<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, 2000
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
------
As of October 31, 2000, the Registrant had only one class of common stock, $1.00
par value, of which 50,204,042 shares were outstanding.
<PAGE> 2
Part I - Financial Statements
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(millions)
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------------ -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 240.9 $ 478.3
Accounts and notes receivable, less allowance of $4.2 and $4.7, respectively 362.3 339.6
Inventories
Finished products 267.4 227.9
Raw materials 51.7 60.1
Supplies 32.4 28.8
---------- ----------
Total inventories 351.5 316.8
Prepaid expenses 32.2 32.8
---------- ----------
Total Current Assets 986.9 1,167.5
---------- ----------
Plant and Equipment 1,389.7 1,357.4
Less allowances for depreciation, depletion and amortization (664.4) (605.6)
---------- ----------
Net plant and equipment 725.3 751.8
Goodwill 262.1 246.5
Investments in and Advances to Unconsolidated Affiliates 37.0 55.5
Other Assets 48.8 39.7
---------- ----------
$ 2,060.1 $ 2,261.0
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 148.8 $ 136.5
Accrued expenses 139.5 123.7
Income taxes payable 86.9 40.5
Dividends payable 4.0 4.5
Notes payable and current portion of long-term debt 4.9 6.0
---------- ----------
Total Current Liabilities 384.1 311.2
---------- ----------
Long-Term Debt, less Current Portion 682.3 883.4
Other Noncurrent Liabilities 29.3 30.0
Deferred Income Taxes 40.4 37.9
Minority Interests 33.7 4.4
Stockholders' Equity
Common stock, $1 par value, authorized 200 shares,
issued 73.0 and 72.9 shares, respectively 73.0 72.9
Additional paid-in capital 131.6 132.0
Retained earnings 1,832.4 1,769.2
Accumulated other comprehensive income (96.3) (56.5)
Less treasury stock, at cost, 22.7 and 18.4 shares, respectively (1,050.4) (923.5)
---------- ----------
Total Stockholders' Equity 890.3 994.1
---------- ----------
$ 2,060.1 $ 2,261.0
========== ==========
</TABLE>
See notes to consolidated financial statements
1
<PAGE> 3
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 403.1 $ 374.4 $ 1,220.0 $ 1,083.4
Operating Expenses
Cost of products sold 293.3 266.1 867.2 764.5
Selling, general and administrative 60.6 62.7 190.9 169.9
expenses
Special charges -- -- 66.4 --
---------- ---------- ------------ ------------
Total Operating Expenses 353.9 328.8 1,124.5 934.4
---------- ---------- ------------ ------------
Operating Income 49.2 45.6 95.5 149.0
Gain on Sale of Subsidiary Stock 8.5 -- 60.4 --
Interest and Other Income 5.0 12.7 30.3 30.6
Interest and Other Expenses 18.0 8.7 52.4 22.9
---------- ---------- ------------ ------------
Income before Income Taxes 44.7 49.6 133.8 156.7
Income Taxes 10.2 15.4 30.7 48.6
---------- ---------- ------------ ------------
Net Income $ 34.5 $ 34.2 $ 103.1 $ 108.1
========== ========== ============ ============
Earnings per Share:
Basic $ 0.67 $ 0.59 $ 1.94 $ 1.85
Diluted $ 0.67 $ 0.59 $ 1.94 $ 1.85
Cash Dividends Declared per Share $ 0.08 $ 0.08 $ 0.24 $ 0.24
</TABLE>
See notes to consolidated financial statements
2
<PAGE> 4
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 103.1 $ 108.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and depletion 67.8 62.3
Amortization of intangibles 7.5 5.0
Deferred income taxes 3.9 8.1
Net unremitted earnings of affiliates (4.9) (0.9)
Loss on disposition of assets 0.2 --
Special charges 66.4 --
Gain on sale of subsidiary stock (60.4) --
Other 2.9 0.2
Change in operating assets and liabilities, net of effects of business combinations:
Accounts receivable (18.6) (49.7)
Inventories (37.0) 21.9
Other current assets 11.6 2.4
Accounts payable and accrued expenses 8.0 (15.6)
Income taxes and other current liabilities 22.8 (10.8)
Other noncurrent liabilities 2.1 (1.6)
-------- --------
Net Cash Provided by Operating Activities from Continuing Operations 175.4 129.4
Change in Net Assets of Discontinued Operations -- 75.2
-------- --------
Net Cash Provided by Operating Activities 175.4 204.6
INVESTING ACTIVITIES
Plant and equipment additions (122.5) (79.4)
Business combinations, net of cash acquired (40.7) (286.8)
Proceeds from sale of assets 2.7 1.2
Proceeds from sale of subsidiary stock 92.8 --
Other 13.0 13.8
-------- --------
Net Cash Used for Investing Activities (54.7) (351.2)
FINANCING ACTIVITIES
Net repayments under short-term credit lines (0.7) (0.5)
Net proceeds from long-term borrowings 27.6 388.3
Net repayments of commercial paper and other long-term obligations (228.4) (178.1)
Proceeds from stock options exercised 1.7 3.0
Cash dividends paid (12.9) (14.0)
Repurchase of common stock (132.3) (50.6)
Other (6.9) (7.7)
-------- --------
Net Cash (Used for) Provided by Financing Activities (351.9) 140.4
Effect of Exchange Rate Changes on Cash and Cash Equivalents (6.2) (5.3)
-------- --------
Decrease in Cash and Cash Equivalents (237.4) (11.5)
Cash and Cash Equivalents at Beginning of Year 478.3 411.6
-------- --------
Cash and Cash Equivalents at End of Period $ 240.9 $ 400.1
======== ========
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 5
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 adjustments) have been made which are necessary for a fair
presentation of the interim financial statements. 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, 1999.
NOTE 2: INCOME TAXES
A reconciliation of the statutory U.S. federal income tax rate to the effective
income tax rate is as follows:
Nine Months Ended
September 30
----------------------
2000 1999
------- -------
U.S. federal income tax rate 35.0% 35.0%
Changes resulting from:
State income taxes 2.4 2.8
International operations (1.2) (1.8)
Gain on sale of subsidiary stock (12.7) --
Special charge rate differential 3.3 --
Other (3.8) (5.0)
------- -------
Effective income tax rate 23.0% 31.0%
======= =======
During the second quarter of 2000 the effective income tax rate decreased from
31% to 23% due primarily to the nontaxable gain on the sale of subsidiary stock
offset by the special charge rate differential. This rate decrease has continued
through the third quarter and has reduced income tax expense and increased net
income by $3.6 million ($0.07 per share) and $10.7 million ($0.20 per share) for
the three and nine months ended September 30, 2000, respectively.
4
<PAGE> 6
NOTE 3: COMPREHENSIVE INCOME
Comprehensive income for the three and nine months ended September 30 is as
follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ --------------------
2000 1999 2000 1999
------- ------- -------- --------
Net income $ 34.5 $ 34.2 $ 103.1 $ 108.1
Other comprehensive income (loss) (22.9) 4.4 (39.8) (20.2)
------- ------- -------- --------
Comprehensive income $ 11.6 $ 38.6 $ 63.3 $ 87.9
======= ======= ======== ========
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 Nine Months Ended
September 30 September 30
------------------ --------------------
2000 1999 2000 1999
------- ------- -------- --------
Denominator for basic earnings per
share (weighted-average shares) 51.3 58.0 53.1 58.3
Effect of dilutive securities 0.1 0.3 0.1 0.2
------- ------- -------- --------
Denominator for diluted earnings
per share 51.4 58.3 53.2 58.5
======= ======= ======== ========
NOTE 5: SEGMENT INFORMATION
The Company is organized into 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 cost of products sold and
selling, general and administrative expenses. Each of the Company's segments
uses bromine as a raw material in their production processes. Bromine is
transferred at cost and assets used in the production of bromine are allocated
to each business unit except for Energy Services and Products, and is based on
the percentage of production consumed.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -------------------------
2000 1999 2000 1999
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales by Segment to External Customers:
Polymer Additives $ 169.0 $ 160.0 $ 509.9 $ 442.0
Performance Chemicals 91.4 90.8 259.9 246.9
Water Treatment 106.8 101.0 359.4 323.6
Energy Services and Products 34.1 23.1 89.5 71.7
-------- ---------- ---------- ----------
Total Sales of Reportable Segments 401.3 374.9 1,218.7 1,084.2
Corporate and Other 1.8 (0.5) 1.3 (0.8)
-------- ---------- ---------- ----------
$ 403.1 $ 374.4 $ 1,220.0 $ 1,083.4
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -------------------------
2000 1999 2000 1999
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Segment Profit (Loss):
Polymer Additives $ 14.3 $ 17.4 $ 47.0 $ 58.9
Performance Chemicals 24.1 21.1 64.1 55.9
Water Treatment 17.0 17.7 72.5 63.6
Energy Services and Products 3.5 (1.8) 7.3 (3.0)
-------- ---------- ---------- ----------
Total Profits of Reportable Segments 58.9 54.4 190.9 175.4
Corporate and Other (9.7) (8.8) (29.0) (26.4)
Special Charges -- -- (66.4) --
-------- ---------- ---------- ----------
Operating Income 49.2 45.6 95.5 149.0
Gain on sale of subsidiary stock 8.5 -- 60.4 --
Interest and Other Income 5.0 12.7 30.3 30.6
Interest and Other Expense 18.0 8.7 52.4 22.9
-------- ---------- ---------- ----------
Income before Income Taxes $ 44.7 49.6 $ 133.8 $ 156.7
======== ========= ========== ==========
</TABLE>
September 30 December 31
Segment Assets: 2000 1999
------------ -----------
Polymer Additives $ 816.6 $ 782.6
Performance Chemicals 431.3 436.1
Water Treatment 354.3 303.3
Energy Services and Products 105.8 131.1
Corporate and Other 352.1 607.9
---------- ----------
$ 2,060.1 $ 2,261.0
========== ==========
The increase in Water Treatment assets results from the seasonal nature of
recreational water treatment sales. The decrease in Energy Services and Products
assets is due to OSCA's recent IPO and management's decision to no longer
allocate assets from the bromine production to OSCA. The decrease in Corporate
and Other is due primarily to the use of cash and cash equivalents to repay
long-term debt and repurchase shares.
NOTE 6: SPECIAL CHARGES
During the second quarter of 2000 the Company announced cost reduction
initiatives to further streamline operations, strengthen the Company's
competitive position and continue to provide a strong platform for future
growth. The major components of this repositioning plan included (1)
consolidation of the Company's three antimony manufacturing operations, (2)
elimination of approximately 375 positions, primarily in the Polymer Additives
business unit and (3) the impairment or disposal of certain under-performing and
non-strategic assets. The special charges related to this repositioning plan
consisted of $44.2 million for asset impairments, $17.9 million for severance
costs and $4.3 million for plant closure and environmental costs.
6
<PAGE> 8
Details of the special charges by business unit and a progression of the reserve
balance to September 30, 2000 is as follows:
<TABLE>
<CAPTION>
2000 Reserve Balance
Description Special Charge Activity at September 30, 2000
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Impairment (non-cash):
Polymer Additives $ 29.8 $ (29.8) $ --
Performance Chemicals 14.4 (14.4) --
-------------------------------------------------------------------------------------------------------
44.2 (44.2) --
Severance Costs:
Polymer Additives 12.7 (1.0) 11.7
Performance Chemicals 4.2 (2.0) 2.2
Corporate 1.0 (0.1) 0.9
-------------------------------------------------------------------------------------------------------
17.9 (3.1) 14.8
Plant Closure and Environmental Costs:
Polymer Additives 4.3 -- 4.3
-------------------------------------------------------------------------------------------------------
$ 66.4 $ (47.3) $ 19.1
=======================================================================================================
</TABLE>
NOTE 7: GAIN ON SALE OF SUBSIDIARY STOCK
Effective June 15, 2000, the Company sold 40% of its ownership in OSCA, Inc., a
wholly-owned subsidiary and an integral part of its Energy Services and Products
business unit. Net proceeds from the initial sale, which were approximately $81
million, were paid to the Company by OSCA, Inc. to satisfy indebtedness. The
initial sale resulted in a $51.9 million non-taxable gain to the Company, which
was recognized in the second quarter. Subsequently, on July 13, 2000 the
over-allotment option granted to the underwriters was exercised and resulted in
an additional $12 million of net proceeds. The over-allotment exercise resulted
in an additional non-taxable gain to the Company of $8.5 million which was
recorded in the third quarter. The initial sale and the over-allotment option
exercise resulted in the Company selling a total of 43.4% of its ownership
interest in this subsidiary. OSCA, Inc. continues to be included in consolidated
financial position and results of operations due to the Company's ability to
exert significant influence over OSCA, Inc. as a result of its continuing
ownership and voting interest.
NOTE 8: ACQUISITIONS
On July 14, 2000 the Company finalized its acquisition of Aqua Clear Industries,
Inc. (Aqua Clear). Aqua Clear operates a manufacturing site in Watervliet, New
York and distribution sites in St. Louis, Missouri and Waterford, New York, as
well as sales and support networks throughout the United States and Canada. Aqua
Clear generated sales in 1999 of approximately $45 million.
The acquisition was funded with available cash and borrowing capacity.
7
<PAGE> 9
NOTE 9: TREASURY STOCK TRANSACTIONS
The Board of Directors has authorized the Company to purchase shares of the
Company's common stock in the open market or in privately negotiated
transactions. Pursuant to these authorizations, the Company purchased
approximately 2.0 million shares during the third quarter at an average price of
$30.65 per share and approximately 4.5 million shares during the nine month
period ending September 30, 2000 at an average price of $30.00. A total of 2.9
million shares remain available for repurchase under existing Board
authorizations. The Company accounts for the purchases using the cost method.
NOTE 10: COMMITMENTS AND CONTINGENCIES
There have been no significant subsequent developments relating to the
commitments and contingencies reported in the Company's 1999 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION AS OF AND
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
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
1999 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.
The following table sets forth the percentage relationship to net sales of
certain income statement items for the Company's operations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Gross Profit 27.2 28.9 28.9 29.4
Selling, General and Administrative Expenses 15.0 16.7 15.6 15.6
Special Charges -- -- 5.4 --
------- ------- ------- -------
Operating Income 12.2 12.2 7.9 13.8
Gain on Sale of Subsidiary Stock 2.1 -- 5.0 --
Interest and Other Income 1.2 3.4 2.4 2.8
Interest and Other Expense 4.4 2.3 4.3 2.1
------- ------- ------- -------
Income before Income Taxes 11.1 13.3 11.0 14.5
Income Taxes 2.5 4.2 2.5 4.5
------- ------- ------- -------
Net Income 8.6% 9.1% 8.5% 10.0%
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Sales increased 7.7% to $403.1 million from $374.4 million in the prior year
primarily due to strong volume growth in the Polymer Additives and Energy
Services and Products business units. Sales volumes increased 11% in the
quarter, of which 7% was due to organic growth and the remaining 4% attributable
to acquisitions. Sales volume increases, including the effects of acquisitions,
were partially offset by lower selling prices in the Polymer Additives business
unit related to brominated flame retardants and unfavorable foreign exchange
impact on all business units.
Gross profit margins decreased to 27.2% from 28.9% in the prior year.
Contributing to this decrease were higher energy and raw material costs, which
impacted all business units, lower selling prices in the Polymer Additives
business unit and unfavorable weather patterns affecting the Water Treatment
business unit. These decreases were partially offset by a more profitable sales
mix and cost containment in the Performance Chemicals business unit and by the
improving fundamentals in the Energy Services and Products business unit.
Selling, general and administrative expenses decreased $2.1 million to $60.6
million from $62.7 million in the prior year due primarily to cost containment
efforts undertaken by the Company.
9
<PAGE> 11
Operating income increased $3.6 million to $49.2 million from $45.6 million in
the prior year. Higher sales volumes, improved product mix and cost containment
efforts more than offset increased energy and raw material costs and lower
selling prices in Polymer Additives. Operating income margins remained
consistent with the prior year at 12.2%.
Interest and other income was $5.0 million compared to $12.7 million in the
prior year. This decrease reflects a decrease of $1.7 million in interest income
primarily the result of lower investment balances and decreases in other income
resulting from non-recurring gains on the sale of equity investments that
occurred in the prior year.
Interest and other expenses increased by $9.3 million to $18.0 million compared
to the prior year. This increase was primarily due to increased interest expense
resulting from higher debt levels due to acquisitions and share repurchases and
higher interest rates.
Income taxes were $10.2 million compared to $15.4 million in the prior year.
This decrease is due to the decrease in the effective income tax rate from 31%
to 23% that occurred in the second quarter of 2000 primarily due to the
nontaxable gain on the sale of subsidiary stock offset by the special charge
rate differential. This rate decrease has reduced income tax expense and
increased net income by $3.6 million ($0.07 per share) for the quarter.
Net income was $34.5 million or $0.67 per share in 2000, as compared to $34.2
million or $0.59 per share in 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
Sales increased 12.6% to $1,220.0 million from $1,083.4 million in the prior
year primarily due to strong sales volume growth in the Polymer Additives, Water
Treatment and Energy Services and Products business units. Organic growth and
acquisitions more than offset lower selling prices in the Polymer Additives
business unit and an unfavorable foreign exchange impact on all business units.
Gross profit margins decreased to 28.9% from 29.4% in the prior year. This
decrease reflects higher energy and raw material costs impacting all business
units and lower selling prices in the Polymer Additives business unit. These
decreases were partially offset by a more profitable sales mix and cost
containment in the Performance Chemicals business unit and the improving
fundamentals in the Energy Services and Products business unit.
Selling, general and administrative expenses increased $21.0 million to $190.9
million from $169.9 million in the prior year. This increase was due to higher
selling expenses related to the increased sales volumes and the effect of
acquisitions, offset by cost containment efforts undertaken by the Company.
Operating income, excluding the $66.4 million special charge recorded in the
second quarter, increased $12.9 million to $161.9 million over the prior year.
Higher sales volumes, cost containment efforts of all business units and a more
profitable sales mix more than offset increased energy and raw material costs
and lower selling prices in Polymer Additives.
Interest and other income was essentially flat compared to the prior year.
Increases in interest income were offset by decreases in other income from the
prior year resulting from non-recurring gains on the sale of equity investments
that occurred in the prior year.
Interest and other expenses increased by $29.5 million from $22.9 million to
$52.4 million compared to the prior year. This increase was primarily due to
increased interest expense resulting from higher debt levels due to acquisitions
and share repurchases.
10
<PAGE> 12
Income taxes were $30.7 million compared to $48.6 million in the prior year.
This decrease resulted from the decrease in the effective income tax rate from
31% to 23% that occurred in the second quarter of 2000 primarily due to the
nontaxable gain on the sale of subsidiary stock offset by the special charge
rate differential. This rate decrease has reduced income tax expense and
increased net income by $10.7 million ($0.20 per share) for the nine months
ended September 30, 2000.
Net income was $103.1 million or $1.94 per share in 2000, as compared to $108.1
million or $1.85 per share in 1999.
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 and selling, general and administrative expenses. Each of the
Company's segments uses bromine as a raw material in their production processes.
Bromine is transferred at cost and assets used in the production of bromine are
allocated to each business unit except for Energy Services and Products, and is
based on the percentage of production consumed.
POLYMER ADDITIVES
The Polymer Additives business unit is a leading worldwide developer, producer
and marketer of brominated, non-halogen, intumescent and antimony-based flame
retardants and antioxidants, UV absorbers and light stabilizers. Results for the
third quarter and year-to-date are as follows:
THIRD QUARTER YEAR-TO-DATE
----------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales $ 169.0 $ 160.0 $ 509.9 $ 442.0
Operating Income $ 14.3 $ 17.4 $ 47.0 $ 58.9
Net sales increased $9.0 million or 5.6% and $67.9 million or 15.4% for the
third quarter and year-to-date, respectively. Continued recognition and
acceptance of the Company's proprietary blends such as the No Dust Blends (NDB)
products, higher flame retardants volume reflecting the recovery underway in
Asia, and the addition of sales related to the PAD acquisition drove the
increases. Lower selling prices and unfavorable foreign exchange slightly offset
this sales growth.
Operating income decreased $3.1 million or 17.8% and $11.9 million or 20.2% for
the third quarter and year-to-date, respectively. Operating income decreases
were due primarily to lower selling prices associated with high volume
brominated flame retardants and higher raw material and energy costs which more
than offset higher sales volumes, including the contribution from the PAD
acquisition and cost savings resulting from repositioning efforts.
11
<PAGE> 13
PERFORMANCE CHEMICALS
The Performance Chemicals 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 third quarter and year-to-date are as follows:
THIRD QUARTER YEAR-TO-DATE
----------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales $ 91.4 $ 90.8 $ 259.9 $ 246.9
Operating Income $ 24.1 $ 21.1 $ 64.1 $ 55.9
Net sales increased $0.6 million or 0.7% and $13.0 million or 5.3% for the third
quarter and year-to-date, respectively. Although net sales for the third quarter
were flat, the year-to-date increase reflects the continuing growth in Fluorine,
combined with strong volume growth for Brominated Performance Products and WIL
Research. The effects of foreign exchange negatively impacted both third quarter
and year-to-date net sales.
Operating income for the third quarter and year-to-date increased $3.0 million
or 14.2% and $8.2 million or 14.7% over the prior year, respectively. In
addition, operating margins compared to prior year, were 26.4% and 24.7% versus
23.2% and 22.6% for the third quarter and year-to-date, respectively. These
results, which are at record levels, reflect a more profitable product mix,
stronger sales volumes and the effects of repositioning and cost containment
initiatives.
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 and a leading supplier of corrosion inhibitors,
scale control and desalination products using polymaleate chemistry. Results for
the third quarter and year-to-date are as follows:
THIRD QUARTER YEAR-TO-DATE
----------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales $ 106.8 $ 101.0 $ 359.4 $ 323.6
Operating Income $ 17.0 $ 17.7 $ 72.5 $ 63.6
Water Treatment net sales for the third quarter increased $5.8 million to $106.8
million or 5.7% over the prior year. This increase was due primarily to the
acquisition of the Aqua Clear business as unseasonably cooler temperatures in
the Northeast and North-Central U.S. adversely affected anticipated organic
sales growth. Year-to-date sales, however increased $35.8 million to $359.4
million or 11.1%, reflecting strong organic growth, consumer acceptance of newly
introduced technologies and the addition of the BioLab Water Additives business
acquired in August 1999, partially offset by the impact of the adverse weather
conditions of the third quarter.
Operating income decreased $0.7 million or 4.0% for the third quarter,
reflecting the impact of the cooler weather on organic sales growth and a change
in product mix. On a year-to-date basis, operating income increased $8.9 million
or 14.0% indicating the strength of the product portfolio, focused productivity
efforts and the accretive effects of the BioLab Water Additives acquisition.
12
<PAGE> 14
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 third quarter and year-to-date are as follows:
THIRD QUARTER YEAR-TO-DATE
----------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales $ 34.1 $ 23.1 $ 89.5 $ 71.7
Operating Income (Loss) $ 3.5 $ (1.8) $ 7.3 $ (3.0)
Net sales for the third quarter increased $11.0 million or 47.6% to $34.1
million from $23.1 million in the prior year. Year-to-date net sales have
increased $17.8 million or 24.8% compared to the same period in the prior year.
Market penetration and increased drilling activity in the Gulf of Mexico
resulting from higher prices for oil and natural gas drove the increases.
Operating income for the third quarter was $3.5 million compared to a $1.8
million loss in the prior year. Year-to-date, operating income grew to $7.3
million compared to a $3.0 million loss for the same period in the prior year.
These improved results are directly attributable to the increased volume and
drilling activity occurring in the current year.
FINANCIAL CONDITION AND LIQUIDITY
Trade accounts receivable increased $5.3 million to $322.0 million at September
30, 2000, as compared to year end and $6.4 million year-over-year. These
increases were due primarily to increased sales volumes. Days sales outstanding
were 73 days at September 30, 2000 compared to 77 days at both December 31 and
September 30, 1999.
Inventories were $351.5 million at September 30, 2000, an increase of $34.7
million from prior year end and $31.6 million from a year ago. The increase from
year end results from seasonal requirements in the Water Treatment business unit
due and higher inventory levels in the Polymer Additives business unit due to
increased demand for its products. The year over year increase in inventory is
due primarily to the higher inventory levels in the Water Treatment business
unit, which includes the effect of the Aqua Clear acquisition.
Current liabilities increased $72.9 million from prior year end to $384.1
million primarily due to an increase in income taxes payable due to the timing
of tax payments and an increase in accrued expenses related to the special
charges recorded in the second quarter.
Long-term debt, less current portion decreased $201.1 million from prior year
end to $682.3 million primarily due to repayments made from the net proceeds
from the sale of subsidiary stock and use of cash and cash equivalents.
Operating activities from continuing operations provided net cash of $175.4
million during the nine month period ended September 30, 2000. This increase
over the prior year is due primarily to changes in working capital items, the
increase in non-cash charges related to depreciation and amortization and
special charges.
Capital spending during the nine months ended September 30, 2000 amounted to
$122.5 million, an increase of $43.1 million over prior year. Spending for the
year is expected to be approximately $160 million, an increase of over 30%
versus prior year.
13
<PAGE> 15
Approximately 4.5 million shares were repurchased in the first nine months at a
cost of $132.3 million.
OTHER MATTERS
Acquisitions
On July 14, 2000 the Company finalized its acquisition of Aqua Clear Industries,
Inc. (Aqua Clear). Aqua Clear operates a manufacturing site in Watervliet, New
York and distribution sites in St. Louis, Missouri and Waterford, New York, as
well as sales and support networks throughout the United States and Canada. Aqua
Clear generated sales in 1999 of approximately $45 million.
The acquisition was funded with available cash and borrowing capacity.
Special Charges
During the second quarter of 2000 the Company announced cost reduction
initiatives which will further streamline operations, strengthen the Company's
competitive position and continue to provide a strong platform for future
growth. The major components of this repositioning plan included (1)
consolidation of the Company's three antimony manufacturing operations, (2)
elimination of approximately 375 positions, primarily in the Polymer Additives
business unit and (3) the impairment or disposal of certain under-performing and
non-strategic assets. The special charges related to this repositioning plan
consisted of approximately $44.2 million for asset impairments, $17.9 million
for severance costs and $4.3 million for plant closure and environmental costs.
The Company expects to realize approximately $20 million in annual pre-tax
savings as a result of this repositioning.
A progression of the reserve balance to September 30, 2000 is as follows:
<TABLE>
<CAPTION>
2000 Reserve Balance
Description Special Charge Activity at September 30, 2000
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Impairment $44.2 $(44.2) $--
Severance Costs 17.9 (3.1) 14.8
Plant Closure and Environmental Costs 4.3 -- 4.3
----------------------------------------------------------------------------------------------------------
$66.4 $(47.3) $19.1
</TABLE>
In the fourth quarter of 1999, the Board of Directors took action to further
streamline the Polymer Additives business unit, to provide a more flexible data
processing solution to the Company's manufacturing operations and to write down
certain assets formerly used in the Energy Services and Products' Mexico
environmental business. The plan is intended to increase the Company's focus on
its core specialty chemicals businesses and to position these operations to
achieve higher growth and profitability. These actions were in addition to the
actions approved by the Board of Directors in 1998.
14
<PAGE> 16
A progression of the reserve balance from December 31, 1999 to September 30,
2000 is as follows:
<TABLE>
<CAPTION>
Reserve Balance 2000 Reserve Balance
Description at December 31, 1999 Activity at September 30, 2000
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Severance Costs 1.9 (0.2) 1.7
-------------------------------------------------------------------------------------------------------------------
1.9 (0.2) 1.7
</TABLE>
The 1998 portion of the repositioning plan affects the Polymer Additives,
Performance Chemicals and Energy Services and Products business units and
includes both domestic and international operations primarily in France, Italy
and the United Kingdom. The plan provides for improving manufacturing
productivity; the closing of production units at four sites; and the
consolidation of United States flame retardant production. Additionally, the
consolidation of sales offices and research and development facilities is
planned. As a result of these actions, approximately 500 positions have been or
will be eliminated.
A progression of the reserve balance from December 31, 1999 to September 30,
2000 is as follows:
<TABLE>
<CAPTION>
Reserve Balance 2000 Reserve Balance
Description at December 31, 1999 Activity at September 30, 2000
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Severance Costs 10.5 (0.7) 9.8
Plant Closure and Environmental 5.1 (1.3) 3.8
Senior Management Transition 6.1 (1.6) 4.5
Lease Costs 1.8 (0.8) 1.0
-------------------------------------------------------------------------------------------------------------------
23.5 (4.4) 19.1
</TABLE>
In accordance with a plan approved by the Board of Directors in December 1997,
the Company took a series of actions to restructure its Water Treatment business
and eliminate underperforming assets.
A progression of the reserve balance from December 31, 1999 to September 30,
2000 is as follows:
<TABLE>
<CAPTION>
Reserve Balance 2000 Reserve Balance
Description at December 31, 1999 Activity at September 30, 2000
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Severance Costs 1.0 (0.1) 0.9
Other 0.7 0.0 0.7
-------------------------------------------------------------------------------------------------------------------
1.7 (0.1) 1.6
</TABLE>
15
<PAGE> 17
DISPOSITIONS
Effective June 15, 2000, the Company sold 40% of its ownership in OSCA, Inc., a
wholly-owned subsidiary and an integral part of its Energy Services and Products
business unit. Proceeds from the initial sale, which were approximately $81
million, were paid to the Company by OSCA, Inc. to satisfy indebtedness. The
initial sale resulted in a $51.9 million non-taxable gain to the Company, which
was recognized in the second quarter. Subsequently, on July 13, 2000 the
over-allotment option granted to the underwriters was exercised and resulted in
an additional $12 million of net proceeds. The over-allotment exercise resulted
in an additional non-taxable gain to the Company of $8.5 million which was
recorded in the third quarter. The initial sale and the over-allotment option
exercise resulted in the Company selling a total of 43.4% of its ownership
interest in this subsidiary. OSCA, Inc. continues to be included in consolidated
financial position and results of operations due to the Company's ability to
exert significant influence over OSCA, Inc. as a result of its continuing
ownership and voting interest.
ACCOUNTING CHANGES
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 Statement, as amended by SFAS 137 and
SFAS 138, will be effective for the Company beginning with the first quarter of
2001. The Statement requires companies to recognize all derivatives on the
balance sheet at fair value. Gains or losses resulting from changes in the fair
value of derivatives would be accounted for depending on the intended use of the
derivative and whether it qualifies for hedge accounting. The Company is
currently evaluating the new statement's provisions. However, due to our limited
use of derivative financial instruments, adoption of SFAS 133 is not expected to
have a material effect on the Company's financial position or results of
operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") and amended it in March and June 2000 with respect to the effective dates.
The Company is required to adopt the provisions of SAB 101 in our fourth fiscal
quarter of 2000 and is currently evaluating what effect, if any, SAB 101 may
have on existing revenue recognition policies. The adoption of SAB 101 is not
expected to have a material effect on the Company's financial position or
results of operations.
FORWARD LOOKING STATEMENT
This report contains forward looking statements involving risks and
uncertainties that affect the Company's operations as discussed in the 1999
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.
16
<PAGE> 18
Part II. - Other Information
Item 4. Submission of Matters to a Vote of Security Holder
At the Company's annual meeting of shareholders held on May 4, 2000, three items
were submitted to a vote of the security holders, which are more fully described
in the Company's proxy statement dated March 27, 2000. 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 2003 Annual Meeting:
Director For
-------- ---
Martin M. Hale 35,664,483
Jay D. Proops 35,630,791
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 Against Abstained
--- ------- ---------
23,553,522 20,531,185 4,882,161
3. To request that the Board of Directors eliminate the classification of the
Board of Directors and require all Directors to stand for election annually.
For Against Abstained
--- ------- ---------
24,046,894 20,037,810 4,882,161
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.
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 14, 2000 By: /s/ Kevin J. Mulcrone
-------------------- ----------------------
Kevin J. Mulcrone
Vice President and Controller
17
