58,175 53,968
Interest and other expenses 7,295 14,410 9,870 13,937
--------- --------- --------- ---------
339,860 365,021 370,870 337,022
--------- --------- --------- ---------
Income Before Taxes and Minority Interest 96,722 105,742 105,372 107,187
Minority Interest in Income of Subsidiaries 7,780 8,136 8,175 7,548
--------- --------- --------- ---------
Income Before Taxes 88,942 97,606 97,197 99,639
Income Taxes 24,700 27,500 28,700 29,700
--------- --------- --------- ---------
Net Income $ 64,242 $ 70,106 $ 68,497 $ 69,939
========= ========= ========= =========
Net Income per Share $ .90 $ .98 $ .96 $ .98
========= ========= ========= =========
</TABLE>
39
<PAGE> 27
SUBSIDIARIES AND AFFILIATES DIRECTORS
BAYROL CHEMISCHE FABRIK GMBH WILLIAM H. CONGLETON 1,4
Swimming Pool General Partner
and Spa Products Palmer Partners
100% Owned Private investment
partnership
BIO-LAB, INC. Director since 1973
Swimming Pool
and Spa Products JOHN S. DAY 1,2,3
100% Owned Vice President Emeritus
of Purdue University
CHEMISCHE WERKE LOWI BETEILIGUNGS GMBH & CO. Director since 1975
Specialty Chemicals
100% Owned THOMAS M. FULTON
CEO and President of
CHEMOL RT Landauer, Inc.
Chemical Trading Company Director since 1995
78% Owned
MARTIN M. HALE 1,3,4
Chairman of the Board
E/M CORPORATION Executive Vice President
Engineered Finishes Hellman Jordan
and Coatings Management Company
100% Owned Investment management
Boston, Massachusetts
FOUR SEASONS INDUSTRIAL SERVICES, INC. Director since 1978
Environmental Remediation
100% Owned LEO H. JOHNSTONE 1,2,3
Retired Vice Chairman
GREAT LAKES CHEMICAL (EUROPE), LTD. Phillips Petroleum
Specialty Chemicals Company
100% Owned Director since 1982
GREAT LAKES CHEMICAL FRANCE S.A. EMERSON KAMPEN 3,4
Specialty Chemicals Chairman Emeritus
100% Owned Former Chairman,
President and Chief
GREAT LAKES CHEMICAL INTERNATIONAL, INC. Executive Officer
Export Sales-FSC Director since 1971
100% Owned
LOUIS E. LATAIF
GREAT LAKES CHEMICAL ITALIA S.R.L. Dean of the School of
Specialty Chemicals Management
100% Owned Boston University
Director since 1995
KAO-QUAKER CO., LTD.
Furfural Derivatives RICHARD H. LEET 1,2
50% Owned Retired Vice Chairman
and Director
OCTEL ASSOCIATES Amoco Corporation
and Director since 1994
THE ASSOCIATED OCTEL COMPANY, LIMITED
Fuel Additives and Specialty Chemicals ROBERT B. MCDONALD
87.8% Owned Chief Executive Officer
and President
OCTEL CHEMICALS LIMITED Director since 1994
Manufacturer of Fine and Specialty
Chemicals and Intermediates
100% Owned
OSCA, INC. 1 Member of the Audit
High-Density, Clear Fluids Committee
100% Owned 2 Member of the Compensation
and Incentive Committee
3 Member of the Executive
WIL RESEARCH LABORATORIES, INC. Committee
Toxicological Testing 4 Member of the Finance
100% Owned Committee
SHAREHOLDER INFORMATION
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for Great Lakes' stock is Harris Trust
Company of New York. Stockholders who wish to transfer their stock, or change
the name in which the shares are registered, should contact:
Harris Trust
and Savings Bank
Attn: Shareholder Services
P.O. Box 755
Chicago, Illinois 60690-0755
(312) 461-2421
AUDITORS
Ernst & Young LLP
Indianapolis, Indiana
LISTINGS
New York Stock Exchange
New York, New York
Pacific Stock Exchange
Los Angeles and
San Francisco, California
Ticker Symbol: GLK
ANNUAL MEETING
The Annual Meeting of
the Stockholders will be held at 11:00 a.m., Thursday, May 4, 1995, at the
University Place Conference Center and Hotel, 850 West Michigan, Indianapolis,
Indiana
FORM 10-K AND OTHER
INFORMATION
A complimentary copy of the company's 1994 Annual Report to the Securities and
Exchange Commission on Form 10-K is available upon request. For this, or for
other information concerning the company, please contact:
William P. Blake
Director, Investor Relations
or
Gregory J. Griffith
Director,
Public Affairs and Administration
Great Lakes Chemical Corporation
One Great Lakes Boulevard
West Lafayette, Indiana 47906-0200
Phone: (317) 497-6100
[RECYCLE SYMBOL]
40
<PAGE> 1
Exhibit 23
Great Lakes Chemical Corporation and Subsidiaries
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Great Lakes Chemical Corporation of our report dated January 30, 1995,
included in the 1994 Annual Report to Stockholders of Great Lakes Chemical
Corporation.
Our audits also included the financial statement schedule of Great Lakes
Chemical Corporation listed in Item 14(a). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in Post-Effective Amendment
Number 5 to the Registration Statement Number 2-53909 on Form S-8, dated May 1,
1980, in Registration Statement Number 33-02069 on Form S-3, dated December 11,
1985, in Post-Effective Amendment Number 1 to the Registration Statement Number
33-02074 on Form S-8, dated February 3, 1995, in Registration Statement Number
33-02075 on Form S-8, dated December 11, 1985, in Registration Statement Number
33-42477 on Form S-3, dated August 28, 1991, and in Registration Statement
Number 33-57589 on Form S-8, dated February 3, 1995, of our report dated
January 30, 1995, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of Great Lakes Chemical Corporation.
ERNST & YOUNG LLP
Indianapolis, Indiana
March 27, 1995
---------------------------------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 5
to Registration Statement No. 2-53909 on Form S-8, in Registration Statement
Nos. 33-02069 and 33-42477 both on Form S-3, in Post-Effective Amendment No. 1
to Registration Statement No. 33-02074 on Form S-8, and in Registration
Statement Nos. 33-02075 and 33-57589 both on Form S-8 of our report dated
January 31, 1994 (relating to the financial statements of Arkansas Chemicals,
Inc. not presented separately herein) appearing in the Annual Report on Form
10-K of Great Lakes Chemical Corporation for the year ended December 31, 1993.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 27, 1995
---------------------------------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 5
to Registration Statement No. 2-53909 on Form S-8, in Registration Statement
Nos. 33-02069 and 33-42477 both on Form S-3, in Post-Effective Amendment No. 1
to Registration Statement No. 33-02074 on Form S-8, and in Registration
Statement Nos. 33-02075 and 33-57589 both on Form S-8 of our report dated
January 26, 1994 (relating to the consolidated financial statements of Huntsman
Chemical Corporation not presented separately herein) appearing in the Annual
Report on Form 10-K of Great Lakes Chemical Corporation for the year ended
December 31, 1993.
Deloitte & Touche LLP
Salt Lake City, Utah
March 27, 1995
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME, AND STATEMENT OF CASHFLOW AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-END> DEC-31-1994
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<SECURITIES> 0
<RECEIVABLES> 501,372
<ALLOWANCES> (7,758)
<INVENTORY> 316,623
<CURRENT-ASSETS> 979,677
<PP&E> 1,038,101
<DEPRECIATION> (432,177)
<TOTAL-ASSETS> 2,111,465
<CURRENT-LIABILITIES> 427,942
<BONDS> 143,661
<COMMON> 72,025
0
0
<OTHER-SE> 1,238,923
<TOTAL-LIABILITY-AND-EQUITY> 2,111,465
<SALES> 2,065,008
<TOTAL-REVENUES> 2,110,653
<CGS> 1,369,618
<TOTAL-COSTS> 1,624,145
<OTHER-EXPENSES> 38,313
<LOSS-PROVISION> 1,174
<INTEREST-EXPENSE> 10,119
<INCOME-PRETAX> 402,675
<INCOME-TAX> 124,000
<INCOME-CONTINUING> 278,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,675
<EPS-PRIMARY> 4.00
<EPS-DILUTED> 4.00
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