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Previous: GRAY COMMUNICATIONS SYSTEMS INC /GA/, S-1/A, 1996-05-14 |
Next: HANCOCK JOHN SOVEREIGN BOND FUND, DEF 14A, 1996-05-13 |
<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 March 31, 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 - 64,529,306 Shares as of March 31, 1996
<PAGE> 2
Part 1 - Financial Statements
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------- -----------
(thousands of dollars)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 190,446 $ 180,970
Accounts receivable, less allowance
of $7,520 (1995 - $7,659) 539,648 527,014
Inventories
Finished products 309,691 260,293
Raw materials 78,383 82,297
Supplies 34,978 33,377
---------- ----------
Total inventories 423,052 375,967
Prepaid Expenses 32,856 41,060
---------- ----------
Total current assets 1,186,002 1,125,011
Plant and Equipment 1,304,317 1,278,332
Less allowance for depreciation (522,662) (513,021)
---------- ----------
Net plant and equipment 781,655 765,311
Excess of Investment over Net Assets of
Subsidiaries Acquired 413,049 416,632
Investments in and Advances to
Unconsolidated Affiliates 72,968 72,587
Other Assets 103,646 89,328
---------- ----------
$2,557,320 $2,468,869
========== ==========
</TABLE>
1
<PAGE> 3
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------- -----------
(thousands of dollars)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ 3,085 $ 6,309
Accounts payable 174,915 198,490
Accrued expenses 107,685 108,414
Income taxes 172,747 128,891
Dividends payable 7,744 7,430
Current portion of long-term debt 17,659 15,891
---------- ----------
Total current liabilities 483,835 465,425
Long-Term Debt, less Current Portion 379,126 340,145
Other Non-Current Liabilities 122,332 126,820
Deferred Income Taxes 90,485 88,540
Minority Interest 30,696 31,756
Stockholders' Equity
Common stock, $1 par value, authorized
200,000,000 shares, issued
72,188,906 shares
(1995 - 72,109,477 shares) 72,189 72,109
Paid-in capital 114,336 113,647
Retained earnings 1,737,313 1,678,834
Cumulative translation adjustment (36,677) (23,179)
Treasury stock at cost 7,659,600
shares (1995 -7,505,100 shares) (436,315) (425,228)
---------- ----------
Total stockholders' equity 1,450,846 1,416,183
---------- ----------
$2,557,320 $2,468,869
========== ==========
</TABLE>
2
<PAGE> 4
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1996 1995
----- ----
(thousands of dollars
except per share data)
<S> <C> <C>
Net Sales $ 536,960 $ 569,035
Operating Expenses
Cost of products sold 351,223 385,389
Selling, administrative
and research expenses 68,985 71,316
---------- ----------
420,208 456,705
---------- ----------
Income from Operations 116,752 112,330
Equity in Earnings of
Affiliates and Other Income 7,578 6,565
Interest and Other Expenses 16,393 9,702
Minority Interest in Income
of Subsidiaries 7,615 7,966
---------- ----------
Income Before Taxes 100,322 101,227
Income Taxes 34,100 32,900
---------- ----------
Net Income $ 66,222 $ 68,327
=========== ===========
Net Income per Share $ 1.03 $ 1.02
=========== ===========
Dividends Declared per Share $ 0.120 $ 0.105
=========== ===========
Average Shares Outstanding 64,514,991 66,760,016
</TABLE>
3
<PAGE> 5
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1996 1995
----- ------
(thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 66,222 $ 68,327
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 30,423 27,595
Changes in deferred items and other 3,534 3,799
-------- ---------
Cash provided by operations
excluding changes in working capital 100,179 99,721
Changes in working capital other than
debt net of effects from business
combinations (38,919) (47,905)
-------- ---------
Net Cash Provided by Operating Activities 61,260 51,816
INVESTING ACTIVITIES
Plant and equipment additions (52,279) (50,364)
Business combinations, net of cash
acquired (5,011) (2,766)
Other (10,207) (4,816)
-------- ---------
Net Cash Used in Investing Activities (67,497) (57,946)
FINANCING ACTIVITIES
Net (repayment) borrowings under
short-term credit lines (3,096) 1,808
Net increase in commercial paper
and other long-term obligations 41,581 131,702
Net increase (decrease) in other
non-current liabilities (2,927) 3,020
Minority Interest (668) 1,714
Repurchase of common stock (11,086) (69,452)
Cash dividends declared (7,744) (6,945)
-------- ---------
Net Cash Provided by Financing Activities 16,060 61,847
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (347) 3,705
-------- ---------
Increase in Cash and Cash Equivalents 9,476 59,422
Cash and Cash Equivalents at
Beginning of Year 180,970 144,666
-------- ---------
Cash and Cash Equivalents at End of
Period $190,446 $ 204,088
======== =========
</TABLE>
4
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 1996
RESULTS OF OPERATIONS
Sales for the quarter amounted to $537 million, down $32 million from the
prior-year quarter. Sales by business unit were as follows (in millions):
<TABLE>
<CAPTION>
1996 1995 Increase
---------------- ----------------
$ % % % (Decrease)
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Flame Retardants $ 70 13 $ 74 13 (5)%
Intermediates &
Fine Chemicals 73 14 70 12 4
Petroleum Additives 144 27 153 27 (6)
Polymer Stabilizers 60 11 59 10 2
Specialized Services &
Manufacturing 88 16 118 21 (25)
Water Treatment 102 19 95 17 7
--- --- --- --- --
$537 100 $569 100 (6)%
==== === ==== ==== ====
</TABLE>
Factors influencing the lower sales are shown below (in millions):
<TABLE>
<S> <C>
Selling Prices $10
Volume (33)
Acquisitions 1
Dispositions (5)
Foreign Exchange (5)
---
($32)
</TABLE>
Flame Retardants sales declined $4 million from the prior-year quarter.
Contributing to the shortfall in sales were weakness in the worldwide polymers
markets and shortness in tetrabrom supply. Weather conditions in the U.S.
disrupted plant operations, and our new facility in Israel did not come on
stream as quickly as anticipated. Tetrabrom demand continues to outpace
supply, and we will be expanding capacity in Israel during the year.
Intermediates and Fine Chemicals sales gained about $3 million from 1995
levels. The improvement reflects gains in all product lines except fine
chemicals where production schedules are geared to the latter part of the year.
Demand for furfural and derivatives continues to exceed supply. Price
improvements achieved were offset in part by lower volume resulting from raw
material shortages.
Petroleum Additives sales were off $9 million from a year ago. Price
improvements in the 4 percent range reflect a mix of sales skewed to lower
priced regions. Volume declines exceeded the expected range due to the timing
of shipments. The mix of retail to wholesale compound sales was 73/27 compared
to 70/30 in the first
5
<PAGE> 7
quarter of 1995. Expectations for the year are that price increases will be
about 7% and volume declines will be on the high side of the expected 7% to 10%
trend line.
Polymer Stabilizers sales improved about $1 million from last year. The
decline in the business unit's rate of improvement reflects the aforementioned
overall weakness in the marketplace. Recent monthly sales results indicate an
improving picture.
Specialized Services and Manufacturing sales are down $30 million of which $26
million is in our Eastern European trading organization, Chemol. Continuing
industry privatizations has resulted in Chemol losing major suppliers. The
ongoing federal government budget stalemate continues to negatively impact our
environmental contracting and consulting business. That decline is, in part,
offset by the continued expansion of FM200 as the preferred halon replacement
for fire suppression.
Water Treatment posted a $7 million sales gain due to strong industrial water
treatment chemical sales, improved equipment sales, and a recent acquisition in
South Africa. Protracted winter weather conditions has held recreational water
treatment chemicals sales to the year-ago levels.
Gross Profits expanded despite the downturn in sales. Gross profits amounted
to $186 million, or 34.6 percent of sales, representing gains of $2 million and
2.3 percentage points, respectively. The improvements reflect that sales
losses were primarily in low profitability areas and, more importantly, that
selling price improvements are being maintained and manufacturing costs are
being effectively controlled.
Selling, Administrative and Research expenses decreased $2 million in absolute
terms. However, due to the decline in sales, SAR rose about 0.3 percentage
points to 12.8 percent of sales.
Income from Operations amounted to $117 million, an increase of 3.9 percent
over 1995. An 11 percent improvement in the core business units was offset in
part by a decline in petroleum additives business.
Equity in Earnings of Affiliates and Other Income of $8 million improved
slightly over 1995 due to the receipt of a one- time job creation grant to the
U.K.
Other Expense of $16 million increased about $7 million from 1995 as interest
expense doubled due to increased borrowing, accelerated amortization of Octel
goodwill to achieve a better matching of cost and revenues, and some one- time
costs associated with a project cancellation.
Income taxes increased over the prior year due to a higher effective tax rate
resulting from a greater proportion of earnings in more
6
<PAGE> 8
highly taxed jurisdictions and a reduction in the reversal of prior-year tax
reserves.
Net Income declined about $2 mllion from the prior year. Earnings per share,
compared to the year-ago quarter, benefited about $0.03 from the share
repurchase program.
FINANCIAL CONDITION
Cash provided from operations in the quarter amounted to $61 million, about $9
million better than the prior-year period. Reduced working capital
requirements accounts for the majority of the improvement.
Plant and equipment additions amounted to $52 million. Spending is focused on
capacity expansions including a polymer stabilizers facility in the U.S. and
expansion of PTMEG capacity in Memphis. For the year, capital spending is
expected to be about $200 million.
During the quarter, the Company repurchased 154,500 shares of common stock at a
cost of $11 million. As of March 31, 1996, the Company is authorized to
repurchase up to 1.5 million additional shares. It is management's intention
to do so as market conditions warrant.
Borrowing amounted to about $42 million and was used to fund capital additions
and share repurchases.
A cash dividend of $0.12 was declared during the quarter and paid on April 30,
1996 for a total of $7.7 million.
Recently, the Company agreed to settle certain issues relating to income tax
returns for the years 1989, 1990 and 1991. The settlement will result in a
cash payment of approximately $40 million during 1996. The settlement will
have no impact on current earnings as the Company provided for the items at
issue in prior years.
OTHER MATTERS
On May 4, 1996, the Company entered into a Pre-Acquisition Agreement with
Nowsco Well Service Ltd. (Nowsco) pursuant to which Great Lakes will make an
offer to purchase all of the outstanding shares of Nowsco at a price of Cdn.
$30.90 per share payable in cash. There are approximately 22.5 million shares
outstanding, giving the bid an aggregate value of approximately Cdn. $695
million (U.S. $502 million). The offer follows a competing bid for Nowsco made
by BJ Services Company of Houston, Texas, at a price of Cdn. $27.00 per share.
Great Lakes' offer will be conditional upon at least 66 2/3 percent of the
outstanding Nowsco shares (on a diluted basis) being deposited under the offer.
Upon completion of the offer, Great Lakes intends to seek to acquire, at the
offer price, all common shares of Nowsco
7
<PAGE> 9
that remain outstanding through a subsequent compulsory acquisition or a "going
private transaction." The offer will also be conditional upon, among other
things, the receipt of approval under the Investment Canada Act on terms
satisfactory to Great Lakes, as well as all other requisite regulatory
approvals. In addition, it will be a condition of the offer that there shall
not have occurred any breach or termination of the Pre-Acquisition Agreement.
The Pre- Acquisition Agreement provides for the payment by Nowsco of certain
fees to Great Lakes upon the occurrence of certain events. The Company has
entered into a commitment letter with Chase Manhattan Bank N.A. to establish a
credit facility providing for borrowings of up to $600 million to finance the
offer.
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 (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>
Three Months Ended
March 31
------------------
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>
9
<PAGE> 11
<TABLE>
Item 4. Submission of Matters to a Vote of Security Holder
At the Company's annual shareholder meeting held on May 2, 1996, one item was
submitted to a vote of the security holders, which is more fully described in
the Company's proxy statement dated March 29, 1996. As set forth below, the
item was approved.
1. To elect two directors to serve until the 1999 Annual Meeting:
<S> <C> <C>
Director For Withheld
-------- --- --------
Thomas M. Fulton 56,322,554 682,254
Robert B. McDonald 56,341,376 663,432
Part II. Other Financial Information
Item 6. Exhibits and Reports on Form 8-K
The Company filed a form 8-K on May 4, 1996, in connection with a
Pre-Acquisition Agreement with Nowsco Well Services Ltd.
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 May 13, 1996 By /s/ Robert T. Jeffares
----------------------------
Robert T. Jeffares
Executive Vice President and
Chief Financial Officer
Date May 13, 1996 By /s/ Robert J. Smith
-------------------------
Robert J. Smith, Controller
</TABLE>
10
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 190,446
<SECURITIES> 0
<RECEIVABLES> 547,168
<ALLOWANCES> 7,520
<INVENTORY> 423,052
<CURRENT-ASSETS> 1,186,002
<PP&E> 1,304,317
<DEPRECIATION> 522,662
<TOTAL-ASSETS> 2,557,320
<CURRENT-LIABILITIES> 483,835
<BONDS> 379,126
<COMMON> 72,189
0
0
<OTHER-SE> 1,378,657
<TOTAL-LIABILITY-AND-EQUITY> 2,557,320
<SALES> 536,960
<TOTAL-REVENUES> 544,538
<CGS> 351,223
<TOTAL-COSTS> 419,943
<OTHER-EXPENSES> 11,521
<LOSS-PROVISION> 265
<INTEREST-EXPENSE> 4,872
<INCOME-PRETAX> 100,322
<INCOME-TAX> 34,100
<INCOME-CONTINUING> 66,222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,222
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
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