<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, 1997
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 765-497-6100
-------------------
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 - 59,879,758 Shares as of March 31, 1997
<PAGE> 2
Part 1 - Financial Statements
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
-------- -----------
(thousands of dollars)
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 204,455 $ 202,255
Accounts receivable, less allowance
of $8,536 (1996 - $10,219) 510,551 506,203
Inventories
Finished products 304,270 298,682
Raw materials 83,088 87,687
Supplies 38,965 40,289
---------- ----------
Total inventories 426,323 426,658
Prepaid Expenses 36,003 42,080
---------- ----------
Total current assets 1,177,332 1,177,196
Plant and Equipment 1,436,543 1,424,596
Less allowance for depreciation (576,403) (566,113)
---------- ----------
Net plant and equipment 860,140 858,483
Goodwill 427,164 435,195
Investments in and Advances to
Unconsolidated Affiliates 72,973 72,767
Other Assets 116,134 117,698
---------- ----------
$2,653,743 $2,661,339
========== ==========
</TABLE>
1
<PAGE> 3
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
-------------------------------------------------
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
-------- -----------
(thousands of dollars)
Liabilities and Stockholders' Equity
<S> <C> <C>
Current Liabilities
Notes payable $ 1,404 $ 288
Accounts payable 166,788 190,853
Accrued expenses 127,594 127,333
Income taxes payable 132,083 98,687
Dividends payable 8,982 9,242
Current portion of long-term debt 6,441 7,717
--------- -----------
Total current liabilities 443,292 434,120
Long-Term Debt, less Current Portion 588,134 503,795
Other Noncurrent Liabilities 94,470 109,012
Deferred Income Taxes 85,115 83,912
Minority Interest 41,986 43,601
Stockholders' Equity
Common stock, $1 par value, authorized
200,000,000 shares, issued
72,471,958 shares
(1996 - 72,455,051 shares) 72,472 72,455
Additional Paid-in capital 121,241 121,224
Retained earnings 1,936,990 1,893,104
Cumulative translation adjustment (31,053) 17,064
Treasury stock at cost 12,592,200
shares (1996 - 10,842,200 shares) (698,904) (616,948)
---------- ----------
Total stockholders' equity 1,400,746 1,486,899
---------- ----------
$2,653,743 $2,661,339
========== ==========
</TABLE>
2
<PAGE> 4
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
1997 1996
----- ----
(thousands of dollars
except per share data)
<S> <C> <C>
Net Sales $ 493,466 $ 536,960
Operating Expenses
Cost of products sold 338,285 351,223
Selling, administrative
and research expenses 62,659 68,985
---------- -----------
400,944 420,208
---------- -----------
Income from Operations 92,522 116,752
Equity in Earnings of
Affiliates and Other Income 7,569 7,578
Interest and Other Expenses 12,761 16,393
Minority Interest in Income
of Subsidiaries 6,562 7,615
---------- -----------
Income Before Income Taxes 80,768 100,322
Income Taxes 27,900 34,100
---------- -----------
Net Income $ 52,868 $ 66,222
========== ===========
Net Income per Share $ 0.87 $ 1.03
========== ===========
Dividends Declared per Share $ 0.150 $ 0.120
========== ===========
Average Shares Outstanding 60,869,130 64,514,991
</TABLE>
3
<PAGE> 5
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1997 1996
---- ----
(thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 52,868 $ 66,222
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 32,261 30,423
Changes in deferred items and other 915 3,534
-------- --------
Cash provided by operations
excluding changes in working capital 86,044 100,179
Changes in working capital other than
debt, net of effects from business
combinations (3,792) (38,919)
Other noncurrent liabilities (10,557) (2,927)
--------- --------
Net Cash Provided by Operating Activities 71,695 58,333
INVESTING ACTIVITIES
Plant and equipment additions (42,451) (52,279)
Business combinations, net of cash
acquired (5,152) (5,011)
Other (5,783) (10,962)
--------- --------
Net Cash Used in Investing Activities (53,386) (68,252)
FINANCING ACTIVITIES
Net borrowings (repayment) under
short-term credit lines 1,208 (3,096)
Net increase in commercial paper
and other long-term obligations 85,437 41,581
Proceeds from stock options exercised 34 755
Minority interest (1,045) (668)
Repurchase of common stock (81,956) (11,086)
Cash dividends declared (8,982) (7,744)
--------- --------
Net Cash (Used) Provided by Financing
Activities (5,304) 19,742
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (10,805) (347)
--------- --------
Increase in Cash and Cash Equivalents 2,200 9,476
Cash and Cash Equivalents at
Beginning of Year 202,255 180,970
--------- --------
Cash and Cash Equivalents at End of
Period $204,455 $190,446
========= ========
</TABLE>
4
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------
RESULTS OF OPERATIONS
First quarter sales amounted to $493 million, a decline of $44 million
from the $537 million reported a year ago. Sales by business unit are
shown in the following table (in millions):
<TABLE>
<CAPTION>
1997 1996 Change
---- ---- ------
<S> <C> <C> <C>
Flame Retardants $ 76 $ 70 9 %
Intermediates and
Fine Chemicals 68 76 (11)%
Petroleum Additives 128 141 (9)%
Polymer Stabilizers 61 60 2 %
Specialized Services 71 88 (19)%
Water Treatment 89 102 (13)%
---- ---- -----
$493 $537 (8)%
==== ==== =====
</TABLE>
The decline in sales is attributable to the following factors:
<TABLE>
<S> <C>
Selling Price Decrease $(5)
Volume Improvements 4
Foreign Exchange (5)
Dispositions (38)
---
($44)
===
</TABLE>
Flame Retardants sales increased from the year-ago quarter as demand for
product has increased in North America and the Pacific Rim. The
combined effects of continued price weakness and unfavorable foreign
exchange, the German mark and the Japanese yen vis-a-vis the U.S.
dollar, offset about half of the volume improvement.
Intermediates and Fine Chemicals sales declined as a result of weak
demand for both furfural and furfuryl alcohol coupled with an abundant
supply from international producers. Polymeg volume improvements are
being offset in large part by price weakness compared to the year-ago
period. Market conditions for furfural and derivative products are not
expected to improve in the near term.
Petroleum Additives sales declined $13 million from the prior-year
5
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quarter. Retail volumes declined about 23 percent for the quarter
reflecting the expected decline due to customer buying patterns. Retail
volumes are anticipated to be down about 12 percent for the year.
Average pricing for retail alkyl lead compound improved about 3 percent
in the period compared to the 1996 quarter. For the year, the expected
percentage improvement in pricing will be in the low single-digit range.
Wholesale volumes and prices were unchanged from the prior-year
quarter. The relationship of retail to wholesale volume was 68/32 for
the quarter compared to 73/27 a year ago. Non-lead fuel additives sales
gained about 6 percent from 1996 on improved volume. Sales of
performance chemicals doubled reflecting sales of Octaquest.
Polymer Stabilizers sales registered double-digit volume improvements
that were almost totally negated by price erosion and adverse currency
affects.
Specialized Services sales declined despite a 40 percent sales gain in
the Enviro-Energy performance group as drilling activity in the U.S.
gulf coast and key international markets remain strong and the
environmental service business recovered from last year lows. The
shortfall is attributable to the continued contraction of our Eastern
European trading operation, Chemol, as a result of industry
privatization and the disposal of our engineered surface treatment
business in the fourth quarter of 1996.
Water Treatment sales were negatively impacted by the disposal of the
wholesale distribution business in the latter part of 1996.
Recreational water treatment chemicals showed significant volume
improvement, in part, due to the timing of customer demand and, in part,
due to gains in the marketplace.
Gross profits of $155 million are $31 million lower than the prior year.
The decline results from selling price decreases, $5 million; reduced
sales volumes, primarily alkyl lead compounds, $11 million; increased
costs, $4 million; the relative strength of the dollar against most
European currencies and the Japanese yen, $3 million; and the affects of
business dispositions, $8 million. As a percentage of sales, gross
profits were 31.4 percent, a decrease of 3.1 percentage points. With
the exception of Water Treatment and Specialized Services, margin
compression occurred in all business units with alkyl lead compounds
having the most pronounced effect as (1) the percentage of retail
business declined and (2) overall alkyl
6
<PAGE> 8
lead compounds represent a smaller portion of the total than in the prior year.
Selling, Administration and Research expenses were $63 million, a decline of
$6 million from 1996 due to dispositions. At 12.7 percent of sales, SAR costs
were comparable to the prior-year period.
Income from operations of $93 million was $24 million less than the same period
in 1996. The specialty chemical business units contributed 47 percent of
income from operations in both the current and prior-year quarters.
Equity in earnings of affiliates and other income was unchanged from the 1996
period. Increases in earnings from affiliates offset declines in other items.
Interest and other expenses declined about $4 million due primarily to foreign
exchange gains resulting from the weakening of the pound sterling from December
31, 1996. Increased interest expense related to higher borrowings was offset
by a reduction in other items.
FINANCIAL CONDITION
Cash provided from operations amounted to $72 million, $13 million more than
the prior year, as demand for working capital declined.
Trade accounts receivable was $16 million lower than March 1996 due to lower
sales. Days sales outstanding increased 4 days to 89 days reflecting increases
in the Water Treatment business unit resulting from the divestiture of the
distribution business and an increase in Petroleum Additives due to customer
mix.
Inventory levels are relatively unchanged from March 1996; however, inventory
turnover has slowed from approximately 4 times per year to approximately 3.5
times. The increase results from high levels of furfural and derivative
inventories due to production patterns and lower sales volume and higher
petroleum additive inventories.
Plant and equipment additions amounted to $42 million, about $10 million less
than the prior year. Spending is focused on new products and cost improvement
projects. Spending for the year is expected to be about $160 million.
7
<PAGE> 9
During the quarter the company repurchased 1,750,000 shares of common stock for
$82 million, or approximately $46.86 per share. Long-term debt increased about
$85 million since December 31, 1996 in support of share repurchases.
A cash dividend of $0.15 per share was paid during the quarter, an increase of
$0.035 over the prior-year quarter.
FORWARD LOOKING STATEMENT
This report contains forward looking statements involving risks and
uncertainties that effect the Company's operations as discussed in the 1996
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Accordingly, there is no assurance that the Company's expectations will be
realized.
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, 1996.
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
------------------
1997 1996
----- -----
<S> <C> <C>
Statutory U.S. Federal tax rate 35.0% 35.0%
Decrease in taxes relating to
various minor items (.5) (1.0)
----- -----
34.5% 34.0%
===== =====
</TABLE>
9
<PAGE> 11
Item 4. Submission of Matters to a Vote of Security Holder
At the Company's annual shareholder meeting held on May 1, 1997, one
item was submitted to a vote of the security holders, which is more
fully described in the Company's proxy statement dated March 28, 1997.
As set forth below, the item was approved.
1. To elect three directors to serve until the 1999 Annual Meeting:
<TABLE>
<CAPTION>
Director For Withheld
-------- --- ---------
<S> <C> <C>
Martin M. Hale 47,789,657 1,157,323
Richard H. Leet 47,755,535 1,191,445
Jay D. Proops 47,783,711 1,163,269
</TABLE>
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 May 13, 1997 By /s/ Robert T. Jeffares
--------------------------------------
Robert T. Jeffares
Executive Vice President and
Chief Financial Officer
Date May 13, 1997 By /s/ Robert J. Smith
--------------------------------------
Robert J. Smith, Controller
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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 204,455
<SECURITIES> 0
<RECEIVABLES> 519,087
<ALLOWANCES> 8,536
<INVENTORY> 426,323
<CURRENT-ASSETS> 1,177,332
<PP&E> 1,436,543
<DEPRECIATION> 576,403
<TOTAL-ASSETS> 2,653,743
<CURRENT-LIABILITIES> 443,292
<BONDS> 588,134
72,472
0
<COMMON> 0
<OTHER-SE> 1,328,274
<TOTAL-LIABILITY-AND-EQUITY> 2,653,743
<SALES> 493,466
<TOTAL-REVENUES> 501,035
<CGS> 338,285
<TOTAL-COSTS> 401,407
<OTHER-EXPENSES> 6,020
<LOSS-PROVISION> (463)
<INTEREST-EXPENSE> 6,741
<INCOME-PRETAX> 80,768
<INCOME-TAX> 27,900
<INCOME-CONTINUING> 52,868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,868
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
</TABLE>
