<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
Commission file number 1-6450
GREAT LAKES CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-1765035
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
ONE GREAT LAKES BOULEVARD
P. O. BOX 2200
WEST LAFAYETTE, INDIANA 47906
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 317-497-6100
----------------
Not Applicable
-------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X
-----
No
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
One Class - 63,670,067 Shares as of June 30, 1996
<PAGE> 2
Part 1 - Financial Statements
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---------- ----------
(thousands of dollars)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 116,051 $ 180,970
Accounts receivable, less allowance
of $8,001 (1995 - $7,659) 547,895 527,014
Inventories
Finished products 323,995 260,293
Raw materials 79,329 82,297
Supplies 34,655 33,377
---------- ----------
Total inventories 437,979 375,967
Prepaid Expenses 32,613 41,060
---------- ----------
Total current assets 1,134,538 1,125,011
Plant and Equipment 1,312,005 1,278,332
Less allowance for depreciation (535,281) (513,021)
---------- ----------
Net plant and equipment 776,724 765,311
Excess of Investment over Net Assets of
Subsidiaries Acquired 418,235 416,632
Investments in and Advances to
Unconsolidated Affiliates 74,434 72,587
Other Assets 95,453 89,328
---------- ----------
$2,499,384 $2,468,869
========== ==========
</TABLE>
1
<PAGE> 3
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---------- ----------
(thousands of dollars)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ 2,881 $ 6,309
Accounts payable 172,215 198,490
Accrued expenses 118,830 108,414
Income taxes 149,618 128,891
Dividends payable 9,551 7,430
Current portion of long-term debt 15,486 15,891
---------- ----------
Total current liabilities 468,581 465,425
Long-Term Debt, less Current Portion 387,543 340,145
Other Non-Current Liabilities 57,596 126,820
Deferred Income Taxes 93,158 88,540
Minority Interest 38,495 31,756
Stockholders' Equity
Common stock, $1 par value, authorized
200,000,000 shares, issued
72,423,089 shares
(1995 - 72,109,477 shares) 72,423 72,109
Paid-in capital 114,400 113,647
Retained earnings 1,805,706 1,678,834
Cumulative translation adjustment (30,557) (23,179)
Treasury stock at cost 8,753,022 shares
(1995 - 7,505,100 shares) (507,961) (425,228)
---------- ----------
Total stockholders' equity 1,454,011 1,416,183
---------- ----------
$2,499,384 $2,468,869
========== ==========
</TABLE>
2
<PAGE> 4
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- --------------------------
1996 1995 1996 1995
-------- -------- ---------- ----------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net Sales $594,949 $640,851 $1,131,909 $1,209,886
Operating Expenses
Cost of products sold 396,101 430,576 747,324 815,965
Selling, administrative
and research expenses 72,381 74,715 141,366 146,031
-------- -------- ---------- ----------
468,482 505,291 888,690 961,996
-------- -------- ---------- ----------
Income from Operations 126,467 135,560 243,219 247,890
Equity in Earnings of
Affiliates and Other
Income 27,021 7,936 34,599 14,501
Interest and Other Expenses 28,067 18,710 44,460 28,412
Minority Interest in Income
of Subsidiaries 7,263 8,515 14,878 16,481
-------- -------- ---------- ----------
Income Before Taxes 118,158 116,271 218,480 217,498
Income Taxes 40,200 37,800 74,300 70,700
-------- -------- ---------- ----------
Net Income $ 77,958 $ 78,471 $ 144,180 $ 146,798
======== ======== ========== ==========
Net Income per Share $ 1.20 $ 1.20 $ 2.23 $ 2.22
======== ======== ========== ==========
Dividends Declared per Share $ .150 $ .105 $ .27 $ .21
======== ======== ========== ==========
Average Shares Outstanding 63,971 65,240 64,627 65,996
</TABLE>
3
<PAGE> 5
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
---------------------------
1996 1995
---------- -------
(thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 144,180 $ 146,798
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 61,198 55,132
Changes in deferred items and other 6,743 3,395
--------- ---------
Cash provided by operations
excluding changes in working capital 212,121 205,325
Changes in working capital other than
debt, net of effects from business
combinations (72,412) (66,674)
--------- ---------
Net Cash Provided by Operating Activities 139,709 138,651
INVESTING ACTIVITIES
Plant and equipment additions (108,773) (126,244)
Business combinations, net of cash
acquired (23,172) (27,806)
Other (10,910) 2,875
--------- ---------
Net Cash Used in Investing Activities (142,855) (151,175)
FINANCING ACTIVITIES
Net (repayment) and borrowings under
short-term credit lines (3,177) 1,745
Net increase in commercial paper
and other long-term obligations 47,914 162,072
Net increase (decrease) in other
non-current liabilities (6,690) 99
Minority interest 1,446 432
Repurchases of common stock (82,733) (153,630)
Cash dividends declared (17,294) (13,749)
--------- ---------
Net Cash Used in Financing Activities (60,534) (3,031)
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (1,239) 1,502
--------- ---------
Decrease in Cash and Cash Equivalents (64,919) (14,053)
Cash and Cash Equivalents at
Beginning of Year 180,970 144,666
--------- ---------
Cash and Cash Equivalents at End of
Period $ 116,051 $ 130,613
========= =========
</TABLE>
4
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE SIX MONTHS ENDED JUNE 30, 1996
RESULTS OF OPERATIONS
Second quarter sales of $595 million declined $46 million from the $641 million
reported in the 1995 quarter. Net income of $78 million, or $1.20 per share,
is unchanged from 1995.
Six-month sales of $1.1 billion declined 6 percent from the $1.2 billion
realized in 1995. Net income for the period amounted to $144 million, or $2.23
per share, compared to $147 million, or $2.22 per share reported for the first
half of 1995.
Comparative sales by business unit are shown in the following table
($-millions):
<TABLE>
<CAPTION>
Second Quarter Year-To-Date
-------------------------- ---------------------------
1996 1995 Change 1996 1995 Change
---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Flame Retardants $ 75 $ 75 -- % $ 145 $ 149 (3)%
Intermediates &
Fine Chemicals 71 78 (9)% 144 148 (3)%
Petroleum Additives 139 161 (14)% 283 314 (10)%
Polymer Stabilizers 63 59 7 % 123 118 4 %
Specialized Services 86 121 (29)% 174 239 (27)%
Water Treatment 161 147 10 % 263 242 9 %
---- ---- --- ------ ------ ---
$595 $641 (7)% $1,132 $1,210 (6)%
==== ==== === ====== ====== ===
</TABLE>
On an overall basis, the decline in sales is attributable to:
<TABLE>
<CAPTION>
Second
Quarter Year-To-Date
------- ------------
<S> <C> <C>
Selling Price $ 18 $ 28
Volume (44) (77)
Acquisitions -- 1
Foreign Exchange (13) (18)
Dispositions (7) (12)
---- ----
$(46) $(78)
==== ====
</TABLE>
Flame Retardants - While comparable to the prior-year quarter, sales
strengthened by 7 percent from this year's first quarter. Compared to a year
ago, end-market demand in automotive, wire and cable and electronics
industries, particularly in Europe, was sluggish. Product price improvements
are being maintained; however, the weakening of the Japanese yen relative to
the dollar negatively impacted sales.
Intermediates and Fine Chemicals - Weak demand for furfuryl alcohol due to
contraction in the foundry industry was the chief factor in sales declining.
Price increases achieved in the latter part of 1995 have so far been
maintained. Other product lines, Ag Chemicals, Bromine and Derivatives, and
Fine Chemicals, showed improvement in both volumes and prices.
Petroleum Additives - Sales declined about $22 million from the prior-year
quarter. Lower bulk sales to the Near East, political and financing issues in
Russia and Algeria, and the effect of inventory adjustments by certain
customers resulted in a retail volume decline of approximately 26% from the
year-ago quarter. Retail prices increased about 9 percent from the prior-year
quarter which is in line with trend expectations and substantially improved
from the 1996 first quarter which was negatively effected by the regional mix
of sales. Wholesale volume and prices registered improvement during the
period. The relationship of retail to wholesale volume was 63/37 in the
quarter compared to 73/27 in the prior year. For the first six months of 1996,
retail volumes are off about 17 percent from a year ago while prices are up
about 7 percent. To date, the relationship of retail to wholesale sales volume
is just under the expected norm of 70/30. The non-lead fuel additives business
is enjoying strong demand for functional products and fuel formulations
resulting in double-digit sales growth. General chemical sales improved;
however, sales of a new intermediate were less than expected as the customer
ramp up is proceeding slower than predicted.
5
<PAGE> 7
Polymer Stabilizers - The 7 percent sales improvement in the quarter, compared
to a year ago, is primarily attributable to price improvements offset in part
by weakening of the German mark and related currencies vis-a-vis the dollar.
The business unit has experienced a steady improvement in sales since hitting a
low in the third quarter of 1995, reflecting a recovery in the key end-user
markets.
Specialized Services and Manufacturing - Virtually all of the quarter's sales
decline is attributable to Chemol, our Eastern European trading organization.
Industry privatization has resulted in the loss of key suppliers. All other
businesses in this unit, except the environmental contracting and consulting
operations, registered improvements. Environmental operations continue to be
negatively impacted by reduced federal government spending.
Water Treatment - Recreational water treatment sales in both the U.S. and
Europe gained momentum due to improved weather conditions.
Gross Profits of $199 million are $11 million lower than the year-earlier
period; however, as a percentage of sales, margins improved 0.6 percentage
points to 33.4 percent as the lost sales were mainly in lower margin products.
The drop in gross profits reflects the impact of volume declines offsetting
price improvements and the negative impacts of higher operating costs, reduced
production volume and negative currency effects.
Selling, Administrative, and Research expenses for the second quarter amounted
to $72 million, or about $2 million lower than the prior-year quarter. As a
result of lower sales, SAR, as a percent to sales, increased 0.6 percentage
points to 12.2 percent.
Operating Income of $126 million was approximately $9 million lower than the
1995 second quarter. The contribution of core businesses exceeded 50 percent
of total operating income.
Other Income includes a gain of $19 million, net of expenses, as a result of
Nowsco Well Services, Ltd. accepting an acquisition offer that Great Lakes was
unwilling to meet. Excluding the aforementioned gain, other income is
equivalent to the prior-year period.
Other Expenses includes a special charge of $13.5 million primarily related to
environmental remediation cost associated with a former plant site sold by the
company in the early 1980's. Exclusive of the special charge, other expenses
declined slightly.
The company's effective tax rate increased over the year-ago period due to a
greater proportion of earnings in higher-taxed jurisdictions and a reduction
in the reversal of prior-year reserves. The higher tax rate increased income
tax expense about $2 million.
6
<PAGE> 8
FINANCIAL CONDITION
Cash provided from operations amounts to $140 million for the six months, $1
million more than the prior-year period. Increased non-cash charges offset
lower earnings and an expansion of working capital.
Trade accounts receivable have declined $34 million compared to June 1995 as a
result of lower sales. Day sales outstanding remain constant at 79 days.
Inventories at $438 million are $68 million higher than they were a year ago.
The increase is primarily attributable to building Petroleum Additives
inventories in line with anticipated second half sales and increasing
Intermediates and Fine Chemicals inventories in light of anticipated tight
supplies of furfural.
Plant and equipment additions amounted to $109 million, approximately $17
million lower than the prior-year period. Spending remains focused on capacity
expansions for polymer stabilizers at the company's Newport, Tennessee, site
and a PTMEG plant in Memphis. For the year, capital spending is expected to be
about $200 million.
During the second quarter of 1996, the company applied $62 million of deferred
revenue related to pre-payments for products from a dedicated plant against the
book value of that facility as it has been agreed with the customer that
production will not be resumed. A portion of the plant is being converted to
Polymer Stabilizer production with production scheduled to start up in the
fourth quarter.
During the first six months, the company acquired 1.2 million shares of common
stock at a cost of $83 million, or $66.28 per share. As of June 30, 1996 the
company is authorized to repurchase up to an additional 0.4 million shares. It
is management's intention to do so as conditions warrant.
Borrowings amounted to $48 million and were used to fund share repurchases and
capital additions.
A cash dividend of $.15 per share was declared during the quarter and paid on
July 30, 1996 for a total of $9.6 million. The second quarter dividend
represented a 25 percent increase over the first quarter of the year.
In the quarter the company settled certain issues relating to tax returns for
the years 1989, 1990 and 1991. The settlement will result in payments totaling
$40 million during the year of which $38 million has been paid to date. The
settlement will have no impact on earnings as the company provided for the
items in prior years.
7
<PAGE> 9
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position and
results of operations.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring accruals) have been made which are necessary for a fair
financial statement presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
For further information, refer to the consolidated financial statements and
footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 1995.
NOTE B - INCOME TAXES
The provision for income taxes at the effective tax rates reconciles with the
statutory U.S. Federal tax rate as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------
1996 1995
---- ----
<S> <C> <C>
Statutory U.S. Federal tax rate 35.0% 35.0%
Decrease in taxes relating to
various minor items (1.0) (2.5)
---- ----
34.0% 32.5%
==== ====
</TABLE>
NOTE C - OTHER NON-CURRENT LIABILITIES
Deferred revenues of $62 million related to pre-payment for products to be
delivered to a major customer from a dedicated production facility were applied
against the book value of the facilities as it has been agreed with the
customer that production at the facility will not be resumed.
8
<PAGE> 10
Part II. Other Financial Information
Item 6. Exhibits and Reports on Form 8-K
The Company did not file, nor was it required to file, a Form 8-K because of a
change in independent auditors or because of any material unusual charges or
credits to income occurring during the quarter for which this report was filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date August 9,1996 By /s/ Robert T. Jeffares
----------------------------
Robert T. Jeffares
Executive Vice President and
Chief Financial Officer
Date August 9, 1996 By /s/ Robert J. Smith
----------------------------
Robert J. Smith, Controller
9
<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
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 116,051
<SECURITIES> 0
<RECEIVABLES> 555,896
<ALLOWANCES> 8,001
<INVENTORY> 437,979
<CURRENT-ASSETS> 1,134,538
<PP&E> 1,312,005
<DEPRECIATION> 535,281
<TOTAL-ASSETS> 2,499,384
<CURRENT-LIABILITIES> 468,581
<BONDS> 387,543
<COMMON> 72,423
0
0
<OTHER-SE> 1,381,588
<TOTAL-LIABILITY-AND-EQUITY> 2,499,384
<SALES> 1,131,909
<TOTAL-REVENUES> 1,166,508
<CGS> 747,324
<TOTAL-COSTS> 887,797
<OTHER-EXPENSES> 34,613
<LOSS-PROVISION> 893
<INTEREST-EXPENSE> 9,847
<INCOME-PRETAX> 218,480
<INCOME-TAX> 74,300
<INCOME-CONTINUING> 144,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,180
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.23
</TABLE>
