<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, 1999
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.)
500 East 96th Street,
Suite 500
Indianapolis, IN 46240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 317-715-3000
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 - 58,424,032 Shares as of March 31, 1999
<PAGE> 2
Part 1 - Financial Statements
- -----------------------------
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(millions)
-------------------------------------------------
March 31 Dec. 31
1999 1998
--------- ---------
Assets
Current Assets
Cash and cash equivalents $ 325.5 $ 411.6
Accounts and notes receivable,
less allowance of $3.1 and $4.1,
respectively 322.8 258.0
Inventories
Finished products 203.3 211.3
Raw materials 53.8 50.0
Supplies 30.1 31.9
--------- ---------
Total inventories 287.2 293.2
Prepaid expenses 30.8 32.8
--------- ---------
Total current assets 966.3 995.6
--------- ---------
Plant and Equipment 1,248.8 1,241.6
Less allowance for depreciation (560.2) (552.1)
--------- ---------
Net plant and equipment 688.6 689.5
Goodwill 111.3 115.6
Investments in and Advances to
Unconsolidated Affiliates 80.6 80.3
Other Assets 21.1 21.1
Net Assets of Discontinued Operations 95.8 102.5
--------- ---------
$ 1,963.7 $ 2,004.6
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 126.5 $ 129.3
Accrued expenses 151.4 163.8
Income taxes payable 29.3 44.2
Dividends payable 4.7 4.7
Notes payable and current portion
of long-term debt 5.7 4.6
--------- ---------
Total current liabilities 317.6 346.6
--------- ---------
Long-Term Debt, less Current Portion 493.5 515.3
Other Noncurrent Liabilities 35.1 37.1
Deferred Income Taxes 51.1 51.3
Stockholders' Equity
Common stock, $1 par value, authorized
200 shares, issued 72.8(1998 - 72.7 shares) 72.8 72.7
Additional paid-in capital 130.3 128.6
Retained earnings 1,683.5 1657.1
Accumulated other comprehensive income (44.3) (32.9)
Less treasury stock, at cost, 14.4 shares
(1998 - 14.3 shares) (775.9) (771.2)
--------- ---------
Total stockholders' equity 1,066.4 1,054.3
--------- ---------
$ 1,963.7 $ 2,004.6
========= =========
1
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GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share data)
-------------------------------------------------
Three Months Ended
March 31
--------------------------
1999 1998
--------- ---------
Net Sales $ 334.2 $ 334.7
Operating Expenses
Cost of products sold 236.4 241.4
Selling, administrative and research expenses 51.5 46.0
Special charges -- 15.5
--------- ---------
287.9 302.9
--------- ---------
Operating Income 46.3 31.8
Interest and Other Income 7.7 8.1
Interest and Other Expenses 7.0 12.4
--------- ---------
Income from Continuing Operations
before Income Taxes 47.0 27.5
Income Taxes 16.0 10.3
--------- ---------
Net Income from Continuing Operations 31.0 17.2
Net Income from Discontinued Operations -- 25.5
--------- ---------
Net Income $ 31.0 $ 42.7
========= =========
Earnings per Share:
Basic
Continuing Operations $ 0.53 $ 0.29
Discontinued Operations -- 0.44
--------- ---------
$ 0.53 $ 0.73
========= =========
Diluted
Continuing Operations $ 0.53 $ 0.29
Discontinued Operations -- 0.43
--------- ---------
$ 0.53 $ 0.72
========= =========
Cash Dividends Declared per Share $ 0.08 $ 0.16
2
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GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
-------------------------------------------------
Three Months Ended
March 31
--------------------------
1999 1998
--------------- ----------
OPERATING ACTIVITIES
Net income from continuing operations $ 31.0 $ 17.2
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 20.5 19.8
Changes in deferred items and other (0.3) 13.2
--------- ---------
Cash provided by continuing operations
excluding changes in working capital 51.2 50.2
Changes in working capital other than debt,
net of effect from business combinations (88.9) (50.3)
Other noncurrent liabilities -- 0.4
--------- ---------
Net Cash (Used) Provided by Operating Activities
from Continuing Operations (37.7) 0.3
Discontinued Operations:
Net income -- 25.6
Change in net assets 11.0 9.8
--------- ---------
Net Cash (Used) Provided by Operating Activities (26.7) 35.7
INVESTING ACTIVITIES
Plant and equipment additions (28.7) (33.7)
Business combinations, net of cash acquired -- (2.1)
Other 0.1 0.2
--------- ---------
Net Cash Used in Investing Activities (28.6) (35.6)
FINANCING ACTIVITIES
Net borrowings under short-term credit lines 1.3 0.3
Net (decrease) increase in commercial paper
and other long-term obligations (21.5) 17.3
Proceeds from stock options exercised 1.8 1.7
Cash dividends paid (4.7) (9.4)
Repurchase of common stock (6.4) --
Other 3.9 0.4
--------- ---------
Net Cash (Used) Provided by Financing Activities (25.6) 10.3
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (5.2) 0.5
--------- ---------
(Decrease) Increase in Cash and Cash Equivalents (86.1) 10.9
Cash and Cash Equivalents at Beginning of Year 411.6 73.7
--------- ---------
Cash and Cash Equivalents at End of Period $ 325.5 $ 84.6
========= =========
Parentheses indicate decrease in cash and cash equivalents
3
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 1999
-------------------------------------------------
This Management's Discussion and Analysis of Results of Operations and Financial
Condition should be read in conjunction with the Company's Consolidated
Financial Statements and Management's Discussion and Analysis contained in the
1998 Annual Report on Form 10-K and the unaudited interim consolidated financial
statements included elsewhere in this report. All references to earnings per
share contained in this report are diluted earnings per share unless otherwise
noted.
CONTINUING OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain income statement items for the Company's continuing operations:
Three Months Ended
March 31
--------------------------
1999 1998
--------- ---------
% %
Net Sales 100.0 100.0
Gross Profit 29.3 27.9
Selling, Administrative and Research Expenses 15.4 13.8
--------- ---------
Operating Contribution 13.9 14.1
Special Charges -- 4.6
--------- ---------
Operating Income 13.9 9.5
Interest and Other Income 2.3 2.4
Interest and Other Expense 2.1 3.6
--------- ---------
Income before Income Taxes 14.1 8.3
Income Taxes 4.8 3.1
--------- ---------
Net Income from Continuing Operations 9.3 5.2
========= =========
RESULTS OF CONTINUING OPERATIONS
Sales amounted to $334 million essentially unchanged from the prior year period
as volume gains were offset by price declines. Cost initiatives coupled with
lower raw materials prices drove a 1.4 percentage point improvement in gross
profits. Increased spending for the Company's new ERP system and related
information technology infrastructure led to higher selling, administrative and
research expenses resulting in a slightly lower operating contribution.
The 1998 first quarter included a special charge of $16 million to provide for
transition costs related to the Board of Directors appointment of a new Chief
Executive Officer.
Interest and other income was approximately $8 million in each period. Interest
income increased approximately $2 million due to higher average investment
balances. This increase was offset by reduced other income, as 1998 benefited
from a $2 million insurance settlement.
4
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Interest and other expense decreased by $5 million to $7 million for the period.
The decline was due in part to lower interest expense resulting from lower
average borrowings.
Income taxes were $16 million or 34% of income before taxes compared to 37.4% in
the prior year quarter, which included non-deductible compensation costs as part
of the special charge. Excluding the effects of the special charge, the
effective tax rate in both periods was 34%.
Net income from continuing operations was $31 million or $0.53 per share in
1999, as compared to $28 million or $0.48 per share in 1998, after excluding the
after tax effect of the 1998 special charges of $11 million.
SEGMENT INFORMATION
Set forth below is a discussion of the operations of the Company's business
segments: Polymer Additives, Performance Chemicals, Water Treatment and Energy
Services and Products. Operating income, which is the income measure the Company
uses to evaluate business segment performance, represents net sales less costs
of products sold, selling, administrative and research expenses. Bromine used by
each of the Company's segments as a raw material in their production processes
is reflected at cost.
POLYMER ADDITIVES
The Polymer Additives business unit is a leading worldwide developer, producer
and marketer of brominated, intumescent and antimony based flame retardants and
antioxidants, UV absorbers and light stabilizers. Results for the quarter
follow:
1999 1998
Net Sales $ 141 $ 146
Operating Income $ 20 $ 22
Net sales were approximately 3% below the first quarter of 1998 as competitive
price pressure resulted in a 4% decrease in average selling prices. Gross profit
and gross margin improved as the savings from productivity programs and lower
raw material costs more than offset the decrease in selling prices. Higher
information systems costs resulted in lower operating income.
PERFORMANCE CHEMICALS
The Performance Chemical business unit is a collection of individual businesses
providing products and services that meet highly specific requirements for
pharmaceutical, agrochemical and industrial chemical applications.
Results for the quarter follow:
1999 1998
Net Sales $ 80 $ 70
Operating Income $ 20 $ 14
The Performance Chemicals unit achieved a 14% increase in net sales driven by
strong volumes in Fluorine and Bromine Intermediates and higher selling prices
in Ag Chemicals. Volume and average selling prices increased 12% and 2%,
respectively from the prior year quarter. Operating income increased 35% over
the prior year quarter as the business unit benefited from the positive effects
of the
5
<PAGE> 7
higher volume and increased selling prices as well as an improved cost
structure from productivity and restructuring efforts, and lower raw materials
costs.
WATER TREATMENT
The Water Treatment business unit is the world's leading provider of
recreational water care products to the consumer. In addition, this business
unit is the world's leading provider of bromine based biocides for industrial
water treatment applications. Results for the quarter follow:
1999 1998
Net Sales $ 89 $ 90
Operating Income $ 14 $ 12
Water Treatment net sales were essentially flat as 3% volume growth in the U.S.
recreational water treatment business was offset by lower sales in international
markets and a slight decline in selling prices related to lower chlorine prices.
Operating income improved 17% from the same quarter in the prior year as a
result of higher value new products, efficiencies in manufacturing and lower raw
materials costs.
ENERGY SERVICES AND PRODUCTS
The Energy Services and Products business unit provides completion products
including bromine-based clear fluids and services to oil and gas well operators.
Results for the quarter follow:
1999 1998
Net Sales $ 24 $ 30
Operating Income $ 1 $ 4
The business unit continues to be challenged by softness in end markets. Reduced
rig counts in the Gulf of Mexico and the North Sea resulting from lower crude
oil and natural gas prices have lowered the demand for oil field services.
Overall volumes were down 11% and prices were off 9%. Substantial progress has
been made in right-sizing the operations to reduce operating costs in line with
current market conditions. Recent upward movement in commodity prices is
encouraging but has yet to stimulate increased drilling activity.
FINANCIAL CONDITION AND LIQUIDITY
Inventories were $287 million at March 31, 1999, a decline of $6 million from
year end and $30 million from a year ago. The improvement in inventory
management was led by the Polymer Additives and the Water Treatment business
units.
Primarily as a result of the seasonal increase in sales in the Water Treatment
business unit, trade accounts receivable increased $61 million to $301 million
at March 31,1999, as compared to December 31, 1998. Days sales outstanding were
81 days compared to 70 days at year end 1998.
Current liabilities declined from year end primarily as a result of UK tax
payments.
6
<PAGE> 8
Operating activities consumed approximately $27 million in cash during the
quarter due primarily to the aforementioned build-up in accounts receivable and
the reduction in current liabilities.
The cash provided by discontinued operations reflects the disposition of the
environmental business in January 1999.
Capital spending during the quarter amounted to $29 million. Spending for the
year is expected to be approximately $150 million.
Approximately 180,000 shares were repurchased in the quarter at a cost of $6
million.
In May, the company intends to file a Registration Statement on Form S-3 with
the Securities and Exchange Commission using a "shelf" registration process.
Under the process the Company may sell various unsecured debt securities, common
stock or rights or warrants to purchase common stock individually or in
combination up to a total dollar value of $750 million. The registration
provides the Company with increased flexibility to finance its operations. It is
anticipated that the registration will become effective by July 1999.
OTHER MATTERS
Acquisitions
On May 3, 1999, the Company completed the acquisition of NSC Technologies (NSCT)
from Monsanto Corporation for approximately $125 million. NSCT develops,
manufactures and sells chiral pharmaceutical intermediates and select bulk
actives to pharmaceutical companies. Current annual sales are approximately $70
million. The businesses core chiral expertise in unnatural amino acids provides
a broad platform from which it develops novel, high value-added intermediates
and bulk actives for anti-viral, cardiovascular and oncology therapeutic drugs.
NSCT will be part of the Fine Chemicals group of the Performance Chemicals
business unit.
On May 5, 1999, the Company announced signing a definitive agreement to purchase
FMC's Process Additives Division (PAD) for $159 million. The pending transaction
will broaden Great Lakes' Polymer Additives business unit and more than doubles
the industrial segment of the Water Treatment business unit. The transaction is
subject to normal regulatory review and should be completed by August. PAD's
annual sales are approximately $160 million. PAD is a world leader in the
production of phosphate ester flame retardants, flame retardant fluids, and
lubricant additives, as well as a leading supplier of specialty water treatment
chemicals used in industrial applications and desalination. The business employs
500 people and includes operations in Nitro, West Virginia and Trafford Park
(Manchester, England).
Funding for the acquisitions will come from available cash and borrowing
capacity.
Special Charges
The Company is proceeding with the repositioning activities in accordance with
the plan approved by the Board of Directors in 1998. A review of the recent
activities by business unit is summarized below and a progression of the special
charge liability is provided in Note 5 to financial statements included herein.
7
<PAGE> 9
In the Polymer Additives business unit the repositioning plan focuses on
improving manufacturing efficiency, reducing cost and increasing the focus on
the customer. The downsizing of two plants in France is progressing and is
expected to be essentially completed by the end of the year; consolidating
brominated flame retardant manufacturing in El Dorado, Arkansas, is expected to
be completed in the third quarter; and, eliminating excess polymer stabilizer
production capacity was completed in April. In connection with these activities,
a workforce reduction of approximately 260 employees will occur late in the
year.
In the Performance Chemicals business unit, the Company is eliminating certain
nonperforming product lines and underutilized assets and reducing the workforce
by approximately 100 employees. Through the first quarter approximately 40
people have been involuntary terminated and an additional 25 people have
volunteered for termination and the balance will be terminated during the fourth
quarter coincident with the planned closure of a plant.
As a result of reduced near term requirements for oil well completion fluids and
services, the Company's Energy Services and Products business unit abandoned a
lease on a deep water service vessel, decommissioned the related service
equipment and reduced its workforce by approximately 100 employees. A small
facility remains to be closed.
DISPOSITIONS
The Company completed the sale of the environmental services business in January
1999 and anticipates completing the sale of the furfural and derivatives
business by mid-year 1999.
YEAR 2000 READINESS
The Year 2000 Issue (Y2K) is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
or any hardware that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a temporary inability to process transactions or engage in
normal manufacturing or other business activities. Failure by the Company or any
of its significant suppliers or customers to complete year 2000 readiness
activities in a timely manner could have a material adverse effect on the
Company's business and results of operations.
Great Lakes is actively engaged in a company-wide effort to achieve year 2000
readiness for both information technology (IT) and non-information technology
(Non-IT) systems and to determine the readiness of significant suppliers and
customers.
The Company's approach to addressing its Y2K issues consists of the following:
- Inventory - identification of items to be assessed for Y2K readiness.
- Assessment - prioritizing the inventoried items, assessing their
Y2K readiness, defining corrective actions and developing contingency
plans.
- Deployment - implementing corrective actions, verifying implementation
and finalizing contingency plans.
The Company's IT systems are comprised of business computer systems, end user
systems and technical infrastructure. In 1996, the Company determined that the
IT systems supporting its Polymer Additives and Performance Chemical business
units were inadequate to meet the business requirements and
8
<PAGE> 10
embarked on a project to replace all critical systems for these businesses. In
April, the new systems were implemented in Europe and it is anticipated that
implementation in the United States will occur in June. In the Water Treatment
and Energy Services and Products business units, IT systems inventories and
assessments were completed in the first part of 1998 and replacement of
non-conforming systems started during the fourth quarter of 1998. Completion is
on schedule for October 1999. The Company has developed contingency plans for
these critical systems and is positioned to implement the plan, if required.
Non-IT systems are comprised of manufacturing and warehousing systems and
facility support systems. The Company has completed the inventory and assessment
of all critical systems in this area. The majority of the remediation of mission
critical systems has been completed and all essential corrective actions are
expected to be completed by September 30, 1999.
In 1998 Great Lakes began contacting its suppliers regarding their Y2K
readiness. The suppliers readiness program focuses on those suppliers considered
essential for the prevention of material disruption of Great Lakes business
operations. Great Lakes has completed the assessment of critical suppliers and
is developing contingency plans, which should be in place by September 30, 1999.
The progress of key vendors will continue to be monitored and contingency plans
adjusted as required.
The Company is using both internal and external resources to complete its Y2K
readiness plan. The Company currently estimates that the total cost of resolving
the year 2000 issues including computer systems, facilities infrastructure and
supplier readiness will be approximately $15 million. Of this amount, the
Company has spent approximately $6 million, of which $3 million occurred in the
first quarter of 1999. Approximately 50% of the total year 2000 costs will be
for equipment or software replacement and the remainder on assessment and
remediation. The Company expects all costs will be funded out of operating cash
flow. Year 2000 costs are expensed except for new systems and equipment. Such
costs are capitalized and charged to expense over the estimated useful life of
the asset in accordance with existing Company policy. The estimated costs are
based on currently available information and may be subject to change.
While the Company believes its efforts to address Y2K issues will be completed
in a timely manner, the Company recognizes that failing to resolve Y2K issues on
a timely basis would, in a reasonably likely worst case scenario, significantly
limit the Company's ability to manufacture and distribute its products and
process business transactions. Also, the Company could be adversely affected by
the failure of suppliers or customers to conduct their operations due to
Y2K-related issues. Adverse effects on the Company could include among other
things disruption of manufacturing operations, increased costs and loss of
business which can not be reasonably quantified.
THE EURO
Effective January 1, 1999, member states of the European Economic and Monetary
Union converted to a common currency known as the Euro. Modifications to certain
of the Company's information systems software were made in connection with this
conversion. The Company has completed these modifications at a nominal cost, and
has not experienced any operational impact from the implementation of the Euro.
The Company does not expect the conversion to the Euro to have a material impact
on results of operations, financial position or liquidity of its European
businesses.
9
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ACCOUNTING CHANGES
Effective January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. This accounting standard specifically defines the criteria under which
costs incurred in connection with internal-use computer software projects are to
be treated as a current period expense or to be capitalized. Adoption of SOP
98-1 increased first quarter 1999 operating costs by approximately $3 million
and it is anticipated that the full year effect will be in the $5 million range.
Effective January 1, 1999, the Company adopted the AICPA SOP 98-5, Reporting on
the Costs of Start-Up Activities. This accounting standard, requires that
certain costs of start-up activities and organization costs be expensed as
incurred. The adoption of SOP 98-5 is not expected to have a material effect on
the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. This accounting standard, which is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999, requires
that all derivatives be recognized as either assets or liabilities at fair
value. The Company is evaluating the new statement's provisions and has not yet
determined either the date on which it will adopt SFAS No. 133 or the impact of
adoption on the results of operations or financial position.
FORWARD LOOKING STATEMENT
This report contains forward looking statements involving risks and
uncertainties that affect the Company's operations as discussed in the 1998
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.
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GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(millions, except as indicated)
-------------------------------------------------
NOTE 1: 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, 1998.
NOTE 2: INCOME TAXES
A reconciliation of the U.S. Federal income tax rate to the effective income tax
rate follows:
Three Months Ended March 31
---------------------------
1999 1998
--------- ---------
% %
Statutory U.S. Federal tax rate 35.0 35.0
State income taxes 2.0 2.1
Special charge rate differential -- 3.7
Other (3.0) (3.4)
--------- ---------
34.0 37.4
========= =========
NOTE 3: COMPREHENSIVE INCOME
During the first quarter of 1999 and 1998, total comprehensive income was $19.6
million and $39.1 million, respectively.
11
<PAGE> 13
NOTE 4: EARNINGS PER SHARE
The computation of basic and diluted earnings per share is determined by
dividing net income as reported as the numerator, by the number of shares
included in the denominator as follows:
Three Months Ended
March 31
--------------------------
1999 1998
--------- ---------
Denominator for basic earnings per share -
weighted-average shares 58.4 59.0
Effect of dilutive securities 0.2 0.2
--------- ---------
Denominator for diluted
earnings per share 58.6 59.2
========= =========
NOTE 5: SPECIAL CHARGES
During 1998, the Company recorded special charges of $116.5 million or $74.7
million after income taxes. Of this amount, $15.5 million was recorded in the
first quarter for costs associated with the transition of the chief executive
officer. In the third and fourth quarter charges of $48.3 million and $52.7
million, respectively were recorded in connection with a repositioning plan
undertaken to streamline operations, improve profitability and increase the
focus on customer needs.
A summary of spending against the liability for the special charge since
December 31, 1998 is shown in the following table:
Dec. 31 March 31
1998 Spending 1999
---------- --------- ---------
Severance $ 15.5 $ 1.1 $ 14.4
Plant Closure 10.1 -- 10.1
Senior Management Transition 9.3 0.9 8.4
Lease Costs and Other 7.6 1.0 6.6
---------- --------- ---------
$ 42.5 $ 3.0 $ 39.5
========== ========= =========
NOTE 6: SEGMENT INFORMATION
The Company is organized in the four global segments: Polymer Additives,
Performance Chemicals, Water Treatment and Energy Services and Products. These
segments are strategic business units that offer products and services that are
intended to satisfy specific customer requirements. The units are organized and
managed to deliver a distinct group of products, technology and services.
The Company evaluates business unit performance and allocates resources based on
operating income which represents net sales less costs of products sold,
selling, administrative and research expenses. Each of the Company's segments
uses bromine as a raw material in their production processes. Bromine is
transferred at cost based on the percentage of production consumed.
12
<PAGE> 14
Three Months Ended March 31
---------------------------
1999 1998
-------------- ------------
Net Sales by Segment to External Customers:
Polymer Additives $ 141.3 $ 145.6
Performance Chemicals 80.1 70.0
Water Treatment 89.1 89.6
Energy Services and Products 23.8 29.7
--------- ---------
Total Sales of Reportable Segments 334.3 334.9
Corporate and Other (0.1) (0.2)
--------- ---------
$ 334.2 $ 334.7
========= =========
Segment Profit:
Polymer Additives $ 20.3 $ 22.0
Performance Chemicals 19.5 14.4
Water Treatment 13.8 11.8
Energy Services and Products 1.0 4.4
--------- ---------
Total Profits of Reportable Segments 54.6 52.6
Corporate and Other (8.3) (5.3)
Special Charges -- (15.5)
--------- ---------
Operating Income 46.3 31.8
Interest and Other Income 7.7 8.1
Interest and Other Expense 7.0 12.4
--------- ---------
Income before Income Taxes $ 47.0 $ 27.5
========= =========
March 31 Dec. 31
Significant Changes in Segment Assets: 1999 1998
--------- ---------
Water Treatment $ 279.3 $ 227.7
========= =========
The change results from the seasonal nature of recreational water treatment
sales.
NOTE 7: COMMITMENTS AND CONTINGENCIES
In April 1999 the Company reached agreement with the National Labor Relations
Board to settle a 1986 lawsuit alleging unfair labor practices at the Company's
Newport, Tennessee, facility following its acquisition of the site from Syntex
Corporation. The $9 million settlement covers backpay and interest for certain
former Syntex employees. The settlement amount is consistent with previously
established reserves.
There have been no other significant subsequent developments relating to the
commitments and contingencies reported in the Company's most recent Form 10-K.
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<PAGE> 15
NOTE 8: SUBSEQUENT EVENTS
On May 3, 1999, the Company completed the acquisition of NSC Technologies (NSCT)
from Monsanto Corporation for approximately $125 million. NSCT develops,
manufactures and sells chiral pharmaceutical intermediates and select bulk
actives to pharmaceutical companies. Current annual sale are approximately $70
million. NSCT will be part of the Fine Chemicals group of the Performance
Chemicals business unit.
On May 5, 1999, the Company announced signing a definitive agreement to purchase
FMC's Process Additives Division (PAD) for approximately $159 million. The
pending transaction will broaden the Polymer Additives business unit and more
than doubles the industrial segment of the Water Treatment business unit. The
transaction is subject to normal regulatory review and should be completed by
August. PAD's annual sales are approximately $160 million.
The Company will use the purchase method of accounting to record the
acquisitions. The amount of goodwill that will result from the transactions and
the amortization periods thereof are currently under evaluation.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holder
At a Company's annual meeting of shareholders held on May 6, 1999, two items
were submitted to a vote of the security holders, which are more fully described
in the Company's proxy statement dated March 31, 1999. The matters voted on at
the meeting and the results of those votes were as follows:
1. To elect two directors to serve until the 2002 Annual Meeting:
Director For Withheld
-------- --- --------
Mark P. Bulriss 46,049,689 6,882,820
Thomas M. Fulton 46,032,012 6,900,497
14
<PAGE> 16
2. To request that the Board redeem the outstanding rights under the
existing Shareholders' Rights Plan and agree that no new shareholders
rights plan would be implemented without prior shareholder approval.
For Withheld Abstained
--- -------- ---------
30,006,463 17,465,963 363,672
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed as part of the report are listed below:
Exhibits Number
---------------
27 Financial Data Schedule
(b) 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, 1999 By: /s/ Mark E. Tomkins
-------------------- -----------------------------
Mark E. Tomkins
Senior Vice President
and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME, AND STATEMENT OF CASH FLOW AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 325,500
<SECURITIES> 0
<RECEIVABLES> 325,900
<ALLOWANCES> 3,100
<INVENTORY> 287,200
<CURRENT-ASSETS> 966,300
<PP&E> 1,248,800
<DEPRECIATION> 560,200
<TOTAL-ASSETS> 1,963,700
<CURRENT-LIABILITIES> 317,600
<BONDS> 493,500
0
0
<COMMON> 72,800
<OTHER-SE> 993,600
<TOTAL-LIABILITY-AND-EQUITY> 1,963,700
<SALES> 334,200
<TOTAL-REVENUES> 341,900
<CGS> 236,400
<TOTAL-COSTS> 287,700
<OTHER-EXPENSES> 1,400
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 5,600
<INCOME-PRETAX> 47,000
<INCOME-TAX> 16,000
<INCOME-CONTINUING> 31,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,000
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
