<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 June 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
-----
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 - 52,219,978 Shares as of June 30, 2000
<PAGE> 2
Part I - Financial Statements
-----------------------------
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(millions)
--------------------------------------------------
June 30 Dec. 31
2000 1999
------------ ------------
Assets
Current Assets
Cash and cash equivalents $ 283.5 $ 478.3
Accounts and notes receivable, less
allowance of $4.1 and $4.7, respectively 417.9 339.6
Inventories
Finished products 259.2 227.9
Raw materials 49.3 60.1
Supplies 29.0 28.8
------------ ------------
Total inventories 337.5 316.8
Prepaid expenses 32.2 32.8
------------ ------------
Total Current Assets 1,071.1 1,167.5
------------ ------------
Plant and Equipment 1,378.3 1,357.4
Less allowance for depreciation (654.0) (605.6)
------------ ------------
Net plant and equipment 724.3 751.8
Goodwill 239.8 246.5
Investments in and Advances to
Unconsolidated Affiliates 39.5 55.5
Other Assets 42.1 39.7
------------ ------------
$ 2,116.8 $ 2,261.0
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 150.1 $ 136.5
Accrued expenses 163.0 123.7
Income taxes payable 77.7 40.5
Dividends payable 4.2 4.5
Notes payable and current portion of
long-term debt 4.5 6.0
------------ ------------
Total Current Liabilities 399.5 311.2
------------ ------------
Long-Term Debt, less Current Portion 673.8 883.4
Other Noncurrent Liabilities 58.6 34.4
Deferred Income Taxes 41.0 37.9
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 132.2 132.0
Retained earnings 1,804.4 1,769.2
Accumulated other comprehensive income (73.8) (56.5)
Less treasury stock, at cost, 20.8 and
18.4 shares, respectively (991.9) (923.5)
------------ ------------
Total Stockholders' Equity 943.9 994.1
------------ ------------
$ 2,116.8 $ 2,261.0
============ ============
1
<PAGE> 3
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share data)
--------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------------------
2000 1999 2000 1999
-------------------------------------------
Net Sales $ 426.7 $ 374.8 $ 816.9 $ 709.0
Operating Expenses
Cost of products sold 295.0 262.0 573.9 498.4
Selling, general and
administrative expenses 66.1 55.7 130.3 107.2
Special charges 66.4 -- 66.4 --
-------------------------------------------
427.5 317.7 770.6 605.6
-------------------------------------------
Operating Income (Loss) (0.8) 57.1 46.3 103.4
Gain on Sale of Subsidiary Stock 51.9 -- 51.9 --
Interest and Other Income 12.4 10.1 25.3 17.8
Interest and Other Expenses 15.5 7.2 34.4 14.2
-------------------------------------------
Income before Income Taxes 48.0 60.0 89.1 107.0
Income Taxes 7.8 17.2 20.5 33.2
-------------------------------------------
Net Income $ 40.2 $ 42.8 $ 68.6 $ 73.8
===========================================
Earnings per Share:
Basic $ 0.75 $ 0.73 $ 1.27 $ 1.26
Diluted $ 0.75 $ 0.73 $ 1.27 $ 1.26
Cash Dividends Declared per Share $ 0.08 $ 0.08 $ 0.16 $ 0.16
2
<PAGE> 4
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
-------------------------------------------------
Six Months Ended
June 30
-------------------
2000 1999
-------- --------
OPERATING ACTIVITIES
Net income $ 68.5 $ 73.8
Adjustments to reconcile income to net cash
Provided by operating activities:
Depreciation and amortization 54.3 40.8
Changes in deferred items and other 3.7 0.5
-------- --------
Cash provided by operations excluding changes
in working capital 126.5 115.1
Changes in working capital other than debt,
net of effect from business combinations 24.8 (107.4)
Other noncurrent liabilities 0.4 (1.0)
-------- --------
Net Cash Provided (Used) by Operating Activities
from Continuing Operations 151.7 6.7
Change in Net Assets of Discontinued Operations -- 69.3
-------- --------
Net Cash Provided by Operating Activities 151.7 76.0
INVESTING ACTIVITIES
Plant and equipment additions (83.9) (54.0)
Business combinations, net of cash acquired -- (125.0)
Other 15.3 11.0
-------- --------
Net Cash Used in Investing Activities (68.6) (168.0)
FINANCING ACTIVITIES
Net decrease in borrowings under short-term
credit lines (1.3) (0.3)
Net (decrease)/increase in commercial paper and
other long-term obligations (209.5) 12.7
Proceeds from stock options exercised 0.3 2.9
Cash dividends paid (8.7) (9.3)
Repurchase of common stock (75.3) (7.1)
Other 19.1 3.7
-------- --------
Net Cash (Used)/Provided by Financing Activities (275.4) 2.6
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (2.5) (1.8)
-------- --------
Decrease in Cash and Cash Equivalents (194.8) (91.2)
Cash and Cash Equivalents at Beginning of Year 478.3 411.6
-------- --------
Cash and Cash Equivalents at End of Period $ 283.5 $ 320.4
======== ========
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 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, 1999.
NOTE 2: INCOME TAXES
A reconciliation of the U.S. Federal income tax rate to the effective income tax
rate follows:
Six Months Ended
June 30
2000 1999
-------- --------
% %
Statutory U.S. Federal tax rate 35.0 35.0
State income taxes 1.7 2.6
International operations (2.2) (1.6)
Gain on sale of subsidiary stock (10.1) --
Nondeductible special charge 3.1 --
Other (4.5) (5.0)
-------- --------
23.0 31.0
======== ========
During the second quarter of 2000, the Company reduced the effective annual tax
rate from 31% to 23%. This reduced income tax expense and increased net income
by $3.2 million ($0.06 per share).
NOTE 3: COMPREHENSIVE INCOME
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------- ------- -------- -------
Net Income $ 40.2 $ 42.8 $ 68.2 $ 73.8
Other Comprehensive Income/(Loss) (4.5) (13.2) (16.9) (24.6)
------- ------- -------- -------
Comprehensive Income $ 35.7 $ 29.6 $ 51.3 $ 49.2
======= ======= ======== =======
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:
4
<PAGE> 6
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------- ------- -------- -------
Denominator for basic earnings
per share (weighted-average shares) 53.5 58.5 54.0 58.4
Effect of dilutive securities 0.1 0.3 0.1 0.3
------- ------- -------- -------
Denominator for diluted earnings
per share 53.6 58.8 54.1 58.7
======= ======= ======== =======
NOTE 5: SEGMENT INFORMATION
The Company is organized in 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Sales by Segment to External Customers:
Polymer Additives $ 166.5 $ 140.7 $ 340.9 $ 282.0
Performance Chemicals 80.5 76.0 168.5 156.1
Water Treatment 151.3 133.5 252.6 222.6
Energy Services and Products 28.9 24.8 55.4 48.6
------- ------- -------- -------
Total Sales of Reportable Segments 427.2 375.0 817.4 709.3
Corporate and Other (0.5) (0.2) (0.5) (0.3)
------- ------- -------- -------
$ 426.7 $ 374.8 $ 816.9 $ 709.0
Segment Profit:
Polymer Additives $ 15.2 $ 21.2 $ 32.7 $ 41.5
Performance Chemicals 19.8 15.3 40.0 34.8
Water Treatment 38.1 32.1 55.5 45.9
Energy Services and Products 2.6 (2.2) 3.8 (1.2)
------- ------- -------- -------
Total Profits of Reportable Segments 75.7 66.4 132.0 121.0
Corporate and Other (10.1) (9.3) (19.3) (17.6)
Special Charges (66.4) -- (66.4) --
------- ------- -------- -------
Operating Income (0.8) 57.1 46.3 103.4
Interest and Other Income 64.3 10.1 77.2 17.8
Interest and Other Expense 15.5 7.2 34.4 14.2
------- ------- -------- -------
Income before Income Taxes $ 48.0 60.0 $ 89.1 $ 107.0
======= ======= ======== =======
June 30 Dec. 31
Segment Assets: 2000 1999
-------- --------
Polymer Additives $ 816.6 $ 782.6
Performance Chemicals 437.3 436.1
Water Treatment 376.5 303.3
</TABLE>
5
<PAGE> 7
Energy Services and Products 109.0 131.1
Corporate and Other 377.4 607.9
-------- --------
$2,116.8 $2,261.0
======== ========
The change in Water Treatment assets results from the seasonal nature of
recreational water treatment sales. The decrease in Energy Services and Products
assets is as a result of OSCA's recent IPO, management has decided to no longer
allocate assets from the bromine production to OSCA. The decrease in Corporate
and Other assets is due to the use of cash and short term investments to pay
down long term debt.
NOTE 6: 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 the restructuring plan include (1) consolidating
the company's three antimony manufacturing operations into one, (2) eliminating
approximately 375 positions, primarily in the Polymer Additives business unit
and (3) writing down or disposing of certain under-performing and non-strategic
assets. The charges related to the restructuring are made up of approximately
$44.2 million for asset write-offs, $17.9 million for severance and $4.3 million
for plant closure costs.
NOTE 7: GAIN ON SALE OF SUBSIDIARY STOCK
Effective June 15, 2000, the Company sold 40% of its ownership in OSCA, an
integral part of its Energy Services and Products business unit. Proceeds from
the sale were paid to the Company to satisfy indebtedness. The sale resulted in
a $51.9 million non-taxable gain to the Company. Subsequently, on July 13, 2000
the over-allotment option granted to the underwriters was exercised and resulted
in an additional $12 million in net proceeds related to the initial public
offering. The Company now owns 56.6% of OSCA. OSCA has been included in
consolidated results of operations because the Company will retain the ability
to exert significant influence over OSCA due to its continuing ownership
interest. Total net proceeds from the OSCA IPO were approximately $93.0 million.
NOTE 8: COMMITMENTS AND CONTINGENCIES
There have been no significant subsequent developments relating to the
commitments and contingencies reported in the Company's most recent Form 10-K.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND SIX MONTHS ENDED JUNE 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:
Three Months Ended Six Months Ended
June 30 June 30
----------------- ------------------
2000 1999 2000 1999
------- ------- -------- -------
Net Sales 100.0% 100.0% 100.0% 100.0%
Gross Profit 30.9 30.1 29.7 29.7
Selling, General and
Administrative Expenses 15.5 14.9 16.0 15.1
Special Charges 15.6 -- 8.1 --
------- ------- -------- -------
Operating Income (0.2) 15.2 5.6 14.6
Interest and Other Income 15.0 2.7 9.5 2.5
Interest and Other Expense 3.6 1.9 4.2 2.0
------- ------- -------- -------
Income before Income Taxes 11.2 16.0 10.9 15.1
Income Taxes 1.8 4.6 2.5 4.7
------- ------- -------- -------
Net Income 9.4% 11.4% 8.4% 10.4%
======= ======= ======== =======
RESULTS OF OPERATIONS
Sales increased 14% to $426.7 million from $374.8 million in the prior year. The
increase reflects strong volume growth in the Water Treatment, Polymer Additives
and Energy Services and Products business units. Sales volumes grew 18% in the
quarter, including 9% organic growth. The volume growth in sales, including the
effects of acquisitions, was partially offset by lower selling prices in the
Polymer Additives business unit primarily related to brominated flame retardants
and unfavorable foreign exchange.
The gross profit margin increased to 30.9% in 2000 from 30.1% in the
corresponding period last year. This increase resulted from a more profitable
product mix and productivity improvements in Performance Chemicals, Water
Treatment and Energy Services and Products offset in part by the lower selling
prices in Polymer Additives.
The $57.9 million decline in operating income from the prior year reflects
primarily the impact of a pre-tax special charge totaling $66.4 million relating
to a series of cost of reduction initiatives which will further streamline
operations and strengthen the companies competitive position. Excluding this
special charge operating income increased $8.5 million or 14.9% over the same
period a year earlier.
Interest and other income was $12.4 million for the quarter, compared to $10.1
million for the corresponding period last year. Included in this quarter was a
$3.6 million gain due to the sale of real estate.
7
<PAGE> 9
Interest and other expense increased $8.3 million to $15.5 million for the
period. This increase was attributable to increased interest expense of $7.8
resulting from higher levels of debt due to acquisitions and share repurchases.
Income taxes were $7.8 million or 16.3% of income before taxes compared to 31.0%
in the prior year quarter. The lower effective tax rate is primarily due to the
non-taxable gain associated with the OSCA IPO.
Net income was $40.2 million or $0.75 per share in 2000, as compared to $42.8
million or $0.73 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, selling, general and administrative 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, non-halogen, intumescent and antimony-based flame
retardants and antioxidants, UV absorbers and light stabilizers. Results for the
second quarter and year to date follow:
SECOND QUARTER YEAR TO DATE
2000 1999 2000 1999
Net Sales $ 166.5 $ 140.7 $ 340.9 $ 282.0
Operating Income $ 15.2 $ 21.2 $ 32.7 $ 41.5
Net sales increased 18.3% compared to the second quarter of last year. Continued
recognition and acceptance of the Company's proprietary blends such as the No
Dust Blends (NDB) product, higher flame retardant volumes reflecting the
recovery underway in Asia and the addition of sales related to the PAD
acquisition drove the increase. This volume growth more than offset the effect
of 5.6% lower selling prices and 3.5% unfavorable foreign exchange. Operating
income decreased primarily due to lower selling prices associated with
brominated flame retardants and higher raw material costs which more than offset
the contribution provided by the PAD acquisition, productivity initiatives and
higher sales volumes.
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 second quarter and year to date follow:
SECOND QUARTER YEAR TO DATE
2000 1999 2000 1999
Net Sales $ 80.5 $ 76.0 $ 168.5 $ 156.1
Operating Income $ 19.8 $ 15.3 $ 40.0 $ 34.8
8
<PAGE> 10
Sales grew 5.9% in the quarter led by continued growth in Fluorine, coupled with
strong volume growth for Brominated Performance Products and WIL Research which
more than offset lower sales in Fine Chemicals. Operating income increased 29%
reflecting a more profitable product mix and the stronger volumes.
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 second quarter and year to date follow:
SECOND QUARTER YEAR TO DATE
2000 1999 2000 1999
Net Sales $ 151.3 $ 133.5 $ 252.6 $ 222.6
Operating Income $ 38.1 $ 32.1 $ 55.5 $ 45.9
Water Treatment sales increased 13.3% in the second quarter to $151.3 million.
Strong organic growth and consumer acceptance of new technologies introduced
this year played key roles, as did the addition of the BioLab Water Additives
business acquired in August 1999. Operating income increased 18% compared to the
same period a year ago reflecting the ongoing strength of the product portfolio,
focused productivity efforts and the acquisition.
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:
SECOND QUARTER YEAR TO DATE
2000 1999 2000 1999
Net Sales $ 28.9 $ 24.8 $ 55.4 $ 48.6
Operating Income $ 2.6 $ (2.2) $ 3.8 $ (1.2)
Sales for OSCA grew 17% in the quarter compared to the corresponding period last
year and 9% versus the first quarter of 2000. OSCA's performance reflects the
continuing improvement in oil and gas exploration and development activity.
OSCA's second quarter operating income grew $4.8 million to $2.6 million
reflecting the higher volumes coupled with cost reduction initiatives undertaken
during the last industry down-cycle. All segments showed marked improvement.
FINANCIAL CONDITION AND LIQUIDITY
Inventories were $337.5 million at June 30, 2000, an increase of $20.7 million
from year-end and $26.8 million from a year ago. The increase over year-end
levels is primarily due to the build-up of inventories in the Water Treatment
business unit due to seasonal requirements. The year over year increase in
inventory is the result of the PAD and NSC Technologies acquisitions.
Trade accounts receivable increased $55.6 million to $372.3 million at June 30,
2000, as compared to December 31, 1999 reflecting the seasonal increase of sales
in the Water Treatment business unit. The year over year increase of
approximately $45.7 is primarily due to the PAD and NSC Technologies
acquisitions as well
9
<PAGE> 11
as volume growth in the Water Treatment business. Days sales outstanding were 77
days compared to 77 days at year end 1999.
Current liabilities increased $88.4 million from year end to $399.5 million
primarily due to a $37.2 million increase in the accrual for income taxes as a
result of the effective rate increasing from 20.4% at year end to 23.0% for
2000, a $28.6 million increase in accruals associated with severance and other
charges related to the Polymer Additives restructuring and seasonal increases in
accounts payable and accrued expenses related to the seasonal nature of the
Water Treatment business.
Long-term debt decreased $209.6 million from year-end to $673.8 million
primarily due to the reduction in short-term investments, increased cash flow
from operations and the net proceeds from the OSCA initial public offering (OSCA
IPO) partially offset by share repurchases.
Operating activities provided $151.7 million in cash during the first six months
of 2000. The increase from the prior year is primarily related to larger
non-cash charges related to depreciation and amortization and better management
of working capital, especially related to accounts receivable and accounts
payable.
Capital spending during the first six months amounted to $83.9 million. Spending
for the year is expected to be approximately $140 million.
Approximately 2,500,000 shares were repurchased in the first six months at a
cost of $75.3 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 the restructuring plan include (1) consolidating
the company's three antimony manufacturing operations into one, (2) eliminating
approximately 375 positions, primarily in the Polymer Additives business unit
and (3) writing down or disposing of certain under-performing and non-strategic
assets. The charges related to the restructuring are made up of approximately
$44.2 million for asset write-offs, $17.9 million for severance and $4.3 million
for plant closure costs. The Company expects to realize approximately $20
million in annual pre-tax savings as a result of this restructuring.
2000 Reserve Balance
Description Special Charge Activity at June 30, 2000
-------------------------------------------------------------------------
Asset Write-Offs $44.2 $(44.2) --
10
<PAGE> 12
Severance Costs 17.9 (2.0) 15.9
Plant Closure Cost 4.3 -- 4.3
-------------------------------------------------------------------------
Total Charge $66.4 $(46.2) $20.2
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.
A progression of the reserve balance from December 31, 1999 to June 30, 2000:
Reserve Balance 2000 Reserve Balance
Description at December 31, 1999 Activity at June 30, 2000
------------------------------------------------------------------------------
Severance Costs $1.9 $(0.6) $1.3
------------------------------------------------------------------------------
$1.9 $(0.6) $1.3
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 June 30, 2000:
Reserve Balance 2000 Reserve Balance
Description at December 31, 1999 Activity at June 30, 2000
------------------------------------------------------------------------------
Severance Costs $10.5 $(0.7) $9.8
Plant Closure and
Environmental 5.1 (0.8) 4.3
Senior Management
Transition 6.1 (1.7) 4.4
Lease Costs 1.8 (0.9) 0.9
------------------------------------------------------------------------------
$23.5 $(4.1) $19.4
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 June 30, 2000:
Reserve Balance 2000 Reserve Balance
Description at December 31, 1999 Activity at June 30, 2000
------------------------------------------------------------------------------
Severance Costs $1.0 $(0.1) $0.9
Other 0.7 0.0 0.7
------------------------------------------------------------------------------
$1.7 $(0.1) $1.6
11
<PAGE> 13
SALE OF SUBSIDIARY STOCK
Effective June 15, 2000, the Company sold 40% of its ownership in OSCA, an
integral part of its Energy Services and Products business unit. Proceeds from
the sale were paid to the Company to satisfy indebtedness. The sale resulted in
a $51.9 million non-taxable gain to the Company. Subsequently, on July 13, 2000
the over-allotment option granted to the underwriters was exercised and resulted
in an additional $12 million in net proceeds related to the initial public
offering. The Company now owns 56.6% of OSCA. OSCA has been included in
consolidated results of operations because the Company will retain the ability
to exert significant influence over OSCA due to its continuing ownership
interest. Total net proceeds from the OSCA IPO were approximately $93.0 million.
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. The Company is evaluating the new statement's
provisions and has not yet determined 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 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.
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 Withheld
-------- --- --------
Martin M. Hale 35,664,483 18,740,169
Jay D. Proops 35,630,791 18,773,861
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 15,649,024 15,202,106
12
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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 15,155,649 15,202,109
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed as part of the report are listed below:
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: August 11, 2000 By: /s/ Kevin J. Mulcrone
----------------- -----------------------------------
Kevin J. Mulcrone
Vice President and Controller
13
