<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 September 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 - 63,276,310 Shares as of September 30, 1996
<PAGE> 2
Part 1 - Financial Statements
- - -----------------------------
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
<S> <C> <C>
(thousands of dollars)
Assets
Current Assets
Cash and cash equivalents $ 141,249 $ 180,970
Accounts receivable, less allowance
of $9,159 (1995 - $7,659) 515,630 527,014
Inventories
Finished products 286,871 260,293
Raw materials 83,764 82,297
Supplies 37,129 33,377
------------- ----------------
Total inventories 407,764 375,967
Prepaid Expenses 31,734 41,060
------------- ----------------
Total current assets 1,096,377 1,125,011
Plant and Equipment 1,376,915 1,278,332
Less allowance for depreciation (553,685) (513,021)
------------- ----------------
Net plant and equipment 823,230 765,311
Excess of Investment over Net Assets of
Subsidiaries Acquired 410,315 416,632
Investments in and Advances to
Unconsolidated Affiliates 74,320 72,587
Other Assets 95,516 89,328
------------- ---------------
$ 2,499,758 $ 2,468,869
============= ===============
</TABLE>
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
--------------------------------------------------
1
<PAGE> 3
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
(thousands of dollars)
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ 473 $ 6,309
Accounts payable 164,631 198,490
Accrued expenses 109,115 108,414
Income taxes 171,398 128,891
Dividends payable 9,491 7,430
Current portion of long-term debt 15,510 15,891
------------ -------------
Total current liabilities 470,618 465,425
Long-Term Debt, less Current Portion 346,883 340,145
Other Non-Current Liabilities 54,635 126,820
Deferred Income Taxes 95,249 88,540
Minority Interest 41,722 31,756
Stockholders' Equity
Common stock, $1 par value, authorized
200,000,000 shares, issued
72,442,410 shares
(1995 - 72,109,477 shares) 72,442 72,109
Paid-in capital 114,816 113,647
Retained earnings 1,864,575 1,678,834
Cumulative translation adjustment (29,144) (23,179)
Treasury stock at cost 9,166,100 shares
(1995 - 7,505,100 shares) (532,038) (425,228)
------------ -------------
Total stockholders' equity 1,490,651 1,416,183
------------ -------------
$ 2,499,758 $ 2,468,869
============ =============
</TABLE>
2
<PAGE> 4
\
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -------------------------------
1996 1995 1996 1995
----------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
(in thousands except per share data)
Net Sales $564,355 $586,224 $ 1,696,264 $1,796,110
Operating Expenses
Cost of products sold 371,531 385,084 1,118,855 1,201,049
Selling, administrative
and research expenses 70,998 73,787 212,364 219,818
-------- -------- ------------ ----------
442,529 458,871 1,331,219 1,420,867
-------- -------- ------------ ----------
Income from Operations 121,826 127,353 365,045 375,243
Equity in Earnings of
Affiliates and Other
Income 6,374 5,613 40,973 20,114
Interest and Other Expenses 16,178 14,148 60,638 42,560
Minority Interest in Income
of Subsidiaries 8,477 8,954 23,355 25,435
-------- -------- ------------ ----------
Income Before Taxes 103,545 109,864 322,025 327,362
Income Taxes 35,200 35,700 109,500 106,400
-------- -------- ------------ ----------
Net Income $ 68,345 $ 74,164 $ 212,525 $ 220,962
======== ======== ============ ==========
Net Income per Share $ 1.09 $1.15 $ 3.32 $3.37
======== ======== ============ ==========
Dividends Declared per
Share $ .150 $ .115 $ .420 $ .325
======== ======== ============ ==========
Average Shares Outstanding 63,410 64,733 63,966 65,570
</TABLE>
3
<PAGE> 5
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDARIES
CONSOLODATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
<TABLE>
<CAPTION>
Nine months Ended
September 30
-------------------------
1996 1995
-------- --------
(thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $212,525 $220,962
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 91,395 81,141
Changes in deferred items and other 9,336 4,841
-------- --------
Cash provided by operations
excluding changes in working capital 313,256 306,944
Changes in working capital other than
debt, net of effects from business
combinations (2,489) (54,152)
-------- --------
Net Cash Provided by Operating Activities 310,767 252,792
INVESTING ACTIVITIES
Plant and equipment additions (177,989) (184,274)
Business combinations, net of cash
acquired (22,284) (24,426)
Other (13,711) (5,086)
-------- --------
Net Cash Used in Investing Activities (213,984) (213,786)
FINANCING ACTIVITIES
Net repayment under short-term credit lines (5,553) (3,638)
Net increase in commercial paper
and other long-term obligations 7,730 142,912
Net decrease in other
non-current liabilities (10,435) (24)
Minority interest 4,961 2,392
Repurchases of common stock (106,810) (153,630)
Cash dividends declared (26,782) (21,200)
-------- --------
Net Cash Used in Financing Activities (136,889) (33,188)
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 385 293
-------- --------
Increase/(decrease) in Cash and Cash Equivalents (39,721) 6,111
Cash and Cash Equivalents at
Beginning of Year 180,970 144,666
-------- --------
Cash and Cash Equivalents at End of
Period $141,249 $150,777
======== ========
</TABLE>
4
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------
RESULTS OF OPERATIONS
- - ---------------------
Third quarter sales of $564 million declined $22 million from the $586
million reported in the 1995 quarter. Net income of $68 million was $6
million lower than the $74 million reported in the prior-year quarter while
net income per share of $1.09 compared to $1.15 for the year-ago period.
Nine-month sales of $1.7 billion declined 6 percent from the $1.8
billion realized in 1995. Net income for the period amounted to $213
million, or $3.32 per share, compared to $221 million, or $3.37 per
share reported for the nine months of 1995.
Comparative sales by business unit are shown in the following table
($-millions):
<TABLE>
<CAPTION>
Third Quarter Year-To-Date
-------------------- ---------------------
1996 1995 Change 1996 1995 Change
----- ----- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Flame Retardants $ 74 $ 73 1 % $ 219 $ 222 (1)%
Intermediates &
Fine Chemicals 69 80 (14)% 213 228 (7)%
Petroleum Additives 162 166 (2)% 445 480 (7)%
Polymer Stabilizers 59 52 13 % 182 170 7 %
Specialized Services 85 105 (19)% 259 344 (25)%
Water Treatment 115 110 5 % 378 352 7 %
----- ----- ---- ------ ------ -----
$564 $586 (4)% $1,696 $1,796 (6)%
===== ===== ==== ====== ====== =====
</TABLE>
On an overall basis, the decline in sales is attributable to:
<TABLE>
<CAPTION>
Third
Quarter Year-To-Date
-------- ------------
<S> <C> <C>
Selling Price $ 14 $ 42
Volume (28) (105)
Acquisitions 2 3
Foreign Exchange (6) (24)
Dispositions (4) (16)
----- -----
$(22) $(100)
===== =====
</TABLE>
Flame Retardants - Sales improved slightly from the year-ago quarter
despite weak end market demand in automotive, wire and cable and the electronic
industries particularly in Europe and the Pacific Rim. Despite generally weak
market conditions for several of the unit's major products, overall volumes
increased. Some price deterioration occurred during the period due to
competitive activities. Currency movements, especially the weakening of the
Japanese yen relative to the dollar, also had a negative impact on sales.
Intermediates and Fine Chemicals - A slowdown in the heavy equipment
and machine tool industry depressed demand for furfuryl alcohol and was the
principal reason for the sales decline in this business unit. Other products
in the unit also experienced small volume declines primarily due to changes in
customer demand patterns. Price increases implemented in 1995 have so far
been maintained in all product lines although pressures on furfural and
derivative products is mounting due to slack demand.
5
<PAGE> 7
Petroleum Additives - Sales declined about 2 percent from the year-ago
quarter. Lead aklyl compound sales volumes to retail customers were on trend
line expectations rebounding from very depressed levels in the second quarter
of this year. Retail prices, in pound sterling terms, improved almost 7
percent from the prior-year quarter. For the year, volume declines are
expected to be slightly higher than trend line expectations, while price
improvements are anticipated to be around 6 percent which is lower than what
has been achieved historically. Both wholesale volumes and prices showed
improvements over the prior-year periods. The relationship of retail to
wholesale volume was 74/26 in the quarter compared to 78/22 in the prior-year
period. Year to date, this relationship is essentially in line with the
expected norm of 70/30. Non-lead fuel additive sales were about 6 percent
below the prior-year quarter due to volume shortfalls. General chemical sales
registered almost a 25 percent improvement as sales of a major new intermediate
for a consumer products customer are starting to ramp up.
Polymer Stabilizers - Sales improved 13 percent from the prior-year
quarter on volume improvements. The ability to achieve even greater sales
volume is being restricted by depressed economic conditions in Europe.
Partially offsetting the volume gains were negative currency impacts
and some price attrition.
Specialized Services and Manufacturing - The business unit's shortfall
is entirely attributable to Chemol, our Eastern European trading
organization. Chemol continues to experience sales at about 50
percent of prior-year levels as key Hungarian suppliers have been lost due to
industry privatization. All other businesses in this unit experienced
solid gains in sales except the environmental consulting and
contracting businesses which are still suffering from the effects of
reduced federal government funding of remediation projects.
Water Treatment - Recreational water treatment sales in the U.S.
posted strong improvements in all key distribution channels despite
average weather conditions. European sales suffered from unfavorable,
late season weather conditions. In late September 1996, the BL
Network, a chemicals and pool equipment distribution business, was
sold. While the sale will have minimal impact on profits, future sales
will be reduced by about $100 million annually.
Third quarter gross profits of $193 million were $8 million lower than
the prior-year period. The decline reflects the impact of lower volumes offset
by better pricing and the adverse effects of higher operating costs, reduced
production volume and unfavorable currency effects. As a percentage of sales,
gross profits at 34.2 percent were virtually unchanged from the year-ago
period.
Selling, Administrative, and Research expenses at $71 million for the
quarter were $3 million lower than the prior-year quarter. As a percentage of
sales, SAR remained unchanged at 12.6 percent.
6
<PAGE> 8
Operating Income of $122 million in the quarter was $6 million less
than 1995 due primarily to the lower sales for the period.
Equity in Earnings of Affiliates and Other Income and Interest and
Other Expenses are essentially unchanged from the prior-year period.
The company's effective tax rate increased to 34 percent compared to a
tax rate of 32.5 percent for the year-ago period due to a greater proportion
of earnings in higher-taxed jurisdictions and a reduction in the amount of
prior-year tax reserve reversals. The higher tax rate increased income tax
expense about $2 million in the quarter.
FINANCIAL CONDITION
- - -------------------
Cash provided from operations through nine months amounted to $311
million, an increase of $58 million from the prior-year period. Approximately
$40 million of the improvement relates to the shifting of UK tax payments from
the end of the third quarter in the 1995 period to the beginning of the fourth
quarter in the 1996 period. Excluding the timing of tax payments, cash
provided by operating activities improved $18 million, as a $12 million
improvement in working capital and a $15 million increase in non-cash charges
more than offset lower net income.
Trade accounts receivable declined about $18 million from September 1995 as a
result of lower sales. Days sales outstanding are about 74 days which is
unchanged from last September.
Inventories of $408 million are approximately $42 million higher than the
year-ago period. The increase reflects a build up of Petroleum
Additives inventories to meet higher anticipated fourth quarter shipments,
higher Intermediates and Fine Chemicals inventories to compensate for
expected tight supplies of furfural earlier in the year, and Flame
Retardant inventories returning to more normal levels from the tight
supply conditions experienced a year ago.
Additions to plant and equipment have amounted to $178 million, about
$6 million less than the prior year. Capacity expansions for Polymer
Stabilizers at the company's Newport, Tennessee, facility and a PTMEG
plant in Memphis were the key capital projects. Capital spending for
the year is anticipated to be about $210 million, down $37 million from the
year-ago period.
During the second quarter of 1996, the company applied $62 million of
deferred revenue related to pre-payments for product 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 nine months, the company acquired 1.7 million shares
of common stock at a cost of $107 million, or $64.29 per share. As of
September 30, 1996 the company is authorized to repurchase up to an
additional 4 million shares. It is management's intention to do so as
conditions warrant.
Net borrowings under both short- and long-term borrowing arrangements amounted
to $2 million and were used to fund share repurchases and capital additions.
7
<PAGE> 9
A cash dividend of $.15 per share was declared during the quarter and
paid on November 5, 1996 for a total of $9.5 million. Cash dividends to date
of $.42 compared to $.325 for the year-earlier period.
In the quarter the company settled certain issues relating to tax
returns for the years 1989, 1990 and 1991 with the IRS. The settlement
resulted in payments totaling $40 million of which $38 million was paid last
quarter. The settlement will have no impact on earnings as the company had
provided for the possible non-allowance of these items in prior years.
8
<PAGE> 10
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,
including 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>
Nine Months Ended
September 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 relating 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 facility as it
has been agreed with the customer that production at the facility will
not be resumed.
9
<PAGE> 11
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 November 12, 1996 By /s/ Robert T. Jeffares
----------------- -------------------------
Robert T. Jeffares
Executive Vice President and
Chief Financial Officer
Date November 12, 1996 By /s/ Robert J. Smith
----------------- -----------------------
Robert J. Smith, Controller
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 141,249
<SECURITIES> 0
<RECEIVABLES> 524,789
<ALLOWANCES> 9,159
<INVENTORY> 407,764
<CURRENT-ASSETS> 1,096,377
<PP&E> 1,376,915
<DEPRECIATION> 553,685
<TOTAL-ASSETS> 2,499,758
<CURRENT-LIABILITIES> 470,618
<BONDS> 346,883
<COMMON> 0
72,442
0
<OTHER-SE> 1,418,209
<TOTAL-LIABILITY-AND-EQUITY> 2,499,758
<SALES> 1,696,264
<TOTAL-REVENUES> 1,737,237
<CGS> 1,118,855
<TOTAL-COSTS> 1,329,249
<OTHER-EXPENSES> 46,311
<LOSS-PROVISION> 1,970
<INTEREST-EXPENSE> 14,327
<INCOME-PRETAX> 322,025
<INCOME-TAX> 109,500
<INCOME-CONTINUING> 212,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212,525
<EPS-PRIMARY> 3.32
<EPS-DILUTED> 3.32
</TABLE>
