<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common stock, $1.00 par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to the filing requirements for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 20, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $1,745,483,815.
As of March 20, 2000, 54,440,041 shares of the registrant's stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Stockholders are incorporated by reference
into Parts I, II and IV. Portions of the annual proxy statement expected to be
filed on March 27, 2000 are incorporated by reference into Part III.
<PAGE> 2
PART I
Item 1. BUSINESS
GENERAL
Great Lakes Chemical Corporation is a Delaware corporation incorporated in 1933,
having its principal executive offices in Indianapolis, Indiana. The Company is
organized into four global business units: Polymer Additives, Performance
Chemicals, Water Treatment and Energy Services and Products. In 1999, the
Company took several steps towards achieving higher growth and productivity
including:
- - expanding its growth platforms by acquiring NSC Technologies and FMC's
Process Additives Division which strengthen product offerings in Polymer
Additives, Performance Chemicals and Water Treatment;
- - completing, in July 1999, the sale of $400 million of 7% notes, due 2009,
which were used to fund the acquisitions and repay a portion of the
commercial paper outstanding;
- - recognizing certain asset impairments in Polymer Additives, Energy Services
and Products' and Corporate that will increase the Company's focus on its
core specialty chemicals businesses and position these operations to
achieve higher growth and profitability;
- - announcing its plan to sell up to 50% of OSCA, Inc. an oil field services
subsidiary in an initial public offering scheduled for the first half of
2000.
Unless otherwise indicated, the information herein refers to the continuing
business of the Company. The Review of Operations on pages 14 through 17 of the
1999 Annual Report to Stockholders is incorporated herein by reference.
The term "Great Lakes" as used herein means Great Lakes Chemical Corporation and
its Subsidiaries unless the context indicates otherwise.
PRODUCTS AND SERVICES
The following is a list of the principal products and services provided by Great
Lakes:
POLYMER ADDITIVES
<TABLE>
<CAPTION>
PRODUCTS & SERVICES PRINCIPAL MARKETS FACILITIES MAJOR RAW MATERIALS
- ------------------- ----------------- ---------- -------------------
<S> <C> <C> <C>
FLAME RETARDANTS
Brominated, intumescent, Computer and Business ElDorado, AR Bromine
phosphate ester and antimony Equipment, Consumer Newport, TN Bisphenol A
based flame retardants Electronics, Textiles, Laredo, TX Diphenyl Oxide
Urethanes and Construction Nitro, WV Antimony
Materials Reynosa, Mexico
Aycliffe, U.K.
Trafford Park, U.K.
POLYMER STABILIZERS
Antioxidants, UV absorbers and Computer and Business Newport, TN Alkylated Phenols
Light Stabilizers Equipment, Consumer Catenoy, France Methyl Acrylate
Appliances, Packaging, Persan, France Phosphorus
Textiles, Building and Waldkraiburg, Germany Trichloride
Construction, Pedrengo, Italy
Transportation Ravenna, Italy
Pyongtaek, Korea
</TABLE>
<PAGE> 3
PERFORMANCE CHEMICALS
<TABLE>
<CAPTION>
PRODUCTS & SERVICES PRINCIPAL MARKETS FACILITIES MAJOR RAW MATERIALS
- ------------------- ----------------- ---------- -------------------
<S> <C> <C> <C>
AG PRODUCTS
Methyl Bromide Soil Crop and Structural Pest Control ElDorado, AR Bromine
BROMINE INTERMEDIATES
Bromine, Bromine derivatives Electronics, Photographic Papers and ElDorado, AR Bromine
and Bromine-based specialty Films and Rubber Compounds Marysville, AR Chlorine
chemicals Amlwch, U.K.
FLUORINE CHEMISTRY
Fire extinguishing agent Data Processing ElDorado, AR Fluorine
FM-200(R), Organo-fluorine Telecommunications
compounds, Fluorinated Military
intermediates
FINE CHEMICALS
Specialty and Fine Chemical Pharmaceutical and Mount Prospect, IL
Intermediates Agrochemical Industry Newport, TN
Konstanz, Germany
Halebank, U.K.
Holywell, U.K.
TOXICOLOGICAL SERVICES
All phases of nonclinical Pharmaceutical, Chemical, Ashland, OH
toxicological testing and Veterinary, Medical, Agri-
bioanalytical services, cultural, Food and Consumer
Design of specialized Products Industries
toxicological, metabolic and
analytical chemistry programs
</TABLE>
WATER TREATMENT
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PRODUCTS & SERVICES PRINCIPAL MARKETS FACILITIES MAJOR RAW MATERIALS
- ------------------- ----------------- ---------- -------------------
<S> <C> <C> <C>
RECREATIONAL
Water sanitizers - Pool and Spa Dealers and Conyers, GA BCDMH,
BioGuard(R),OMNI(R), Distributors, Mass Market Decatur, GA Chlorinated
Guardex(R)Pool Time(R), Retailers, Builders Lake Charles, LA Isocyanurates,
AquaChem(R), Vantage(R), Adrian, MI Calcium Hypochlorite,
AquaBrom(R), Bayrol(R), Melbourne, Australia Cyanuric Acid
Hydrotech(R), Algicides, Toronto, Canada
oxidizers, pH balancers, Mundolsheim, France
mineral balancers and Planegg, Germany
specialty chemicals Barbera Del Valles, Spain
Kyalami, South Africa
Andoversford, U.K.
</TABLE>
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WATER TREATMENT (CONTINUED)
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PRODUCTS & SERVICES PRINCIPAL MARKETS FACILITIES MAJOR RAW MATERIALS
- ------------------- ----------------- ---------- -------------------
<S> <C> <C> <C>
COMMERCIAL & SPECIALTIES
Antiscalants, biocides, Industrial Cooling Water Adrian, MI BCDMH, Sodium Bromide,
corrosion inhibitors, Treatment, Industrial and Decatur, GA Formulated Isocyanurates,
dispersants, antifoams, Municipal Wastewater Treatment, ElDorado, AR DMH
hydantoin derivatives, Municipal Desalination, Pulp Conyers, GA
formulated oxidizers and and Paper Manufacturing, Trafford Park, U.K.
biocide dispensing equipment Food Processing, Preservative
Intermediates and Home Care
</TABLE>
ENERGY SERVICES AND PRODUCTS
<TABLE>
<CAPTION>
PRODUCTS & SERVICES PRINCIPAL MARKETS FACILITIES MAJOR RAW MATERIALS
- ------------------- ----------------- ---------- -------------------
<S> <C> <C> <C>
Completion products and services, Worldwide Oil and Gas Lafayette, LA Calcium Bromide
including reservoir analysis, Industry New Orleans, LA Sodium Bromide
solids-free fluids, sand control, Houston, TX Zinc Bromide
filtration, downhole tools, Milan, Italy
stimulation and marine well Villahermosa, Mexico
services Stravanger, Norway
Aberdeen, U.K.
Caracas, Venezuela
</TABLE>
BUSINESS RISKS
Great Lakes Chemical Corporation is including the following cautionary statement
in this Annual Report of Form 10-K to make applicable and take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
with respect to any forward-looking statement made by, or on behalf of, the
Company. The factors identified in this cautionary statement are important
factors (but do not necessarily constitute all important factors) that could
cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
Where any such forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, the Company cautions that,
while it believes such assumptions or bases to be reasonable and makes them in
good faith, assumed facts or bases almost always vary from actual results, and
the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, the Company, or its management, expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
Taking into account the foregoing, certain factors, including but not limited
to, those listed below may cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, the
Company.
Economic factors over which the Company has no control, including changes
in inflation, tax rates, interest rates and foreign currency exchange
rates.
Competitive factors such as pricing pressures on key products and the
cost and availability of key raw materials.
<PAGE> 5
Governmental factors including laws and regulations and judicial
decisions related to the production or use of key products such as
bromine and bromine derivatives.
The difficulties and uncertainties inherent in new product development.
New product candidates that appear promising in development may fail to
reach the market because of safety concerns, inability to obtain
necessary regulatory approvals, difficulty or excessive costs to
manufacture, or infringements of the patents or intellectual property
rights of others.
Legal factors, including unanticipated litigation of product liability
claims, antitrust litigation; environmental matters, and patent disputes
with competitors which could preclude commercialization of products or
negatively affect the profitability of existing products.
Inability to obtain existing levels of product liability insurance or
denial of insurance coverage following a major product liability claim.
Changes in tax laws, including future changes in tax laws related to the
remittance of foreign earnings or investments in foreign countries with
favorable tax rates.
Changes in accounting standards promulgated by the Financial Accounting
Standards Board, the Securities and Exchange Commission, and the American
Institute of Certified Public Accountants which are adverse to the
Company.
Internal factors such as changes in business strategies and the impact of
cost control efforts and business combinations.
Loss of brine leases or inability to produce the bromide ion in required
quantities due to depletion of resources or other causes beyond the
Company's control.
1999 DEVELOPMENTS
The Review of Operations on pages 14 through 17 of the 1999 Annual Report to
Stockholders is incorporated herein by reference.
Raw Materials
The sources of essential raw materials for bromine are the brine from
company-owned wells in Arkansas and a sea water extraction plant in Europe. The
Arkansas properties are located atop the Smackover lime deposits, which
constitute a vast underground sea of bromine-rich brine. The area between
ElDorado and Magnolia, Arkansas, (located about 35 miles west of ElDorado)
provides the best known geological location for bromine production and both
major domestic bromine manufacturers are located there. Based on projected
production rates, the Company's brine reserves are estimated to be adequate for
the foreseeable future.
Other materials used in the chemical processes are obtained from outside
suppliers through purchase contracts. Supplies of these materials are believed
to be adequate for the Company's future operations
International Operations
Great Lakes has significant presence in foreign markets, principally Western
Europe and Asia. Approximately one third of the Company's assets and sales are
outside the United States. The geographic segment data contained in Note 15:
"Segment Information" of the Notes to Consolidated Financial Statements on page
38 and 39 of the 1999 Annual Report to Stockholders is incorporated herein by
reference.
<PAGE> 6
Customers and Distribution
During the last three years, no single customer accounted for more than 10% of
Great Lakes' total consolidated sales. The Company has no material contracts or
subcontracts with government agencies. A major portion of the Company's sales
are sold to industrial or commercial users for use in the production of other
products. Some products, such as recreational water treatment chemicals and
supplies, are sold to a large number of retail pool stores, mass merchandisers
and distributors. Some export sales are marketed through distributors and
brokers.
The Company's business does not normally reflect any material backlog of orders
at year-end.
Competition
Great Lakes is in competition with businesses producing the same or similar
products as well as businesses producing products intended for similar use.
There is one other major bromine producer in the United States which competes
with the Company in varying degrees, depending on the product involved, with
respect to the sale of bromine and bromine derivatives. There is also one major
overseas manufacturer of bromine and brominated products which competes with the
Company in the United States and elsewhere. There are several small producers in
the U.S. and overseas which are competitors in several individual products. In
addition, there are numerous manufacturers of alternatives that compete with the
Company. In polymer stabilizers, the Company competes with a significantly
larger supplier across this entire product line and with a number of smaller
companies in individual product areas. The Company competes with several
manufacturers and distributors of swimming pool and spa chemicals.
Principal methods of competition are price, product quality and purity,
technical services and ability to deliver promptly. The Company is able to move
quickly in providing new products to meet identified market demands, and
believes its production costs are among the lowest in the world. These factors,
combined with high technical skills, allow the Company to compete effectively.
Seasonality and Working Capital
The products which the Company sells to the agricultural and swimming pool
markets exhibit some seasonality which is reflected in relatively higher sales
and profits in the first half of each year. Seasonality results in the need to
build inventories for rapid delivery at certain times of the year. The pool
product season is strongest during the first six months, requiring a build-up of
inventory at the beginning of the year. Except for certain arrangements with
distributors and dealers of swimming pool and spa products, customers are not
permitted to return unsold material at the end of a season. Extended credit
terms are granted only in cases where the Company chooses to do so to meet
competition.
The effect of the above items on working capital requirements is not material.
Research and Development and Patents
Research and development expenditures are included in Note 14: "Research and
Development Expenses" of the Notes to Consolidated Financial Statements on page
38 of the 1999 Annual Report to Stockholders and is incorporated herein by
reference. The Company holds no patents, licenses, franchises or concessions
which are essential to its operations.
Environmental and Toxic Substances Control
The Company recognizes its responsibility for the sound environmental management
of its businesses and operations. In addressing this responsibility, the
Company's domestic chemical manufacturing operations subscribe to the
comprehensive environmental stewardship program developed by the Chemical
Manufacturers Association known as Responsible Care.
The Company is in material compliance with all environmental laws and
regulations to which it is subject.
<PAGE> 7
Employees
The Company has approximately 5,800 employees.
Item 2. PROPERTIES
Great Lakes has plants at 14 locations in 9 states and 20 plants in 10 foreign
countries. Most principal plants are owned. Listed under Item 1 above in a table
captioned Products and Services are the principal locations at which products
are manufactured, distributed or marketed.
The Company leases warehouses, distribution centers and space for offices
throughout the world. All of the Company's facilities are in good repair,
suitable for the Company's businesses, and have sufficient space to meet present
marketing demands at an efficient operating level.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings involving the Company, its
subsidiaries or any of its properties. Furthermore, no director, officer or
affiliate of the Company, or any associate of any director or officer is
involved, or has a material interest in, any proceeding which would have a
material adverse effect on the Company.
Item 103 of Regulation S-K requires disclosure of administrative or judicial
proceedings arising under any federal, state or local provisions dealing with
protection of the environment, if the monetary sanctions might exceed $100,000.
There are currently no such proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter ended
December 31, 1999.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 20, 2000, there were approximately 2,700 registered holders of Great
Lakes Common Stock. Additional information is contained in the 1999 Annual
Report to Stockholders under the captions "Stock Price Data" and "Cash Dividends
Paid" on page 41, all of which are incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
This information is contained in the 1999 Annual Report to Stockholders under
the caption "Financial Review" on page 18, and is incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 19 through 25 of the 1999 Annual Report to Stockholders is
incorporated herein by reference.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
This information is included in the "Market Risks" section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 24 of the 1999 Annual Report to Stockholders, and is incorporated herein by
reference.
<PAGE> 8
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of Ernst
& Young LLP dated February 18, 2000, appearing on pages 26 through 40 and the
"Quarterly Results of Operations" on page 41 of the 1999 Annual Report to
Stockholders, are incorporated herein by reference.
Item 9. DISAGREEMENT OF ACCOUNTING AND FINANCIAL DISCLOSURE
No change of auditors or disagreements on accounting methods have occurred which
would require disclosure hereunder.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
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Officer
Name and Age Office Since
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<S> <C> <C>
Mark P. Bulriss, 48 Chief Executive Officer and President. Mr. Bulriss joined Great 1998
Lakes in April 1998 from AlliedSignal, Inc. where he was president
of the Polymers Division since 1996. He joined AlliedSignal in
1993 as president of the Laminates business unit, moving to
president of the Electronic Materials Division in 1995. Prior to
AlliedSignal, Mr. Bulriss spent 16 years with GE Plastics. He
holds a B.S. in chemical engineering from Clarkson University.
Larry J. Bloom, 51 Executive Vice President and President of Water Treatment. He 2000
joined Water Treatment via its BioLab subsidiary in 1970 and
became President in 1987. Mr. Bloom is a graduate of Georgia
Institute of Technology receiving his B.S. degree in Chemical
Engineering.
Louis M. Maresca, 48 Executive Vice President and President of Performance Chemicals. 1998
Dr. Maresca joined the Company in August 1998. From 1991 to 1998
he was with The Geon Company where he served most recently as vice
president and general manager of the resins business. Prior to
1991 he held technology and general management positions with
Union Carbide Corporation and GE Plastics. Dr. Maresca holds a Ph.
D. in organic chemistry from Columbia University and an M.B.A.
from Case Western Reserve University.
C. Hugh Morton, 47 Executive Vice President and President of Polymer Additives. Mr. 1998
Morton joined the Company in July 1998 after a 13-year career with
GE Plastics most recently as General Manager of Manufacturing and
Engineering for GE Silicones. Mr. Morton holds a B.S. in
mechanical engineering from the University of New Orleans.
</TABLE>
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<TABLE>
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Richard L. Boehner, 52 Senior Vice President of Corporate Development and Strategic 1998
Planning. Mr. Boehner rejoined the Company in April 1998. Prior to
joining the Company Mr. Boehner was director of corporate
development for AlliedSignal's specialty chemicals operations.
Previously he held a similar position with Rhone-Poulenc. Mr.
Boehner holds a B.S. in industrial engineering and an M.B.A. from
Colorado State University.
Richard J. Kinsley, 42 Senior Vice President, Human Resources & Communications. Mr. 1999
Kinsley joined the Company in April 1999 from AlliedSignal where
he was vice president, human resources for the Electronic
Materials Division. Prior to his four years with AlliedSignal, Mr.
Kinsley spent ten years with The Pfaudler Companies where he held
senior management positions in sales and marketing, business
development and human resources. Mr. Kinsley holds dual BS degrees
in Economics and Business Administration from LeMoyne College and
an MBA from the University of Rochester.
Jeffrey M. Lipshaw, 45 Senior Vice President, General Counsel & Secretary. Mr. Lipshaw 1999
joined the Company in October 1999 from Dykema Gossett PLLC, a
Detroit-based law firm, where he was Of Counsel from February
1998, and previously an associate and partner in the firm from
1979 until 1992. From 1993 through 1997, Mr. Lipshaw was Vice
President & General Counsel of AlliedSignal Automotive in
Southfield, Michigan. Mr. Lipshaw holds an A.B. from the
University of Michigan and a J.D. from Stanford University.
Mark E. Tomkins, 44 Senior Vice President and Chief Financial Officer. Mr. Tomkins 1998
joined the Company in August 1998 from AlliedSignal, Inc. where he
was vice president of finance and business development of the
Polymers Division since 1996 and held the same position with their
Electronic Materials Division in 1996. Prior to joining Allied
Signal, Mr. Tomkins held various corporate and operating finance
positions with Monsanto. He holds an M.B.A. and B.S. in business
from Eastern Illinois University.
Angelo Brisimitzakis, 41 Vice President of Global Supply Chain Management. He joined the 2000
Company in 1998 after 14 years at GE, where he held leadership
positions in Sales, Technology, Business Development, Supply
Chain, and Business Management functions. He earned a Ph.D. in
Chemistry from New York University and an MBA in Marketing from
NYU/Pace University.
</TABLE>
<PAGE> 10
<TABLE>
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Robert L. Hollier, 57 Vice President and President of OSCA, Inc. He joined the Company 1991
in 1982. He graduated from the University of Southwestern
Louisiana with a B.S. in Business Administration.
Kevin J. Mulcrone, 48 Vice President, Controller. Mr. Mulcrone joined the Company in 1999
1991 as Director of Audit. In 1993, he transferred to BioLab,
Inc., a GLCC subsidiary, as Vice President, Finance. In September
1999, Mr. Mulcrone assumed his present position. He holds a B.S.
in Accountancy from the University of Illinois (Urbana) and an MBA
from Emory University.
</TABLE>
Information with respect to directors of the Company is contained under the
heading "Proposal One: Election of Directors" in the Great Lakes' Proxy
Statement relating to the 2000 Annual Meeting of Stockholders expected to be
filed on March 27, 2000, which is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation and Other Information"
in the 2000 Proxy Statement is incorporated by reference in this report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the 2000 Proxy Statement is incorporated by reference
in this report.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Compensation Committee Interlocks and Insider
Participation" in the 2000 Proxy Statement is incorporated by reference in this
report.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following Consolidated Financial Statements of Great Lakes Chemical
Corporation and Subsidiaries and related notes thereto, together with the report
thereon of Ernst & Young LLP dated, February 18, 2000 appearing on pages 26
through 40 of the 1999 Annual Report to Stockholders, are incorporated by
reference in Item 8:
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income -
Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
<PAGE> 11
(a)(2) Financial Statement Schedules
The following additional information is filed as part of this report and should
be read in conjunction with the 1999 financial statements.
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore, have been omitted.
<PAGE> 12
(a)(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
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<S> <C>
(3)(i) Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit (3)(i) to the Company's Form 10-K for the year
ended December 31, 1997)
(3)(ii) By-Laws of the Company, as amended through January 21, 1999
(4)(i) Shareholders Rights Plan dated as of February 15, 1999 (incorporated by
Reference to Exhibit 4.1 to the Company's Form 8-K filed March 23,
1999).
(4)(iv) Indenture dated as of July 16, 1999 between the Registrant and The First
National Bank of Chicago, as Trustee (incorporated by reference to the
Registrant's Registration Statement on Form S-3 No. 33378515).
(10)(i) Supplemental Retirement Plan, as amended (incorporated by reference to
Exhibit (10)(i) to the Company's Form 10-K for the year ended December
31, 1997)
(10)(ii) Deferred Compensation Plan, as amended and restated effective January 1,
1997 (incorporated by reference to Exhibit (10)(ii) to the Company's
Form 10-K for the year ended December 31, 1997).
Amendment to Deferred Compensation Plan, November 20, 1997
(10)(iii) Supplemental Savings Plan effective January 1, 1995 (incorporated by
reference to Exhibit (10)(iii) to the Company's Form 10-K for the year
ended December 31, 1997).
Amendment to Supplemental Savings Plan, January 1, 2000
(10)(iv) Standard Form of Severance Agreements (incorporated by reference to
Exhibit (10)(iv) to the Company's Form 10-K for the year ended December
31, 1997)
(10)(v) Non Employee Directors' Deferred and Long Term Compensation Plan
(incorporated by reference to Exhibit (10)(vi) the Company's Form 10-K
for the year ended December 31, 1997).
Amendment No. 1 to Non Employee Directors' Deferred and Long Term
Compensation Plan, May 6, 1998
(10)(vi) Split-Dollar Life Insurance (incorporated by reference to Exhibit
(10)(vii) to the Company's Form 10-K for the year ended December 31,
1997)
(10)(vii) Standard Form of Change in Control Agreement (incorporated by reference
to Exhibit (10)(viii) to the Company's Form 10-K for the year ended
December 31, 1997)
(10)(viii) Directors Retirement Plan, effective January 1, 1993 (incorporated by
reference to Exhibit (10)(ix) to the Company's Form 10-K for the year
ended December 31, 1997)
(10)(ix) 1998 Employee Stock Compensation Plan (incorporated by reference to
Exhibit 99.1 the Company's Form S-8 filed August 17, 1998).
Amendment to 1998 Employee Stock Compensation Plan, February 15, 1999
(10)(x) 1993 Employee Stock Compensation Plan as amended on November 21, 1997
(incorporated by reference to Exhibit (10)(x) to the Company's Form 10-K
for December 31, 1997)
(10)(xi) 1984 Employee Stock Option Plan as amended February 10, 1997
(incorporated by reference to Exhibit (10)(xi) to the Company's Form
10-K for the period ended December 31, 1997)
(10)(xii) Employment Agreement with Mark P. Bulriss effective April 1, 1998
(incorporated by reference to Exhibit (10)(b) to the Company's Form 10-Q
for the period ended March 31, 1998)
(10)(xiii) Stock Option and Restricted Stock Agreements with Mark P. Bulriss
effective April 1, 1998 (incorporated by reference Exhibit (10)(a) to
the Company's Form 10-Q for the period ended June 30, 1998)
</TABLE>
<PAGE> 13
<TABLE>
<S> <C>
(10)(xiv) Employment Agreements with various officers (incorporated by reference
to Exhibit (10)(b) to the Company's Form 10-Q for the period ended June
30, 1998)
(10)(xv) Great Lakes Savings Plan (incorporated by reference to the Company's
Form S-8 filed April 1, 1998).
(10)(xvi) Employment agreement with Marshall Bloom dated September 14, 1999
(10)(xvii) Employment agreement with L. Donald Simpson dated December 14, 1999
(13) 1999 Annual Report to Stockholders
(21) Subsidiaries - Incorporated herein by reference is the list of subsidiaries
appearing on the inside of the back cover of the 1999 Annual Report to
Stockholders
(23) Consent of Independent Auditors
(27) Financial Data Schedules December 31, 1999
</TABLE>
Exhibit No. 23 is included herewith. Exhibits No. 3ii, 10ii, 10iii, 10v, 10ix,
10xvi, 10xvii, 13 and 27 are included herewith as part of the electronic filing.
(b) Reports on Form 8-K
(c) Exhibits
The response to this section of Item 14 is submitted as a separate section of
this report.
(d) Financial Statement Schedules
The response to this section of Item 14 is submitted as a separate section of
this report.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S><C>
GREAT LAKES CHEMICAL CORPORATION
- --------------------------------
(Registrant)
Date March 19, 2000 /s/ Mark P. Bulriss
-------------------------------- ------------------------------------------------------------------------
Mark P. Bulriss, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Date March 19, 2000 /s/ Mark E. Tomkins
----------------------------------- ------------------------------------------------------------------------
Mark E. Tomkins, Senior Vice President and Chief Financial Officer
Date March 19, 2000 /s/ Kevin J. Mulcrone
------------------------------- ------------------------------------------------------------------------
Kevin J. Mulcrone, Vice President and Controller
(Principal Accounting Officer)
Date March 19, 2000 /s/ James W. Crownover
------------------------------- ------------------------------------------------------------------------
James W. Crownover, Director
Date March 19, 2000 /s/ Thomas M. Fulton
------------------------------- ------------------------------------------------------------------------
Thomas M. Fulton, Director
Date March 19, 2000 /s/ Martin M. Hale
------------------------------- ------------------------------------------------------------------------
Martin M. Hale, Director
Date March 19, 2000 /s/ Louis E. Lataif
------------------------------- ------------------------------------------------------------------------
Louis E. Lataif, Director
Date March 19, 2000 /s/ John C. Lechleiter
------------------------------- ------------------------------------------------------------------------
John C. Lechleiter, Director
Date March 19, 2000 /s/ Richard H. Leet
------------------------------- ------------------------------------------------------------------------
Richard H. Leet, Director
Date March 19, 2000 /s/ Mack G. Nichols
------------------------------- ------------------------------------------------------------------------
Mack G. Nichols, Director
Date March 19, 2000 /s/ Jay D. Proops
------------------------------- ------------------------------------------------------------------------
Jay D. Proops, Director
</TABLE>
<PAGE> 15
SCHEDULE II
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Additions
Balance at ----------------------------------- Balance
Beginning Charges to Costs Charged to at End
Description of Period and Expenses Other Accounts Deductions of Period
- ----------- --------- ----------------------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1999:
Reserve deducted from asset:
Allowance for doubtful accounts
receivable
$ 4,134,000 $ 744,000 $1,243,000 $1,391,000 (A) $ 4,730,000
----------- ----------- ---------- ---------- -----------
Accumulated amortization of
goodwill $16,804,000 $ 6,845,000 $ -0- $1,181,000 (B) $22,468,000
----------- ----------- ---------- ---------- -----------
1998:
Reserve deducted from asset:
Allowance for doubtful accounts
receivable $ 5,803,000 $ 94,000 $ -0- $1,763,000 (A) $ 4,134,000
----------- ----------- ---------- ---------- -----------
Accumulated amortization of
goodwill $12,645,000 $ 4,288,000 $ -0- $ 129,000 (B) $16,804,000
----------- ----------- ---------- ---------- -----------
1997:
Reserve deducted from asset:
Allowance for doubtful accounts
receivable $ 7,321,000 $ (352,000) $ -0- $1,166,000 (A) $ 5,803,000
----------- ----------- ---------- ---------- -----------
Accumulated amortization of
goodwill $10,712,000 $ 2,645,000 $ -0- $ 712,000 (B) $12,645,000
----------- ----------- ---------- ---------- -----------
</TABLE>
(A) Uncollectible accounts receivable written off, net of recoveries and foreign
currency translation.
(B) Foreign currency translation.
<PAGE> 1
EXHIBIT 3ii
BY-LAWS OF
GREAT LAKES CHEMICAL CORPORATION
ADOPTED BY ACTION OF THE
BOARD OF DIRECTORS
(ADOPTED MARCH 14, 1975,
AS AMENDED THROUGH JANUARY 21, 2000)
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the
stockholders of the Corporation shall be held at the registered office of the
Corporation in the State of Delaware or at such other place within or without
the State of Delaware, as may be determined by the Board of Directors and as may
be stated in the notice of the meeting. The annual meeting shall be held on such
date and at such time as shall be designated from time to time by the Board of
Directors. The business to be transacted at such meeting shall be the election
of directors and such other business as shall properly be brought before the
meeting.
No business may be transacted at an annual meeting of
stockholders, other than business that is (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof)
<PAGE> 2
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
or (c) otherwise properly brought before the annual meeting by any stockholder
of the Corporation (i) who is a stockholder of record on the date of the giving
of the notice provided for in this Section 1 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 1.
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than one hundred twenty (120) days nor more than one
hundred fifty (150) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which notice of the date of
2
<PAGE> 3
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
the annual meeting was mailed or public announcement of the date of the annual
meeting was made, whichever first occurs. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such stockholder, (iv)
a description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of
stockholders
3
<PAGE> 4
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
except business brought before the annual meeting in accordance
with the procedures set forth in this Section 1; provided, however, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 1 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an annual
meeting determines that business was not properly brought before the annual
meeting in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
The term "public announcement" shall mean an announcement in a
press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
SECTION 2. SPECIAL MEETINGS. Special meetings of the
stockholders may be called by the Board of Directors, by the Chairman, or by the
President. At any time, upon the written request of any person or persons
entitled to call a special meeting, it shall be the duty of the Secretary to
send out notices of such meeting, to
4
<PAGE> 5
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
be held within or without the State of Delaware and at such time, but not less
than fifteen days nor more than thirty days after receipt of the request, as may
be fixed by the Board of Directors. If the Board of Directors shall fail to fix
a time or place, the meeting shall be held at the registered office of the
Corporation in the State of Delaware at such time as shall be fixed by the
Secretary within the above limits.
SECTION 3. NOTICE OF MEETINGS AND ADJOURNED MEETINGS.
(a) A written or printed notice of each meeting of
stockholders shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written or printed notice of any meeting shall
be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meetings. If mailed, notice
shall be deemed given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation. No publication of the notice of meetings shall be required. An
affidavit of the Secretary or an Assistant Secretary or of the Transfer Agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. Any
5
<PAGE> 6
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
previously scheduled meeting of the stockholders may be postponed, and (unless
the Certificate of Incorporation provides otherwise) any special meeting of the
stockholders may be canceled, by resolution of the Board of Directors upon
public notice given prior to the date previously scheduled for such meeting of
stockholders.
(b) Whether or not a quorum is present, any annual, regular
or special meeting of the stockholders may be adjourned to another date by the
Chairman of the meeting or by a majority vote by the shares represented at such
meeting. When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
(c) Whenever a notice of a meeting is required to be given
to stockholders, a written waiver thereof, signed by the person entitled to
notice,
6
<PAGE> 7
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting, either in person or by proxy, shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of a meeting, to
the transaction of any business because the meeting was not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.
SECTION 4. QUORUM. Except as otherwise provided by law, a
quorum at all meetings of stockholders shall consist of the holders of record of
a majority of the shares entitled to vote thereat.
SECTION 5. CONDUCT OF MEETING. Meetings of the stockholders
shall be presided over by the Chairman, or if he is not present, by the
President, or if he is not present, by a Vice President or other person chosen
at the meeting. The Secretary or an Assistant Secretary of the Corporation, or
in their absence, a person chosen at the meeting, shall act as Secretary of the
meeting.
SECTION 6. INSPECTORS OF ELECTION. Whenever any stockholder
present at a meeting of the stockholders shall request the appointment of
inspectors,
7
<PAGE> 8
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
the Chairman of the meeting shall appoint inspectors who need not be
stockholders. If the right of any person to vote at such meeting shall be
challenged, the inspectors of election shall determine such right. The
inspectors shall receive and count the votes either upon an election or for the
decision of any question, and shall determine the result. Their certificate of
any vote shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
SECTION 7. VOTING. All elections of directors shall be by
written ballot. Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the Corporation,
except as may be otherwise provided in the Restated Certificate of Incorporation
of the Corporation. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Corporation (i) who is a stockholder of record
on the date of the giving of the notice provided for in this Section 7 and on
the record date for the determination of stockholders entitled to vote at such
annual meeting and (ii) who complies with the notice procedures set forth in
this Section 7.
8
<PAGE> 9
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than one hundred and twenty (120) days nor more than one
hundred fifty (150) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the annual meeting
was mailed or public announcement (as defined in Section 1) of the date of the
annual meeting was made, whichever first occurs. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for
9
<PAGE> 10
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act, and the rules and regulations promulgated thereunder; and (b) as
to the stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to nominate the persons named in its
notice and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations
10
<PAGE> 11
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
of proxies for election of directors pursuant to Section 14 of the Exchange Act
and the rules and regulations promulgated thereunder. Such notice must be
accompanied by a written consent of each proposed nominee to be named as a
nominee and to serve as a director if elected.
No person shall be eligible for election as a director of
the Corporation unless nominated in accordance with the procedures set forth in
this Section 7. If the Chairman of the annual meeting determines that a
nomination was not made in accordance with the foregoing procedures, the
Chairman shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
At every meeting of the stockholders, each stockholder
entitled to vote at such meeting shall have, as to each matter submitted to a
vote, one vote for each share of stock having voting rights registered in his
name on the stock books of the Corporation.
At all meetings of stockholders, a stockholder may vote by
proxy appointed by a written instrument signed by the stockholder or his duly
authorized attorney in fact and delivered to the Secretary of the meeting, but
no proxy shall be
11
<PAGE> 12
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
voted or acted upon after three years from its date, unless the proxy provided
for a longer period.
A quorum being present, directors shall be elected by a
plurality of the votes of the shares present and in person or represented by
proxy at the meeting and entitled to vote.
In all matters, other than the election of directors, the
affirmative vote of the majority of shares present or in person or represented
by proxy at the meeting and entitled to vote on the subject matter, a quorum
being present, shall be the act of the shareholders.
SECTION 8. LIST OF STOCKHOLDERS. The Secretary or other
officer of the Corporation having charge of the stock ledger shall prepare and
make or cause to be prepared and made, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, and showing the address of each such
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at
12
<PAGE> 13
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder or his proxy who may be present. Upon the willful neglect or
refusal of the directors then in office to produce or cause to be produced such
a list at any meeting for the election of directors, they shall be ineligible to
any office at such meeting. The original or duplicate stock ledger shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by this section, or to vote in person or by proxy at
such meeting.
SECTION 9. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any adjourn-
ment thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Direc-
13
<PAGE> 14
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
tors may fix, in advance, a record date, which shall not be more than sixty nor
less than ten days before the date of such meeting, nor more than sixty days
prior to any other action.
(b) If no record date is fixed:
(i) The record date for determining
stockholders entitled to notice of or to vote at a meeting of
the stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice
is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(ii) The record date for determining
stockholder for any other purpose shall be at the close of
business on the date on which the Board of Directors adopts
the resolution relating thereto.
(c) A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders
shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record
14
<PAGE> 15
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
date for the adjourned meeting.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER, QUALIFICATIONS, CLASSES, TERMS AND QUORUM.
The business and affairs of the Corporation shall be managed under the direction
of a Board of Directors which shall consist of nine members, none of whom need
be a stockholder. The directors shall be classified with respect to the time for
which they shall hold office by dividing them into three classes. The first
class shall consist of three directors whose terms of office shall expire in
2000 and in every third year thereafter. The second class shall consist of three
directors whose terms of office shall expire in 2001 and in every third year
thereafter. The third class shall consist of three directors whose term of
office shall expire in 2002 and in every third year thereafter. At each annual
meeting of the stockholders of the Corporation, or any adjournment thereof, the
successors to the directors whose terms shall expire in that year shall be
elected to hold office for a term of three years. In any event, each director
shall hold office until his successor is duly elected and qualified or until his
15
<PAGE> 16
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
earlier resignation or removal. Any director may resign at any time upon written
notice to the Corporation. A majority of the total number of directors shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. The Board of Directors may elect a Chairman of the
Board of Directors who shall preside at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board of Directors shall have such
other powers and perform such other duties as are delegated to him by the Board
of Directors or as are incidental to his office.
SECTION 2. VACANCIES. Any vacancy and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director.
SECTION 3. MEETINGS. The Board of Directors shall meet each
year immediately after the annual meeting of the shareholders, at the place
where the annual meeting of the shareholders is held, for the purpose of
electing officers and for the conduct of any other business that may be brought
before the meetings. Such
16
<PAGE> 17
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
meeting shall be held without notice. If such meeting is not held as herein
provided, the election of officers may be had at any subsequent meeting of the
Board of Directors. Regular meetings of the Board of Directors may be held at
such time and place within or without the State of Delaware, as the Board of
Directors may from time to time designate. Special meetings of the Board of
Directors may be held upon the call of the Chairman of the Board, or two or more
members of the Board of Directors, at any place, within or without the State of
Delaware, upon not less than 48 hours notice, specifying the time, place and
general purposes of the meeting, given to each director either personally, or by
telephone, telegram, or by mail. At any meeting at which all of the directors
are present, notice of the time, place and purposes thereof shall be deemed
waived. Notice of any meeting may be waived in writing, either before, during,
or after any meeting. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors, or members of a committee
of the directors, need be specified in any written waiver of notice. A majority
of the directors present at any meeting, whether or not a quorum is present, may
adjourn the meeting and no notice of such adjourned meeting need be given.
17
<PAGE> 18
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
SECTION 4. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise the authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially
18
<PAGE> 19
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
all of the Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution or amending the
By-Laws of the Corporation; and, unless the resolution expressly so provides, no
such committee shall have the power or authority to declare a dividend or
authorize the issuance of stock.
An Executive Committee shall be formed, comprising at least
three directors, which shall have the authority and power to act on behalf of
the Board of Directors, except as restricted above, with the additional
authority to declare dividends on behalf of the Corporation.
SECTION 5. ACTION BY CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 6. MEETINGS BY CONFERENCE TELEPHONE. Members of the
Board of Directors or of any committee designated by the Board may participate
in a meeting of such Board or committee by means of conference telephone or
similar
19
<PAGE> 20
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers shall consist of a Chief
Executive Officer, a President, one or more Vice Presidents and/or Senior or
Executive Vice Presidents, a Secretary, one or more Assistant Secretaries, a
Treasurer, and one or more Assistant Treasurers. Such officers shall be elected
by the Board of Directors and each officer shall hold office until his successor
is elected and qualified or until his earlier resignation or removal. Any
officer may resign at any time upon written notice to the Corporation. Any
number of offices may be held by the same person, but no officer shall execute,
act or verify any instrument in more than one capacity. The Corporation may have
such other officers and agents as the Board of Directors may determine, who
shall be elected or appointed by the Board of Directors and hold office for such
terms as are prescribed by the Board of Directors. Any vacancy
20
<PAGE> 21
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors. The Board of Directors may
remove any officer with or without cause.
SECTION 2. CHIEF EXECUTIVE OFFICER. Subject to the authority
of the Board of Directors, the Chief Executive Officer shall administer the
affairs of the Corporation and shall have such other powers and perform such
other duties as are delegated to him by the Board of Directors, or by an
authorized committee thereof, or are incidental to his office. During the time
when the office of the Chairman of the Board is vacant, the Chief Executive
Officer shall perform the duties of that office.
SECTION 3. PRESIDENT. Subject to the authority of the Board of
Directors, the President shall, during the absence or disability of the Chief
Executive Officer, administer the affairs of the Corporation and shall have such
other powers and perform such other duties as are incidental to his office or
are delegated to him by the Board of Directors, or an authorized committee
thereof, or by the Chief Executive Officer.
SECTION 4. VICE PRESIDENTS. Subject to the authority of the
Board of
21
<PAGE> 22
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
Directors, the Vice Presidents, in the order designated by the Board of
Directors, shall exercise the functions of the Chief Executive Officer and
President during the absence or disability of the Chief Executive Officer and
the President. Each Vice President shall have such other duties as are assigned
to him from time to time by the Board of Directors or the Chief Executive
Officer.
SECTION 5. OTHER OFFICERS. The Secretary and the Treasurer
shall perform such duties as are incidental to their offices, or are properly
required of them by the Board of Directors or the Chief Executive Officer. The
Assistant Secretaries shall, in the absence of the Secretary, perform the duties
and exercise the powers of the Secretary, and shall perform such other duties as
may be assigned by the Board of Directors or the Chief Executive Officer. Other
subordinate officers elected or appointed by the Board of Directors shall
exercise such powers and perform such duties as may be delegated to them.
SECTION 6. DELEGATION OF AUTHORITY. In the case of the absence
or incapacity of any officer, or for any other reason that the Board of
Directors may deem sufficient, the Board of Directors or, in the absence of any
action by the Board of Directors, the Chief Executive Officer may delegate any
or all of the duties or
22
<PAGE> 23
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
powers of such officer to any other officer or to any other director or to any
other person.
ARTICLE IV
CERTIFICATES OF STOCK
SECTION 1. FORM. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by the Chairman of the Board of
Directors, or the President or a Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation certifying the number of shares owned by him in such Corporation. If
such certificate is countersigned (1) by a Transfer Agent other than the
Corporation or its employee, or, (2) by a Registrar other than the Corporation
or its employee, any other signature on the certificate may be a facsimile. In
case any officer, Transfer Agent or Registrar who has signed or whose facsimile
signature has been placed upon a certificate who has ceased to be such officer,
Transfer Agent or Registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, Transfer
Agent or Registrar at the date of issue.
23
<PAGE> 24
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
SECTION 2. TRANSFERS. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
owner thereof, or his duly authorized attorney, with a Transfer Clerk or
Transfer Agent appointed as specified in these By-Laws, and on surrender of the
certificate or certificates for such shares of stock properly endorsed and with
all taxes thereon paid. The person in whose name the shares of stock stand on
the books of the Corporation shall be deemed by the Corporation to be the holder
thereof for all purposes.
SECTION 3. TRANSFER AGENT AND REGISTRAR. The Board of
Directors may appoint one or more Transfer Agents or Transfer Clerks and one or
more Registrars, and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
SECTION 4. LOSS OR DESTRUCTION. In case of loss or destruction
of a certificate for shares, another certificate may be issued in lieu thereof
in such manner and upon such terms as the Board of Directors shall authorize,
either by general resolution or by special resolution in each particular case.
ARTICLE V
24
<PAGE> 25
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- ------------------------------------
FISCAL YEAR
SECTION 1. FISCAL YEAR. The fiscal year of the
Corporation shall begin on the first day of January of each year and shall end
on the 31st day of December following.
ARTICLE VI
SEAL
SECTION 1. CORPORATION SEAL. The Board of Directors shall
provide a suitable corporate seal for use by the Corporation.
ARTICLE VII
INDEMNIFICATION
SECTION 1. INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in or called as a
witness in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, and any appeal therefrom (hereinafter,
collectively a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal
25
<PAGE> 26
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
representative, is, was or had agreed to become a director of the Corporation or
is, was or had agreed to become an officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
under the General Corporation Law of the State of Delaware (the "DGCL"), as the
same now exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the DGCL permitted the Corporation
to provide prior to such amendment), against all expenses, liabilities and
losses (including attorneys' fees, judgments, fines, excise taxes or penalties
pursuant to the Employee Retirement Income Security Act of 1974, as amended, and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith; provided, that except as explicitly
provided herein, prior to a Change in Control of the Corporation, as defined
herein, a person seeking indemnity in connection with a proceeding (or part
thereof) initiated by such person against the Corporation or any director,
officer, employee or agent of
26
<PAGE> 27
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
the Corporation shall not be entitled thereto unless the Corporation has joined
in or consented to such proceeding (or part thereof). For purposes of this
Article, a "Change in Control of the Corporation" shall be deemed to have
occurred if the conditions set forth in any one of the following clauses shall
have been satisfied: (a) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934 (as in effect as of December 7,
1995 (the "Exchange Act")) other than (i) the Corporation, (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Corporation in substantially the same
proportions as their ownership of shares of the Corporation (any such person is
hereinafter referred to as a "Person"), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 50% of the combined voting
power of the Corporation's then outstanding securities (not including in the
securities beneficially owned by such Person any securities acquired directly
from the Corporation); (b) there is consummated a merger or consolidation of the
Corporation with or into any other corporation, other
27
<PAGE> 28
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
than a merger or consolidation which would result in the holders of the voting
securities of the Corporation outstanding immediately prior thereto holding
securities which represent, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation, immediately after such merger or consolidation, more than 70% of
the combined voting power of the voting securities of either the Corporation or
the other entity which survives such merger or consolidation or the parent of
the entity which survives such merger or consolidation; (c) the stockholders of
the Corporation approve any plan or proposal for the liquidation or dissolution
of the Corporation or an agreement for the sale or disposition by the
Corporation of all or substantially all the Corporation's assets; or (d) during
any period of two consecutive years (not including any period prior to December
7, 1995), individuals who at the beginning of such period constitute the Board
of Directors and any new director (other than a director designated by a Person
who has entered into an agreement with the Corporation to effect a transaction
described in clause (a), (b) or (c) of this paragraph) whose election by the
Board or nomination for election by the Corporation's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors
28
<PAGE> 29
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof.
For purposes of this Article VII, where a Change in Control of the Corporation
results from a series of related transactions, the Change in Control of the
Corporation shall be deemed to have occurred on the date of the consummation of
the first such transaction. For purposes of clause (a) of this paragraph, the
stockholders of another corporation (other than the Corporation or a corporation
described in clause (iv)), in the aggregate, shall be deemed to constitute a
Person.
Prior to a Change in Control of the Corporation, any
indemnification under Section 1 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the DGCL. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel (who may be the
29
<PAGE> 30
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
regular counsel of the Corporation) in a written opinion or (3) by the
stockholders.
Following a Change in Control of the Corporation, any
indemnification under this Section 1 (unless ordered by a court) shall be paid
by the Corporation unless within 60 days of such request for indemnification a
determination is made, in a written opinion, by special independent counsel
selected by the person requesting indemnification and approved by the
Corporation (which approval shall not be unreasonably withheld), which counsel
has not otherwise performed services (other than in connection with similar
matters) within the five years preceding its engagement to render such opinion
for such person or for the Corporation or any affiliates (as such term is
defined in Rule 405 under the Securities Act of 1933, as amended) of the
Corporation (whether or not they were affiliates when services were so
performed) ("Independent Counsel"), that indemnification of such person is not
proper under the circumstances because such person has not met the necessary
standard of conduct under the DGCL. Unless such person has theretofore selected
Independent Counsel pursuant to this Section 1 and such Independent Counsel has
been approved by the Corporation, legal counsel approved by a resolution or
resolutions of the Board of Directors prior to a Change in Control of the
Corporation shall
30
<PAGE> 31
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
be deemed to have been approved by the Corporation as required. Such Independent
Counsel shall determine as promptly as practicable whether and to what extent
such person would be permitted to be indemnified under applicable law and shall
render its written opinion to the Corporation and such person to such effect.
The Corporation agrees to pay the reasonable fees of the Independent Counsel
referred to above and to fully indemnify such Independent Counsel against any
and all expenses, claims, liabilities and damages arising out of or relating to
this Article or its engagement pursuant hereto. In making a determination under
this Section 1, the Independent Counsel referred to above shall determine that
indemnification is permissible unless clearly precluded by this Article VII or
the applicable provisions of the DGCL.
SECTION 2. PAYMENT OF EXPENSES IN ADVANCE. Expenses, including
attorneys' fees, incurred by a person referred to in Section 1 of this Article
in defending a proceeding shall be paid by the Corporation in advance of the
final disposition of such proceeding, including any appeal therefrom, upon
receipt of an undertaking (the "Undertaking") by or on behalf of such person to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by
31
<PAGE> 32
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
the Corporation.
SECTION 3. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
Section 1 hereof is not paid in full by the Corporation within 60 days after a
written claim has been received by the Corporation or if expenses pursuant to
Section 2 hereof have not been advanced within 10 days after a written request
for such advancement, accompanied by the Undertaking, has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim or the advancement of
expenses. (If the claimant is successful, in whole or in part, in such suit or
any other suit to enforce a right for expenses or indemnification against the
Corporation or any other party under any other agreement, such claimant shall
also be entitled to be paid the reasonable expense of prosecuting such claim.)
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required Undertaking has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL for the Corporation to indemnify the claimant for
the amount claimed. After a Change in Control of the
32
<PAGE> 33
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
Corporation, the burden of proving such defense shall be on the Corporation, and
any determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant had not met the
applicable standard of conduct required under the DGCL shall not be a defense to
the action nor create a presumption that claimant had not met such applicable
standard of conduct.
SECTION 4. INDEMNITY NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other sections
of this Article VII shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any statute, by-law, agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office. The Board of Directors shall have
the authority, by resolution, to provide for such other indemnification of
directors, officers, employees or agents as it shall deem appropriate.
SECTION 5. INSURANCE INDEMNIFICATION. The Corporation shall
have power to purchase and maintain insurance to protect itself and any
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint
33
<PAGE> 34
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
venture, trust or other enterprise, against any expenses, liabilities or losses,
whether or not the Corporation would have the power to indemnify such person
against such expenses, liabilities or losses under the provisions of this
Article VII or the DGCL.
SECTION 6. CONTINUATION OF INDEMNIFICATION; ENFORCEABILITY.
The provisions of this Article shall be applicable to all proceedings commenced
after its adoption, whether such arise out of events, acts, omissions or
circumstances which occurred or existed prior or subsequent to such adoption,
and shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
This Article shall be deemed to grant each person who, at any time that this
Article is in effect, serves or agrees to serve in any capacity which entitles
him to indemnification hereunder rights against the Corporation to enforce the
provisions of this Article, and any repeal or other modification of this Article
or any repeal or modification of the DGCL or any other applicable law shall not
limit any rights of indemnification then existing or arising out of events,
acts, omissions or circumstances occurring or existing prior to such repeal or
modification, including, without limitation, the right to indemnification for
34
<PAGE> 35
GREAT LAKES CHEMICAL CORPORATION
BY-LAWS
AS AMENDED THROUGH JANUARY 21, 2000
- -----------------------------------
proceedings commenced after such repeal or modification to enforce this Article
with regard to acts, omissions, events or circumstances occurring or existing
prior to such repeal or modification.
SECTION 7. SEVERABILITY. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director and officer of the
Corporation as to costs, charges and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any proceeding,
whether civil, criminal, administrative or investigative, including an action by
or in the right of the Corporation, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the full extent permitted by applicable law.
ARTICLE VIII
AMENDMENTS
SECTION 1. AMENDMENTS. The Board of Directors shall have the
power to make, alter or repeal the By-Laws of the Corporation at the annual or
any regular meeting of the Board of Directors or by unanimous written consent
without a meeting, or at any special meeting called for such purposes.
35
<PAGE> 1
EXHIBIT 10ii
AMENDMENT TO
GREAT LAKES CHEMICAL CORPORATION
DEFERRED COMPENSATION PLAN
The Great Lakes Chemical Corporation Deferred Compensation
Plan (the "Plan"), is hereby amended, effective as of November 20, 1997, as set
forth below.
Any term which is not defined below shall have the meaning set
forth in the Plan.
1. Section 8 of the Plan is hereby amended and restated to
read as follows:
8. EFFECT OF CHANGE IN CONTROL OF THE COMPANY
Notwithstanding any provision in the Plan to the contrary, in the event
of a change in control of the Company (as defined below), (a) the Company shall
immediately fully fund a rabbi trust or similar instrument in an amount equal to
the aggregate of each Participant's entire Deferred Compensation Account and (b)
the entire unpaid balance of each Deferred Compensation Account then maintained
by the Company shall be paid in a lump sum to the Participant within thirty (30)
days of such change in control.
For purposes of the Plan, a "change in control of the Company" shall be
deemed to have occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:
any "person" (as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) other than (i) the Company, (ii) a trustee or
other fiduciary holding securities under an employee benefit
plan of the Company, (iii) an underwriter temporarily holding
securities pursuant to an offering
of such securities, or (iv) a corporation owned,
<PAGE> 2
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
shares of the Company (any such person is hereinafter referred
to as a "Person"), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more
than 20% of the combined voting power of the Company's then
outstanding securities (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Company);
(b) there is consummated a merger or consolidation of the
Company with or into any other corporation, other
than a merger or consolidation which would result in
the holders of the voting securities of the Company
outstanding immediately prior thereto holding
securities which represent, in combination with the
ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of the
Company, immediately after such merger or
consolidation, more than 70% of the combined voting
power of the voting securities of either the Company
or the other entity which survives such merger or
consolidation or the parent of the entity which
survives such merger or consolidation;
(c) the stockholders of the Company approve any plan or
proposal for the liquidation or dissolution of the
Company or an agreement for the sale or disposition
by the Company of all or substantially all the
Company's assets; or
(d) during any period of two consecutive years
2
<PAGE> 3
(not including any period prior to the date of the
Plan), individuals who at the beginning of such
period constitute the Board and any new director
(other than a director designated by a Person who has
entered into an agreement with the Company to effect
a transaction described in clause (a), (b) or (c) of
this paragraph) whose election by the Board or
nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute a
majority thereof.
For purposes of the Plan, where a change in control of the Company
results from a series of related transactions, the change in control of
the Company shall be deemed to have occurred on the date of the
consummation of the first such transaction. For purposes of clause (a)
of this subsection, the stockholders of another corporation (other than
the Company or a corporation described in subclause (iv) of clause (a)
of this subsection) shall be deemed to constitute a Person. Further, it
is understood by the parties that the sale, transfer, or other
disposition of a subsidiary of the Company shall not constitute a
change in control of the Company giving rise to payments or benefits
under the Plan.
Notwithstanding any other provision hereof, a "change in control of the
Company" shall not be deemed to have occurred by virtue of the Company
entering into any agreement with respect to, the public announcement
of, the approval by the Company's stockholders or directors of, or the
consummation of, any transaction or series of integrated transactions
(including any merger or other business combination transaction)
entered into in connection with, or expressly conditioned upon the
occurrence of, a spin-off (such transaction or series of integrated
transactions, the "Spin-Off Transaction") immediately following which
the
3
<PAGE> 4
recordholders of the common stock of the Company immediately prior to
the Spin-Off Transaction continue to have substantially the same
proportionate ownership in the spun-off entity as they had in the
Company immediately prior to the Spin-Off Transaction; provided that
such Spin-Off Transaction (including any related merger of other
business combination transaction) has been approved by a vote of a
majority of the Company's Continuing Directors (as defined below) then
in office. For purposes of the Plan, a "Continuing Director" shall mean
any member of the Board of the Company who is a member of the Board as
of the date of the Plan and any person who subsequently becomes a
member of the Board, if such person's nomination for election or
election to the Board is recommended or approved by a majority of the
Continuing Directors.
2. Section 17 of the Plan is hereby amended and restated to
read as follows:
17. AMENDMENT AND TERMINATION
The Company intends the Plan to be permanent, but reserves the
right at any time to modify, amend, or terminate the Plan; provided,
that, (i) the Company shall not cancel, reduce, or otherwise adversely
affect the amount of benefits of any Participant as of the date of any
such modification, amendment, or termination, without the written
consent of the Participant and (ii) the Company shall not adversely
amend or modify the provisions hereof or terminate the Plan following a
change in control of the Company (as defined therein) without the
written consent of 66 2/3 percent of the Participants. In the event
that the Plan is terminated, the Participant shall be entitled to a
Deferred Benefit equal to the amount of his or her Deferred
Compensation Account determined under Section 6(a) and payable in
accordance with Section 7.
IN WITNESS WHEREOF, Great Lakes Chemical Corporation has
caused this Amendment to be executed by a duly authorized officer of the Company
as of the day and year first above written.
4
<PAGE> 5
GREAT LAKES CHEMICAL CORPORATION
By: /s/ Robert McDonald
-------------------------------------------
5
<PAGE> 1
EXHIBIT 10iii
AMENDMENT TO
GREAT LAKES CHEMICAL CORPORATION
SUPPLEMENTAL SAVINGS PLAN
The Great Lakes Chemical Corporation Supplemental Savings Plan
(the "Plan") is hereby amended, effective as of January 1, 2000, as set forth
below.
Any term which is not defined below shall have the meaning set
forth in the Plan.
1. Clause (b) of the first sentence of the first paragraph of
Section 2.1 of the Plan is hereby amended and restated to read as follows:
(b) whose annual base rate of earnings in a Plan Year ending after
January 1, 2000 is at least $85,000 and
2. The first sentence of the second paragraph of Section 2.1
of the Plan is hereby amended and restated to read as follows:
Notwithstanding the foregoing provisions of this Section 2.1 and the
provisions of Section 3.1, an individual who is employed by the Company
on or after January 1, 2000 and whose annual base rate of earnings in a
Plan Year ending after January 1, 2000 is at least $85,000 may
participate in the Plan although he has not satisfied all the
conditions set forth above.
<PAGE> 2
IN WITNESS WHEREOF, Great Lakes Chemical Corporation has
caused this Amendment to be executed by a duly authorized officer of the Company
as of the day and year first above written.
GREAT LAKES CHEMICAL CORPORATION
By: /s/ R.J. Kinsley
---------------------------------------------
11/29/99
---------------------------------------------
2
<PAGE> 1
EXHIBIT 10v
AMENDMENT NO. 1
TO
GREAT LAKES CHEMICAL CORPORATION
NON-EMPLOYEE DIRECTORS'
DEFERRED AND LONG TERM COMPENSATION PLAN
Effective May 6, 1998, the Compensation and Incentive
Committee (the "Committee") of the Board of Directors of the Great Lakes
Chemical Corporation hereby adopts this Amendment No. 1 to Great Lakes Chemical
Corporation Non-Employee Directors' Long Term Compensation Plan (the "Plan")
pursuant to the Committee's powers under Section 16(a) of the Plan.
1. The last sentence of Section 9 of the Plan is amended in
its entirely to read:
"For the purpose of any such payment, the value of the Plan
Accounts shall be determined in accordance with Sections
5(c) and 6(c) on the date of the change in control."
IN WITNESS WHEREOF, this Amendment No.1 to the Plan is
executed on behalf of the Committee this 6th day of May, 1998.
GREAT LAKES CHEMICAL CORPORATION
By: /s/Mark S. Essleman
-----------------------------------------
Vice President - Human Resources
-----------------------------------------
May 18, 1998
-----------------------------------------
<PAGE> 1
EXHIBIT 10ix
AMENDMENT TO
GREAT LAKES CHEMICAL CORPORATION
1998 STOCK COMPENSATION PLAN
================================================================================
This Amendment to the Great Lakes Chemical Corporation 1998 Stock
Compensation Plan (the "1998 Plan") is effective as of the 15th day of February
1999.
WHEREAS, it is deemed desirable by the Board of Directors of Great
Lakes Chemical Corporation (the "Corporation") to amend the 1998 Plan in order
to permit the Board or its Compensation and Incentive Committee to authorize
certain actions of the Chief Executive Officer of the Corporation.
NOW, THEREFORE, Section 4 of the 1998 Plan is hereby amended by adding
the following immediately after the second sentence:
NOT WITHSTANDING THE IMMEDIATELY PRECEDING SENTENCE OR ANY OTHER
PROVISION HEREOF, THE BOARD OR THE COMMITTEE MAY FROM TIME TO TIME
GRANT TO THE CHIEF EXECUTIVE OFFICER OF THE CORPORATION AUTHORITY TO
DETERMINE THE PERSON OR PERSONS TO WHOM AWARDS ARE TO BE GRANTED, THE
NUMBER OF SHARES TO BE COVERED BY EACH SUCH AWARD, AND THE OTHER TERMS
AND CONDITIONS OF EACH SUCH AWARD, WHICH TERMS AND CONDITIONS SHALL BE
WITHIN THE LIMITATIONS SET FORTH IN THIS 1998 PLAN.
Resolution duly adopted by the Compensation and Incentive Committee of the Board
of Directors of the Corporation on February 14, 1999 and ratified by the Board
of Directors of the Corporation on February 15, 1999.
<PAGE> 1
EXHIBIT 10xvi
September 14, 1999
Marshall Bloom
Chairman and CEO
BioLab, Inc.
627 College Avenue
Decatur, GA 30030
Dear Marshall:
Per our many discussions, this document outlines the terms for your transition
to retirement. I appreciate your patience through this process. If these terms
are consistent with your understanding, please indicate your agreement to the
terms contained in this letter by your signature where indicated and return a
copy to me.
Title, Responsibilities and Salary Level
You will remain Chairman & CEO, BioLab and Executive Vice President Water
Treatment at your current compensation through December 31, 1999. Effective
January 1, 2000 you will continue as an employee of BioLab through and until the
effective date of your retirement, which is planned to be February 26, 2003, and
will assume the title Chairman Emeritus, BioLab you will also continue to report
to Mark Bulriss, and will be responsible for undertaking special projects as
assigned by Mark Bulriss or his designee, through December 31, 2000, unless
extended by mutual agreement. Your base salary will continue at the rate of
$22,067 per month ($264,800 per annum equivalent) through December 31, 2000.
Effective January 1, 2001 your monthly salary will be reduced to $10,769 and
will be paid through the planned effective date of your retirement, February 26,
2003. Should you decide to accelerate your retirement date, your month salary
beginning January 1, 2001 will be adjusted to an amount equal to $280,000
divided by the number of months between January 1, 2001 and the effective date
of your retirement. In no event will the total salary payable to you after
January 1, 2001 and prior to your retirement exceed $280,000.
MICP
Any earned 1999 MICP award will be paid in calendar year 2000, and will be
considered in the calculation of your earned pension benefit under the terms
outlined in the Plan. You will not be eligible to participate in MICP for any
year beyond 1999.
Change in Control Agreement
Your existing Change in Control agreement will remain valid through and until
the effective date of your retirement.
<PAGE> 2
Marshall Bloom
Page 2
Stock Options
All stock options previously granted to you will continue to vest until the
effective date of your retirement. Stock options granted in 1999 can be
exercised at any time after vesting occurs, and must be exercised by the earlier
of (I) three years from the effective date of your retirement, or (II) ten years
from the grant date. Options granted in any year prior to 1999 can be exercised
at any time after vesting occurs, and must be exercised by the earlier of (Ia)
one year from the effective date of your retirement if the market price exceeds
the exercise price of the relevant option on your date of retirement, or (Ib)
three years from the effective date of your retirement if the exercise price
exceeds the market price of the relevant option on the date of your retirement;
or (Ic) ten years from the date the options were granted. You will not be
eligible for stock option grants after December 31, 1999.
<TABLE>
<CAPTION>
Stock Option Grant History:
Shares Strike Price Grant Date Full Vesting Expiration (1)
------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1999 15,000 $35.75 02/15/99 02/15/02 02/26/06
1998 8,362 $40.10 02/07/98 02/07/01 02/26/06 or 02/26/04 (2)
1997 10,882 $37.10 02/11/97 2/11/00 02/26/06 or 02/26/04
1996 8,591 $66.56 02/09/96 02/09/99 02/09/06 or 02/26/04
1995 7,445 $52.05 02/20/95 02/20/98 02/20/05 or 02/26/04
1994 2,748 $67.65 02/27/94 02/27/97 02/27/04 or 02/26/04
1993 2,291 $68.30 03/08/93 03/08/96 03/08/03
1992 2,291 $44.85 03/16/92 03/16/95 03/16/02
1991 0 N/A N/A N/A N/A
1990 4,582 $27.50 12/11/90 12/11/93 12/11/00
</TABLE>
Notes: (1) assumes retirement effective February 26, 2003
(2) three (3) years to exercise if above market price or one year to
exercise if below market price, in each case as of the effective
date of your retirement.
Employee Benefits
As an active employee you will eligible to participate in the Company's
retirement, health and welfare plans until the effective date of your
retirement. Should changes be made to these plans while you are still an active
employee, you will participate in the changes on the same basis as other
employees. If at any time prior to the effective date of your retirement you
become ineligible to participate in the Company's retirement, health and welfare
plans, the Company will reimburse you the costs incurred in replacing such
coverage and will otherwise compensate you to the same extent as if you had
remained eligible to fully participate in all such Company plans through and
until the effective date of your retirement.
Pension
Pension benefits will be calculated in accordance with the applicable Great
Lakes Pension and Supplemental Executive Retirement Plan (SERP). Assuming a
continuous service date of August 27, 1955, and a retirement date of February
26, 2003 your estimated pension benefits as reflected in Exhibit A (attached)
are approximately correct, adjusting for your actual calculated highest three
years earnings.
Auto & Club Allowances
Auto, health and golf club allowances will continue through December 31, 1999,
but will be discontinued thereafter.
<PAGE> 3
Marshall Bloom
Page 3
As additional consideration for the benefits and payments to be received by you
pursuant to this agreement, you agree that, except with the express prior
written consent of Great Lakes and BioLab, for the period beginning with your
retirement date and ending three years after such date (the "Restrictive
Period"), you will not, directly or indirectly, compete with the business of
Great Lakes or BioLab, including but not limited to, by directly or indirectly
serving as an employee, officer or director of or consultant to, or by
soliciting or inducing, or attempting to solicit or induce, any employee of
Great Lakes or BioLab to terminate employment with either of those companies and
become employed by, any person, firm, partnership, corporation, trust or other
entity which owns or operates a business similar to that of Great Lakes or
BioLab. The forgoing covenant shall not prohibit you from owning, directly or
indirectly, capital stock or similar securities of any publicly-traded company
listed on a recognized securities exchange to the extent that such ownership
interest does not represent more than one percent (1%) of the outstanding
capital stock of that publicly -traded company.
Sincerely,
/s/ Richard J. Kinsley
- ----------------------
Richard J. Kinsley
Senior Vice President
Human Resources and Communications
Agreed:
<TABLE>
<S> <C> <C> <C>
/s/ Marshall Bloom 9/21/99 /s/ Mark P. Bulriss 9/16/99
- ---------------------- ------- ------------------- -------
Marshall Bloom Date Mark P. Bulriss Date
Chairman and CEO BioLab President and CEO
EVP, Water Treatment Great Lakes Chemical Corporation
Great Lakes Chemical Corporation
</TABLE>
<PAGE> 4
Marshall Bloom
Page 4
MARSHALL BLOOM PENSION ESTIMATE
EXHIBIT A
ASSUMPTIONS
THREE YEAR FINAL AVERAGE EARNINGS (FAE): $420,567 PER YEAR
SOCIAL SECURITY COVERED WAGE BASE IN 2003: $45,000
DATE OF BIRTH: 2/26/38
HIRE DATE: 8/27/55
RETIREMENT DATE: 2/26/03
YEARS OF SERVICE FOR 1% CALCULATION: 47.5
YEARS OF SERVICE FOR .65% CALCULATION: 35
BASED ON THE ABOVE ASSUMPTIONS, AN ESTIMATED SINGLE LIFE ANNUITY PENSION PAYMENT
WOULD BE CALCULATED AS FOLLOWS:
<TABLE>
<S> <C>
FAE $420,567 / 12 MONTHS $ 35,047.25
X 1%
-----------
$ 350.47
YEARS OF BENEFIT SERVICE X 47.5
-----------------
$ 16,647.33
PLUS:
FAE $420,567 - SOCIAL SECURITY WAGE BASE $45,000 / 12 $ 31,297.25
X .065%
-----------
$ 203.43
MAXIMUM YEARS OF BENEFIT SERVICE X 35
-----------
$ 7,120.05
ESTIMATED MONTHLY SINGLE LIFE ANNUITY PAYABLE 3/1/03 $ 23,767.38
($16,647.33 + $7,120.05 = $23,767.38) X 12 MO
-----------
ESTIMATED ANNUAL PAYMENT $285,208.56
</TABLE>
OTHER ANNUITY SELECTIONS YIELD APPROXIMATELY AS FOLLOWS (SUBJECT TO
ACTUARIAL ADJUSTMENTS AS PRESCRIBED BY THE PLAN):
<TABLE>
<CAPTION>
% PAYOUT
--------
<S> <C>
LIFE ANNUITY WITH 5 YEARS CERTAIN 97.9%
LIFE ANNUITY WITH 10 YEAR CERTAIN 93.0%
50% JOINT & SURVIVOR ANNUITY 84.3%
66 2/3% JOINT & SURVIVOR ANNUITY 80.1%
75% JOINT & SURVIVOR ANNUITY 78.2%
100% JOINT & SURVIVOR ANNUITY 72.9%
</TABLE>
<PAGE> 1
EXHIBIT 10xvii
Date: December 14, 1999
To: L. Donald Simpson
From: R. J. Kinsley
Subject: Separation & Retirement Transition Parameters
Per our discussions below are the terms for your transition to retirement. If
you are in agreement, please sign where indicated on page two, retain a copy for
your records, and return the original to me. If you have additional questions,
please call me.
Effective Date
You will remain in your current role as Executive Vice President, Global Supply
Chain, Engineering & Systems at your current compensation through January 31,
2000. Effective February 1, 2000 you will assume the title Executive Director,
Special Projects and will continue to report to Mark Bulriss. Your base salary
will continue at the current rate through December 31, 2000 or until you choose
to retire, whichever occurs first, and you will not be required to come into the
office unless requested to do so by Mark Bulriss or his designee.
MICP
Any earned 1999 Incentive Compensation Plan award will be paid in calendar year
2000, and will be considered in the calculation of your earned pension benefit
under the terms outlined in the Plan. Participation in the 2000 IC Plan will be
prorated based on total project hours completed during 2000. All bonus payments
shall be treated consistent with the terms and definitions prescribed by the
Pension Plan.
Change in Control Agreement
Your existing Change in Control agreement will remain valid through the earlier
of 12/31/00 or the effective date of your retirement.
Stock Options
All stock options previously granted to you will continue to vest until the
effective date of your retirement. Stock options granted in 1999 can be
exercised at any time after vesting occurs, and must be exercised within three
(3) years from the effective date of your retirement. Options granted in any
year prior to 1999 can be exercised at any time after vesting occurs, and must
be exercised by the earlier of: one (1) year from the effective date of your
retirement if the market price exceeds the exercise price of any such option as
of the effective date of your retirement; three (3) years from the effective
date of your retirement if the exercise price exceeds the market price of any
such option on the effective date of your retirement; or ten (10) years from the
date the options were granted. You will not be eligible for stock option grants
after December 31st, 1999.
Employee Benefits
As an active employee you will be eligible to participate in the Company's
retirement, health and welfare plans until December 31, 2000 or until the
effective date of your retirement, whichever
<PAGE> 2
L.D. Simpson, 2
occurs first. Should changes be made to these plans while you are still an
active employee, you will participate in the changes on the same basis as other
employees.
Life Insurance
The existing Split Dollar life insurance policy in your name will remain in
effect until your death under the terms of the Split Dollar Agreement in effect
between you and Great Lakes Chemical.
Pension
Pension benefits will be calculated in accordance with the applicable Great
Lakes Pension and Supplemental Executive Retirement Plan (SERP). A pension
calculation consistent with the terms of these plans will be provided
separately.
Miscellaneous
Effective with your retirement, the Company will transfer title to the company
car assigned to you to your name, and forgive any debt owed on this vehicle by
you, if any. Ownership of the computer currently assigned to you will be
transferred to you as well. In addition, the Company will reimburse you (to a
maximum of $15,000) for expenses associated with the sale of your home and/or
the storage/movement of your household goods, provided such a move occurs before
December 31, 2001. Any vacation carry-over due you will be paid with your last
pay of January 2000.
As additional consideration for the benefits and payments to be received by you
pursuant to this agreement, you agree that:
For the period beginning with your retirement date and ending one (1) year after
such date (the "Restrictive Period"), you will not, without the consent of the
President & CEO of Great Lakes Chemical, directly or indirectly, compete with
the business of Great Lakes. This restriction shall include but not be limited
to your directly or indirectly serving as an employee of or consultant to, or by
soliciting or inducing, or attempting to solicit or induce, any employee of
Great Lakes to terminate employment with Great Lakes and become employed by, any
person, firm, partnership, corporation, trust or other entity which directly
competes with Great Lakes. With respect to a directorship, such consent will not
be unreasonably withheld so long as you continue to abide by your
confidentiality and proprietary information obligations to Great Lakes Chemical.
You waive any claims against and release Great Lakes Chemical and any
subsidiary, parent or otherwise related company, and their officers, employees
and agents from all claims or causes of action which you may have against them
arising out of the circumstances leading to the negotiation and execution of
this Agreement. This waiver and release shall include, but is not limited to,
any claims or causes of action which you may have for relief under any law,
statute, rule regulation or enactment dealing with employment discrimination, as
well as all claims or causes of action for wrongful discharge, tort, or breach
of contract arising under the statutory or common law of the United States or
any state or political subdivision thereof. You acknowledge that this waiver and
release is an essential and material term of this Agreement and that, without
such a provision, the parties would have reached no agreement.
Nothing in the preceding paragraph shall waive or release the obligations of
Great Lakes Chemical under this Agreement. Nothing in this Agreement shall
affect your rights to indemnification under the Certificate of Incorporation or
By-Laws of Great Lakes Chemical as in effect on or before your retirement date
with respect to your actions or omissions as an officer or employee of Great
Lakes. Great Lakes will continue to cover you under its directors' and officers'
liability policies for as long as and to the extent that it provides such
coverage to former officers of the company. Nothing in this Agreement waives
your rights under any pension or other employee benefit plan, except as
expressly set forth in this Agreement.
<PAGE> 3
L.D. Simpson, 3
/s/ R.J. Kinsley 12/16/99
- -----------------------------------
R. J. Kinsley
SVP, Human Resources & Communications
Agreed:
/s/ L. Donald Simpson 12/16/99
- --------------------- --------
L. Donald Simpson Date
/s/ Mark P. Bulriss 12/16/99
- --------------------- --------
Mark P. Bulriss Date
President & CEO
Great Lakes Chemical
<PAGE> 1
EXHIBIT 13
Great Lakes Chemical Corporation
1999 Annual Report
(PHOTO)
Great Lakes is a customer-focused supplier of innovative specialty chemical
solutions. Its broad range of products includes flame retardants and other
polymer additives, performance and fine chemicals, fire extinguishants, water
treatment chemicals and products and services for oil and gas drilling. The
company serves customers and markets through a global network of integrated
sales, production, research, technical service and distribution facilities.
1 1999 FINANCIAL AND OPERATING HIGHLIGHTS
2 MESSAGE TO SHAREHOLDERS
6 GROWING OUR TECHNOLOGY BASE
8 WORKING SMARTER
10 DIALING INTO OUR CUSTOMERS
12 WORLD-CLASS CULTURE
14 REVIEW OF OPERATIONS
18 FINANCIAL REVIEW
19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
26 MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS
26 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
27 CONSOLIDATED STATEMENTS OF INCOME
28 CONSOLIDATED BALANCE SHEETS
29 CONSOLIDATED STATEMENTS OF CASH FLOWS
30 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
41 QUARTERLY RESULTS OF OPERATIONS
42 CORPORATE OFFICERS AND DIRECTORS
1999 FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(millions, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Results of Operations, Including Special Charges:
<S> <C> <C> <C>
Net sales $1,453.3 $1,394.3 $1,311.2
Gross profit 423.1 382.8 373.7
Operating income 162.1 73.9 141.8
Net income from continuing operations 139.6 56.4 71.8
Net income 139.6 89.0 56.9
Diluted earnings per share from continuing operations 2.41 0.95 1.19
Diluted earnings per share 2.41 1.50 0.94
- --------------------------------------------------------------------------------------------------------------------------------
Results of Continuing Operations, Excluding Special Charges:
Net sales $1,453.3 $1,394.3 $1,311.2
Gross profit 423.1 382.8 373.7
Operating income 180.3 190.4 191.6
Net income 151.4 131.2 110.4
Diluted earnings per share 2.61 2.21 1.83
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1999 OPERATING HIGHLIGHTS
- - Increased sales volume by 8%, with 6% coming from acquisitions.
- - Boosted gross margins to 29.1% - the highest level since 1995, with the
commencement of restructuring and productivity initiatives.
- - Increased net income from continuing operations before special charges by
15%.
- - Generated a record setting 33% operating income growth in the Water
Treatment business.
- - Expanded the product offerings in Polymer Additives and Water Treatment by
acquiring FMC's Process Additives Division (PAD).
- - Broadened our capabilities in Performance Chemicals with the acquisition of
NSC Technologies.
- - Implemented Enterprise Resource Planning (ERP) systems company-wide in
order to serve our customers more effectively.
- - Continued to drive Economic Value Added(R) (EVA) deep into the organization
as the measurement of success in generating shareholder value.
- - Generated $76 million in cash through the sale of previously discontinued
businesses.
- - Announced anticipated sale of approximately 50% of Energy Services and
Products business through an initial public offering to be completed in
2000.
1
<PAGE> 2
MESSAGE TO SHAREHOLDERS
(PHOTO)
Mark P. Bulriss, Chief Executive Officer and President
More than a year ago, we set out to build a new foundation for Great Lakes on
the twin pillars of growth and productivity. Our blueprint for creating
shareholder value has been straightforward and simple: Grow by commercializing
new products and by acquiring complementary technologies, and improve the
productivity of all our assets through restructuring and Six Sigma.
In 1999 we stuck to our plan. Our hard work produced good--but not
great--results. We faced the head wind of higher systems costs necessary to
ready us for the new century, pricing pressure particularly in our Polymer
Additives business, and significantly lower exploration and production in the
Gulf of Mexico. Despite these challenges, earnings per share from continuing
operations increased by 18 percent, excluding special charges, revenue for the
year grew 4 percent to $1.5 billion, and we generated, including the cash from
discontinued businesses, free cash flow of $152 million. Though certainly not
satisfied with these results, we view them as a positive signpost on our journey
to becoming a great company.
PERFORMANCE HIGHLIGHTS We knew we would have our work cut out for us in 1999.
Strong leadership and a clear focus on our objectives would be required. As a
result of our employees' resilience, commitment and determination, we achieved
several noteworthy goals:
- - Our safety record as measured by our OSHA injury rate improved 40 percent
over 1998.
- - We expanded and fortified our growth platforms by acquiring NSC
Technologies and FMC's Process Additives Division. Together, these
acquisitions expand and strengthen our product offerings as well as
capabilities in three of our four business units.
- - Our drive for productivity helped us achieve a gross margin of 29.1
percent, the company's highest level since 1995.
- - Our Water Treatment business achieved record sales and operating income.
These results reflect strong key account management, sales growth of higher
margin products, an acquisition that more than doubled our industrial water
treatment business and the leverage of lower raw materials costs.
2
<PAGE> 3
- - Polymer Additives volume grew by 15 percent despite tough competition in
bromine-based flame retardants. Sales of our patented No Dust Blends (NDB)
grew by 50 percent for the second consecutive year.
- - Strong sales of fluorine derivatives and agricultural chemicals contributed
to a 10 percent increase in sales of Performance Chemicals.
- - We announced our plan to sell up to 50 percent of our wholly owned OSCA,
Inc. oil field services subsidiary in an initial public offering scheduled
for the first half of 2000. This move positions Great Lakes as a pure
specialty chemical company with one of the strongest business and product
portfolios in our sector.
- - Great Lakes enters the millennium with one of the strongest balance sheets
in the industry. This inherent financial strength and flexibility provides
the wherewithal to meet our growth objectives.
> Great Lakes generated sufficient cash flow allowing not only for the
investment in organic growth opportunities but also the expansion of the
Company's product offerings and global reach through two significant
acquisitions and the return of cash to our shareholders in the form of
share repurchase totaling $159 million.
ENGINEERING GROWTH AND PRODUCTIVITY To build shareholder value we must continue
to grow. And the two proven means of generating growth are through strategic
acquisitions and the commercialization of new products that bring value to our
customers. In 1999 we made important strides on both fronts. We fortified our
Polymer Additives business when we purchased the Process Additives Division
(PAD) of FMC Corporation. By adding phosphate- based flame retardants to our
product mix, we solidified our competitive differentiation as the one-stop
resource for additives. In addition, PAD is a leading manufacturer of corrosion
inhibitors and scale control products for industrial water treatment
applications, and this acquisition effectively doubles the size of our
industrial water treatment business.
We also strengthened our Fine Chemicals business when we acquired NSC
Technologies, a leading developer of complex chiral-based intermediates for the
pharmaceutical industry. This acquisition brought a talented group of
scientists, a robust new product pipeline and the synergy of building-block
compounds that can be manufactured at existing Great Lakes facilities. NSC will
be an important enabler for achieving our target of more than 15 percent annual
growth for our Fine Chemicals business.
To meet our targets for organic growth, we developed a new infrastructure that
focuses and re-energizes the new product development process. In our Polymer
Additives business, for example, we consolidated both our research and pilot
testing functions, and created marketing-led project teams chartered to
identify, develop and rapidly commercialize new products that bring value to our
customers. We have set our sights high, but remain confident we can reduce our
time to market for new products by 50 percent.
In addition, we are driving revenue growth by making investments in providing
new skills and tools for our sales organization. We introduced new incentive
plans to focus our commercial teams on profitable growth opportunities, and we
are rolling out Sales Excellence training to better enable our people to convey
the value Great Lakes can bring to existing and prospective customers.
Great Lakes is blessed with employees who work hard and who want to win. But in
today's competitive environment, effort and determination alone are not enough.
So we've introduced new skills, powerful new tools and proven processes that, by
further strengthening our committed people, will help our company meet its
commitments.
We took important steps to improve quality, eliminate waste and drive down costs
when we introduced Six Sigma across all of Great Lakes. Six Sigma gives us
precise tools for measuring product variability and for discovering
opportunities to improve manufacturing processes. In Laredo, Texas, for example,
Six Sigma helped us boost capacity by 20 percent. While the incremental savings
will be in excess of $10 million in 2000, an even bigger win will be higher
quality and better service for our customers.
We also launched our new Enterprise Resource Planning system in Europe and the
Americas. This system gives us instant access to the data we need to manage our
company more efficiently as a global business. As the backbone of our Sales,
Operations and Inventory Planning process, it is helping us lower costs through
improved inventory planning and logistics. It also gives our customer service
and administrative associates a new tool to deliver world-class customer
service.
3
<PAGE> 4
Our company-wide focus on Economic Value Added(R) (EVA) is helping us create
shareholder value by maximizing our return on our capital investments. In 1999
we achieved 90 percent of our EVA target across the company. It is worth noting
that EVA drove a 25 percent reduction on capital spending by forcing us to
recognize the true cost of capital.
Winning organizations succeed by focusing and cultivating the talents of their
employees. This year more than 2,000 Great Lakes employees participated in our
comprehensive Human Resources Review process, designed to help instill core
values, open new career paths and encourage constructive dialogue about
performance and career development. This process helps ensure we have the right
people with the right skills committed to building a great business.
OUTLOOK Great Lakes overcame some difficult obstacles in 1999 to achieve a
strong performance. Still, our results fall short of our vision, and we are
disappointed that our stock price does not yet reflect the progress we've made.
We believe recognition will come, however, as we continue to expand our
technology base, develop new customer-driven applications, focus on higher value
products and strengthen our market positions in the Americas, Europe and Asia.
We have much work ahead of us as we turn the corner into a new century. At the
same time, I'm proud of the position we're in and especially proud of the people
who have worked so hard to put us there. Our employees are preparing for the
future by embracing new training opportunities. They're stretching themselves to
cover a broader set of responsibilities. And they're taking on--and
completing--new projects that looked impossible 18 months ago. Their commitment
and performance leaves me confident that for Great Lakes shareholders, employees
and customers alike, the best is yet to come.
Sincerely,
(SIGNATURE)
Mark P. Bulriss, Chief Executive Officer and President
March 29, 2000
CHAIRMAN'S MESSAGE
In September 1994, I was asked by your Board of Directors to step in, initially
as acting Chairman, to oversee a management transition brought about by the
disability and eventual death of Emerson Kampen, longtime Chairman, CEO and
builder of Great Lakes. It quickly became apparent that this was not going to be
a short-term assignment, and I realized that a total transformation of the
company was required.
During this time period many costly and time-consuming changes were made.
Non-core businesses were sold or spun-off. Significant infrastructure
investments were made. With the exception of myself, the Board of Directors was
completely renewed, with the senior member now dating back to only 1994. And
most importantly, Mark Bulriss was hired as CEO and President in April 1998 with
a mandate for change.
Today, Great Lakes is a dynamically managed, tightly focused, financially
strong, goal-oriented team. There is not one small corner of the company that
has not been positively affected by the arrival of Mark Bulriss. I believe that
the assignment given me in 1994 has been completed. Consequently, I will be
stepping down as non-Executive Chairman effective at the Annual Meeting, May 4,
2000.
The appointment of Mark Bulriss as Chairman reflects the obvious: that the Board
of Great Lakes Chemical has very high confidence in Mark, the management team he
has attracted to Great Lakes and the strategic plans that have been formulated
and are being executed to renew and extend Great Lakes' traditional role as a
growth company and a leader in the specialty chemical industry. Congratulations,
Mark, and my sincere wishes for enormous success in your new role.
Dick Leet will be leaving the Board at this year's Annual Meeting as a result of
the Board's mandatory retirement age. Personally, and on behalf of the Board, I
would like to thank Dick for his steadfast support during this period of great
transition. I will miss his wise counsel and firm guidance.
In closing, I would be remiss if I failed to comment on my great disappointment
in the valuation of our stock. All I can say is that, in my opinion, it fails to
reflect the significantly positive work of the Board and the achievements of
management and all our employees over the past several years. Please be assured
that we all remain committed to maximizing the long-term value of our stock.
Sincerely,
(SIGNATURE)
Martin M. Hale, Chairman of the Board
4
<PAGE> 5
BEST PRACTICES
There's a new spirit of innovation and creativity at Great Lakes. Throughout the
corporation, our employees are committing themselves to best practices that are
boosting our performance in four vital areas. They're helping us GROW OUR
TECHNOLOGY BASE by integrating newly acquired and developed technologies into
our product mix. They're applying their expertise and technical prowess toward
new programs that help us WORK SMARTER. They're DIALING INTO OUR CUSTOMERS like
never before to deliver value through technology and service. And they're
contributing to a WORLD-CLASS CULTURE built on leadership, initiative and
accountability. This year, we asked employees from throughout the organization
to describe what they're doing to make Great Lakes a premier specialty chemical
company. They speak for the thousands of Great Lakes employees around the world
whose resilience, commitment and determination are making us a better company
every day.
5
<PAGE> 6
GROWING OUR TECHNOLOGY BASE
"Growth doesn't have to come from new molecules alone. We've been able to move
many of our traditional brominated intermediates from commodity-type chemicals
into performance products that serve our customers in a variety of markets and
applications. We no longer make molecules and assume one size fits all. In the
Brominated Performance Products business, we direct our marketing and technology
focus solely at providing solutions to key customer and market needs."
Anne Noonan, Global Manager, Commercial Development and Technology,
Brominated Performance Products
(PHOTO)
(PHOTO)
(PHOTO)
"Drug candidates developed to treat HIV, cancer and cardiovascular disease are
increasingly complex and are nearly always chiral materials. Synthesizing these
complex chiral intermediates requires sophisticated bioprocesses and chemical
processes. The combined strengths of NSC Technologies for chiral synthesis and
Great Lakes in both traditional chemical processes and manufacturing gives us
the competitive edge we need to capitalize on these growth opportunities and
contribute to more effective therapies. We can perform these reactions in a
cost-effective manner and in cGMP facilities."
Mark R. Johnson, Research and Development Director,
Great Lakes Fine Chemicals
6
<PAGE> 7
"We've made expanding our non-halogen platform a leading research priority. And
we're better positioned than other companies to succeed for several reasons.
First, we have some good building blocks already in place. Plus, we can leverage
both our stabilization knowledge and our knowledge of flame retardant
technology. We also have strong positions in high-growth markets like consumer
electronics and furniture. In the latter case, federal regulations concerning
many other applications - especially for tables and chairs in public-sitting
places like restaurants, hospitals and student unions - are now requiring
stabilization as well as flame retardancy. From there, we can also start
building other polymers - other resins, for example - and expand into even more
applications."
Elisabeth Papazoglou,
Project Manager, Flame Retardants
(PHOTO)
(PHOTO)
7
<PAGE> 8
WORKING SMARTER
(PHOTO)
"Our new Enterprise Resource Planning system has allowed us to introduce
Manufacturing Resource Planning to the entire organization through our
company-wide Sales, Operations and Inventory Planning (SOIP) process. With SOIP,
management uses realistic planning underpinned with performance measurement to
fully plan and control the business, lower costs and boost productivity. It's
allowed us to better respond to customer demand by improving sales forecasting
processes, operations planning disciplines and inventory planning processes."
Dirk Verelst, Global SOIP Project Leader
"Today, the polyolefin products group has no less than nine key markets
including automobile, packaging, wire and cable, building and construction,
durable goods, fibers, agrofilms, medical devices and electronics equipment -
and most of those markets are growing faster than the GDP. We take a
market-needs-driven approach to all of them. That means we talk not only to our
customers but to customers of our customers as well, because they set the
trends. That way, we can find out what the auto industry, for example, will want
in two to three years. We also stay in very close contact with Sales and
Technical Service. By anticipating trends and focusing most attentively on a
smaller number of top-priority projects, we're able to translate them into
products we know our customers want. And we're able to decrease time to market."
Claudia Beyer, Global Markets Leader, Polyolefins,
Frauenfeld, Switzerland
8
<PAGE> 9
"New products are always an exciting and morale-boosting challenge, and our
operators are keying on the opportunities NSC Technologies is providing. In 1999
we began to manufacture two intermediates for anti-viral and anti-cancer drugs
that NSC had traditionally outsourced - Tic B at Konstanz and Z D Proline at
Halebank. And there's much more ahead. Over the next 18 months Halebank will
begin work on a three-stage process for NSC with sales potential of $20 million.
And our Palmer Research and Halebank pilot plants have already produced three
products in NSC's exciting new product pipeline."
Len Marland, Product and Process Development Director for Europe
(PHOTO)
(PHOTO)
(PHOTO)
"Last year we increased the capacity of our antimony trioxide furnacing process
- - that's our bread and butter product at our Laredo plant - and we used Six
Sigma to do it. Six Sigma gives the experts in the process - the operators and
supervisors who run the equipment - new tools and statistical data that are much
more accurate than gut feel. These tools dispelled some myths and helped us
focus on the big levers, so we get more bang for the buck. A 3 percent increase
in capacity would have resulted in significant productivity gains; we got 20
percent. And that was just the first series of designs. We have several others
slated for 2000."
Ron Erickson, Operations Manager, Laredo, Texas, and Reynosa, Mexico, plants
9
<PAGE> 10
DIALING INTO OUR CUSTOMERS
(PHOTO)
(PHOTO)
"Today, our customers make their decisions based on technology, safety and
especially quality of service, which is the number one buying impetus in this
industry overall. And that's where we excel: as one of our customers told a
competitor of ours, "We do business with OSCA for one simple reason - superior
field performance." We've become the most capable company in the world at
delivering a focused bundle of well completion services that protect and enhance
the most valuable portion of the well."
Dick Alario, Executive Vice President, OSCA
10
<PAGE> 11
"We want our customers outside enjoying their pools and spas, not inside talking
to our customer service representatives. So we've found new ways to deliver the
information they need faster--in most cases in nine minutes or less. Our Expert
System gives our reps instant access to all the information they need--whether
they're checking water test results, explaining new products or troubleshooting
technical problems. We also support the wholesale side by making sure our
point-of-sale kiosks are doing the job."
Carol Webb, Manager of Marketing Services,
BioLab, Inc.
(PHOTO)
(PHOTO)
"I'm thrilled with our new approach to customer service, and so are our
customers. We are consolidating all customer data onto a single system, and each
customer will have a number to call for either service or analytical support.
When they call, we can quickly access all the information we need to help them.
And the new information we gain during every call helps us better understand
their changing needs, so we're better prepared for their next call."
Dieter Morath,
Director of Sales, EMEA
11
<PAGE> 12
WORLD-CLASS CULTURE
(PHOTO)
(PHOTO)
"Safety is not just a way of life here, it's a way of business. Why? Because
customers focus on it. First thing they want to look at is your safety and
environmental report - if yours is good, you've got their ear. So we're very
proud of the milestone we hit last fall: five years without a lost-time incident
- - that's one serious enough to cause someone to miss work. Our great safety
record is our bread and butter, because it helps bring in business."
Larry Overholt, Production Technician and Safety Committee Member,
Newport, Tennessee
12
<PAGE> 13
(PHOTO)
(PHOTO)
"Our Human Resources Review process is moving Great Lakes and our BioLab
division quickly toward higher levels of performance and continuous improvement.
We're becoming a more effective, highly successful organization, and we're doing
it through focused, ongoing personal development plans that employees and
managers agree on. This approach creates an environment employees want to work
in--and reinforces our values of trust, mutual respect and candor in one-to-one
communications. This helps us retain high-performing employees and prepare for
our future growth."
Martha Forlines, Vice President of Human Resources and Corporate Services,
BioLab, Inc.
13
<PAGE> 14
POLYMER ADDITIVES
(PHOTO)
OVERVIEW Great Lakes brings the most comprehensive product basket of flame
retardants, polymer stabilizers and antimony-based derivatives to the global
marketplace. Our broad product line provides a distinct competitive advantage in
the $6 billion "property extenders" segment of the global polymer additives
market. Plastics producers and resin suppliers use our high-performance
additives to create products that resist heat and combustion and maintain
stability during processing. These products serve strong and growing markets
such as consumer electronics, fibers, wire and cable, telecommunications
equipment, automotive, cosmetics and furniture.
COMPETITIVE STRENGTHS Today's polymer customers are consolidating their
suppliers, facing more stringent regulations and launching new products with
superior performance characteristics. Great Lakes is ideally positioned to
emerge as the supplier of choice because we can anticipate and address the
unique ways in which additives interact within resin systems. We add further
value by offering blended compounds that simplify processing, improve product
quality and reduce health and safety risks. Further, Great Lakes has the breadth
of product offerings, global supply capabilities, streamlined research and
development processes, and low-cost manufacturing processes to deliver
high-quality compounds when and where customers need them.
1999 BUSINESS INITIATIVES Great Lakes expanded its technology platform to
include non-halogenated flame retardants with the acquisition of FMC's Process
Additives Division. The company continued its strong financial focus on
profitability by concentrating on DSO and inventory turns. At the same time, we
introduced Six Sigma manufacturing processes at key production facilities to
boost quality and lower production costs. Finally, we rationalized manufacturing
operations to maximize production volume and restructured the marketing and
technology organization to better anticipate our customers' needs and accelerate
organic growth.
GROWTH OPPORTUNITIES Great Lakes is building on the success of its patented No
Dust Blends (NDB) products, which recorded 1999 sales growth in excess of 50
percent. We will continue to meet strong global demand for consumer electronics
products, especially in rebounding markets such as Asia. Further, the company
will aggressively market non-halogenated compounds to flame retardant customers
while maintaining its brominated flame retardant leadership role. Great Lakes
will advance its commercialization of Bloomgard(TM), a nonblooming flame
retardant for polyolefin thermoplastics. In addition, we will focus on
proprietary products, including those bundled for major polymer resin producers
and polymer compounders.
14
<PAGE> 15
PERFORMANCE CHEMICALS
(PHOTO)
OVERVIEW Great Lakes leverages its core competencies in complex chemical
synthesis to produce a wide range of specialty and fine chemicals for dynamic
markets that include life sciences, agrochemicals, electronics and
telecommunications. Through the company's expertise in a broad range of chemical
synthesis, process development, manufacturing and toxicological testing
activities, Great Lakes delivers globally superior, single-sourced solutions to
companies that outsource their complex chemical production needs. A dedication
to operational excellence has provided a strong competitive position and ensures
that our products and services exceed customers' expectations for speed, quality
and reliability.
COMPETITIVE STRENGTHS Competitive advantage in today's demanding business
environment goes to companies that can streamline and accelerate the process of
developing and introducing new, high-quality products. The 1999 acquisition of
NSC Technologies increased Great Lakes' depth of chemistry and bioscience
technology and, coupled with WIL Labs, strategically positions Great Lakes to
participate in all stages of the pharmaceutical industry's new product
development process, from discovery to market. The company keeps pace with the
ever shorter new product commercialization cycle times, responding quickly to
emerging market needs for new fluorine- and bromine-based applications. As the
only bromine producer on two continents, Great Lakes continues to hold its
leadership position in bromine technology, increasing its focus on product
stewardship, safe handling, education and customer service.
1999 BUSINESS INITIATIVES Great Lakes broadened its fine chemicals growth
platform with the acquisition of NSC Technologies, a leader in the production of
chiral intermediates and selected bulk actives for pharmaceutical companies.
NSC's intermediate production was then integrated into Great Lakes'
manufacturing facilities in the United Kingdom and Germany. In addition, WIL
Labs instituted a 50 percent expansion of its capabilities to meet increased
demand for a broad array of interdisciplinary research and toxicological
assessment services. This expansion will be complete in the second quarter of
2000. Finally, Great Lakes more than doubled the production capacity of HFC-32,
an important component in refrigerant blends used as replacements for
ozone-depleting products.
GROWTH OPPORTUNITIES Great Lakes is aggressively building on synergies to
provide customers worldwide a more diverse package of value-added products and
services. We will aggressively expand our presence in fine chemicals,
participating earlier in the new product life cycle and supplying quality
products that meet the most exacting standards. Further, we will broaden our new
technology platforms in fluorine and bromine. The company's fluorocarbon
technology is already in place producing HFC-227ea for the fire extinguishing
market, a product that will soon be offered to the pharmaceutical market as a
replacement for CFC-based propellants in pharmaceutical metered dose
inhalers--like those used to dispense medications to over 50 million asthma and
bronchitis sufferers.
15
<PAGE> 16
WATER TREATMENT
(PHOTO)
OVERVIEW Great Lakes is the world's premier formulator of water treatment
biocides and related specialty chemicals. Through its BioLab, Inc. subsidiary,
popular swimming pool and spa brands including BioGuard(R), SpaGuard(R),
Omni(R), Hydrotech(R), Guardex(R), Pool Seasons(R), Pool Time(R), AquaChem(R)
and Bayrol(R) are sold throughout major swimming pool markets including North
America, Europe, South Africa and Australia. BioLab's Water Additives business
provides its specialty oxidizing biocides and deposit control agents to
industrial customers in the process, cooling, waste treatment and desalination
markets throughout the world.
COMPETITIVE STRENGTHS BioLab's channel strategy positions its swimming pool
chemical brands, in every important retail category where consumers shop
including mass merchants, home centers, do-it-yourself stores and specialty
retailers. This results in optimum utilization of company resources and market
positions on all consumer fronts. Through the acquisition of FMC's Water
Additives business, BioLab broadened its product offerings and technical
capabilities to include scale, corrosion and deposit control chemistry, thereby
providing a superior offering and service to its industrial customers. Both
business areas offer unique value-creating products featuring patent and
know-how protection.
1999 BUSINESS INITIATIVES BioLab expanded its technology platform to include
scale, corrosion and deposit control products with the acquisition of FMC's
Water Additives business. As a result of the acquisition, the company
anticipates enhanced product development and commercialization, and combined
with research and development activities, should also generate additional
productivity gains. The FMC business carried a Class A MRP II certification, and
we are taking advantage of this "best practice" to improve sales, operations and
inventory planning for the rest of BioLab. In addition, we introduced Six Sigma
at key production facilities to further improve operating effectiveness. Lastly,
we successfully implemented a new Enterprise Resource Planning (ERP) information
system featuring Web browser interfaces.
GROWTH STRATEGIES The stage and gate new product development process implemented
at BioLab in 1999 resulted in six new patents received and the filing of five
more. Commercialization activities for 2000 include AQUATE(R), a new pumpable
biocide for the industrial water market, and ProGuard(R), a product line
addressing the attractive commercial swimming pool market. As always, new
products focus on meeting the needs of our customers better than competitive
offerings while providing sustainable competitive advantages.
16
<PAGE> 17
ENERGY SERVICES AND PRODUCTS
(PHOTO)
OVERVIEW OSCA is a leading provider of specialized oil and gas well completion
products and services including completion and drill-in fluids, downhole tools,
sand control, fracturing and stimulation services that help customers maximize
the recovery of hydrocarbons from the production reservoir. The company focuses
on delivering customized products and services for high-demand completions in
deep water and soft formations geological regimes that present unique technical
challenges.
COMPETITIVE STRENGTHS OSCA offers a broad line of specially formulated and
customized completion fluids for high-demand wells and has established a track
record for its ability to service technically challenging projects in harsh
environments. The company operates an integrated fluid facility that streamlines
the logistical process, provides on-site technical services to supervise the
application of these systems during the completion process, and optimizes well
productivity. Further, OSCA designs, builds and installs some of the market's
most advanced specialized downhole tools for technically demanding wells. The
company also operates a fleet of marine well service vessels that can service 5
to 10 wells per trip offshore and are specially designed to enhance safety and
operating efficiency. Strategically located distribution facilities make OSCA
one of the most valuable suppliers on the Gulf Coast.
1999 BUSINESS INITIATIVES During the year, OSCA implemented a number of
strategic actions to meet the needs of its customers. The company reformulated
its specialty fluids to reduce production costs and improve quality. OSCA also
moved the applications engineering department to Houston and commissioned a
world-class downhole tool system facility. Both moves position the company to
respond more quickly and efficiently to the market's anticipated recovery during
2000. Concurrently, OSCA restructured its international division, targeting new
sources of revenue by focusing on opportunities in strategic markets. As a
result, OSCA opened new markets such as Brazil, providing immediate revenue and
establishing the foundation for additional growth.
GROWTH STRATEGIES OSCA will continue to build market share in the Gulf of
Mexico, where vast oil reservoirs make it one of the world's most attractive
exploration and development areas. We will focus on deep water and high-demand
well completions, which are forecasted to grow at a 24 percent compounded rate
between 1999 and 2008. In addition, the company will leverage Gulf of Mexico
deep water expertise as a foundation to expand into select international markets
such as Brazil and West Africa. OSCA will maintain a customer-driven philosophy
and provide customized solutions and technically advanced products such as its
InsulGel insulated packer fluids and the PAC-Valve downhole control valve to
promote sale of other products.
17
<PAGE> 18
FINANCIAL REVIEW
<TABLE>
<CAPTION>
(millions, except per share data)
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Net sales $1,453.3 $1,394.3 $1,311.2 $1,352.3 $1,291.6
Operating income before special charges 180.3 190.4 191.6 183.9 198.3
Operating income(1) 162.1 73.9 141.8 183.9 198.3
Income from continuing operations
before income taxes 175.4 66.2 117.2 184.0 200.2
Income taxes 35.8 9.8 45.4 63.4 68.0
Effective income tax rate 20.4% 14.8% 38.7% 34.5% 34.0%
Net income from continuing operations $139.6 $56.4 $71.8 $120.6 $132.2
Net income (loss) from
discontinued operations -- 32.6 (14.9) 129.7 163.4
- --------------------------------------------------------------------------------------------------------------------------------
Total net income $139.6 $89.0 $56.9 $250.3 $295.6
Percent of average stockholders' equity 13.6% 7.5% 4.1% 17.2% 21.7%
FINANCIAL POSITION AT YEAR-END
Working capital (excluding cash and
cash equivalents) $378.0 $237.4 $290.5 $282.7 $283.3
Current ratio 3.8 2.9 2.2 2.5 2.4
Capital expenditures $119.0 $160.6 $133.0 $168.7 $182.9
Total assets 2,261.0 2,004.6 2,270.4 2,352.7 2,179.9
Debt (net of cash and cash equivalents) 411.1 108.3 492.9 360.8 229.1
Debt 889.4 519.9 566.6 502.2 345.5
Percent of total capitalization 46.2% 31.9% 29.1% 24.4% 18.9%
Stockholders' equity $994.1 $1,054.3 $1,307.4 $1,486.9 $1,416.2
Per share 18.24 18.05 22.18 24.13 21.92
SHARE DATA
Basic earnings (loss) per share
Continuing operations $2.42 $0.96 $1.20 $1.90 $2.02
Discontinued operations -- 0.55 (0.25) 2.04 2.50
- --------------------------------------------------------------------------------------------------------------------------------
Total $2.42 $1.51 $0.95 $3.94 $4.52
Diluted earnings (loss) per share
Continuing operations $2.41 $0.95 $1.19 $1.89 $2.00
Discontinued operations -- 0.55 (0.25) 2.02 2.48
- --------------------------------------------------------------------------------------------------------------------------------
Total $2.41 $1.50 $0.94 $3.91 $4.48
Cash dividends per share
Declared during year $0.32 $0.40 $0.63 $0.57 $0.44
Paid during year 0.32 0.48 0.62 0.54 0.43
Payout as a percent of net income 13.2% 26.5% 66.3% 14.5% 9.7%
Shares outstanding (basic)
Average during year 57.8 59.0 60.0 63.5 65.4
At year-end 54.5 58.4 59.0 61.7 64.6
Stock price(2)
High $50 $54 3/16 $54 7/8 $78 5/8 $74 5/8
Low 33 3/16 36 11/16 41 1/2 44 1/4 55 3/4
At year-end 38 3/16 40 44 7/8 46 3/4 72
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) After special charges of $18.2 million, $116.5 million and $49.8 million in
1999, 1998 and 1997, respectively.
(2) Stock prices prior to May 22, 1998, do not reflect the Octel spin-off.
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This annual report, including Management's Discussion and Analysis, contains
both historical information and forward-looking statements. The forward-looking
statements involve risks and uncertainties that could affect the Company's
operations, markets, products, services, prices and other factors as discussed
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission. These risks and uncertainties include, but are not limited
to, economic, competitive, governmental and technological factors. Accordingly,
there is no assurance that the Company's expectations will be realized.
A registration statement relating to the securities of OSCA, Inc., referred to
in this annual report and accompanying notes to financial statements has been
filed with the Securities and Exchange Commission but has not yet become
effective. These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective. This
communication shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to the
registration or qualification under the securities laws of any such state.
CONTINUING OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain income statement items for the Company's continuing operations:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of products sold 70.9 72.5 71.5
- --------------------------------------------------------------------------------
Gross profit 29.1 27.5 28.5
Selling, general and
administrative expenses 16.7 13.8 13.9
- --------------------------------------------------------------------------------
Operating contribution 12.4 13.7 14.6
Special charges 1.2 8.4 3.8
- --------------------------------------------------------------------------------
Operating income 11.2 5.3 10.8
Interest and other income 3.0 2.7 2.4
Interest and other expense 2.1 3.2 4.2
- --------------------------------------------------------------------------------
Income from continuing
operations before
income taxes 12.1 4.8 9.0
Income taxes 2.5 0.7 3.5
- --------------------------------------------------------------------------------
Net income from
continuing operations 9.6% 4.1% 5.5%
- --------------------------------------------------------------------------------
</TABLE>
RESULTS OF CONTINUING OPERATIONS -- CURRENT YEAR REVIEW
Sales for 1999 increased 4% to $1,453 million. Volume grew 8% led by Fluorine,
Agricultural Products, and Polymer Additives and the acquisitions of NSC
Technologies and the Process Additives Division (PAD) of FMC Corporation. This
growth was partially offset by the effects of competitive pricing pressure in
brominated flame retardants and significantly lower oil exploration activity in
Energy Services and Products.
Gross profit increased 1 gross profit margin improved to 29.1% in 1999 from
27.5% in 1998. Productivity initiatives, a better mix of products in Polymer
Additives and Water Treatment, selected price increases in certain businesses
and lower raw material costs more than offset the previously mentioned
competitive pricing pressures in flame retardants. Although gross profit margin
increased to its highest level in four years, operating margin, excluding
special charges, declined to 12.4% in 1999 from 13.7% in 1998. This decrease was
driven by increased information systems expense as the Company implemented its
new ERPinformation systems and became Y2K compliant. Also, contributing to the
decrease was a one-time charge of approximately $10 million to exit an
environmental remediation business in Mexico and to settle land use litigation.
In 1999, the Company recorded approximately $29 million in information systems
expenses as compared to approximately $4 million in 1998. Excluding special
charges and the aforementioned expenses and charges, operating margin would have
been 14.8% in 1999 as compared to 13.7% in 1998.
Operating income margin, including special charges, was 11.2% in 1999 as
compared to 5.3% in 1998. The Company recognized a special charge of $25.4
million during 1999 related primarily to actions to further streamline the
Polymer Additives business unit by providing a more flexible data processing
solution for the Company's manufacturing operations. Offsetting this charge were
certain reversals of the special charges taken in 1998 totaling $7.2 million as
explained more fully below. The net of the 1999 special charges and the
reversals of the prior year charges is reflected in the consolidated statement
of income as a separate component of operating income.
Interest and other income increased approximately $7 million to $44 million in
1999 from 1998 due primarily to a gain from the partial disposition of an equity
investment.
Interest and other expense decreased by $14 million to $31 million for the year
primarily as higher interest expense associated with increased borrowings to
fund the acquisitions of NSC Technologies and PAD was more than offset by
foreign exchange gains and a favorable adjustment to reserves to reflect revised
environmental remediation estimates at certain nonoperating sites.
Income taxes for the year were $36 million or 20.4% as compared to the 1998
effective tax rate of 14.8%. The lower effective tax rate is primarily due to a
favorable $10 million tax credit in 1998 related to foreign taxes and the
magnitude of the special charges in 1998. This was offset by a reduction in
income tax expense in 1999 due to adjustments for previously provided taxes and
structural changes made in the Company's foreign operations that resulted in
generating a substantially higher percentage of income in lower tax rate
jurisdictions. The Company expects its ongoing effective tax rate will be 31%.
Net income for 1999, excluding the special charges, was $151 million, or $2.61
per share. This compares to net income from continuing operations of $131
million, or $2.21 per share, excluding special charges, for 1998. Net income
from continuing operations including the special charges was $140 million, or
$2.41 per share, for 1999 as compared to $56 million, or $0.95 per share, for
1998.
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. The operating
income data presented below is before the special charges recorded in 1999 and
1998. Bromine used by each of the Company's segments as a raw material in their
production processes is reflected at cost.
19
<PAGE> 20
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.
During 1999, the Company completed the acquisition of PAD, a world leader in the
production of phosphate ester flame retardants, flame retardant fluids and
lubricant additives. By extending the product platform, the Company is able to
provide a comprehensive basket of integrated polymer solutions that meet
specific, well-defined customer needs in a variety of products including
computer and business equipment, consumer appliances, packaging, textile,
building and construction, furniture and transportation.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Polymer Additives 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $613 $584
Operating income 78 79
- --------------------------------------------------------------------------------
</TABLE>
Polymer Additives' sales increased 5% to $613 million in 1999. Sales volumes
grew 14%, including 8% from the PAD acquisition. Continued recognition and
acceptance of the Company's proprietary blends and physical forms for Polymer
Stabilizers, such as Non Dust Blends (NDB), and the recovery underway in Asia
drove the organic growth. The increase was offset in part by an 8% decline in
selling prices due to competitive price pressure, primarily in brominated flame
retardants, and the effects of unfavorable currency fluctuations.
Operating income in 1999 was essentially flat compared to 1998. Savings from
productivity initiatives and restructuring activities, lower raw material costs
and earnings generated by the PAD acquisitions were offset by the aforementioned
competitive price pressure in brominated flame retardants and an approximately
$8 million increase in expense associated with the implementation of the
Company's ERPinformation systems. Excluding the higher information systems
expense, operating income would have been approximately $86 million and
operating margin would have increased to 14% in 1999 from 13.5% in 1998.
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.
The acquisition of NSC Technologies in 1999 was a key element in the Performance
Chemicals group's long-term strategy of increased involvement in the
pharmaceutical industry. NSC Technologies develops, manufactures and sells
chiral pharmaceutical intermediates and select bulk actives to pharmaceutical
companies. Its competency in natural and unnatural amino acids provides a broad
molecular platform from which it develops novel, high value-added intermediates
and bulk actives for antiviral, cardiovascular and oncology therapeutic drugs.
NSC Technologies is part of the Fine Chemicals group.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Chemicals 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $347 $315
Operating income 79 70
- --------------------------------------------------------------------------------
</TABLE>
Sales in Performance Chemicals grew 10% to $347 million in 1999. Led by strong
demand for FM-200(R), the Company's halon replacement fire extinguishant, and
its hydrofluorocarbon refrigerant HFC-32, the Fluorine group continued its
pattern of impressive sales growth with an increase of 35% over 1998. Fine
Chemicals' sales increased 4% in 1999 as volume growth from the new product
pipeline acquired with NSC Technologies was partially offset by a shortfall in
demand resulting from customer actions to delay or modify product introduction
schedules. WIL Research Laboratories' sales increased 21% driven by improved
facility utilization and a richer mix of toxicological services. Brominated
Performance Products' sales were essentially flat year over year. Higher sales
of HyperSolve(TM), Great Lakes' bromine-based solvent, and increased pricing of
methyl bromide, an agricultural fumigant, were offset by lower demand for some
lower margin bromine and bromine derivative products and regulatory reductions
in the level of methyl bromide sales volumes.
Operating income for Performance Chemicals increased 13% to a record level of
$79 million for the year. Significant volume growth, product and service mix
improvements in Fluorine and WIL Labs, and improved pricing for methyl bromide
more than offset higher systems expense associated with the implementation of
the Company's ERP information systems.
WATER TREATMENT
The Company's Water Treatment business unit, through its BioLab subsidiary, is
the world's leading provider of recreational water care products to the
consumer. By deploying a brand/channel segmentation strategy, BioLab is able to
maximize its market share and leverage its resources. During 1999, Water
Treatment more than doubled its Industrial Water Division (renamed BioLab Water
Additives) with the acquisition of FMC's water additives business. Through its
proprietary position in polymaleate chemistry, and as the world's foremost
provider of bromine-based biocides, BioLab Water Additives is a leading supplier
of corrosion inhibitors, scale control and desalination solutions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Water Treatment 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $400 $379
Operating income 73 55
- --------------------------------------------------------------------------------
</TABLE>
The Water Treatment business experienced another outstanding year. Operating
earnings and margins for this business unit were again at record levels. Sales
of new products such as Shock Plus(R), introduced in 1998, and Banish(R),
introduced in 1999, continue to improve product mix, provide a sustainable
competitive advantage and fuel growth. New products, better mix, increased
productivity, improved profitability in Europe and lower raw material costs
drove the 33% increase in operating earnings. The 6% increase in sales was in
part due to the PAD acquisition, which significantly expanded the depth and
breadth of the Company's BioLab Water Additives business. Volume increases in
the United States recreational water market, driven by the aforementioned
emphasis on new products, were significantly offset by the Company's decision to
exit certain low margin business in Europe.
ENERGY SERVICES AND PRODUCTS
The Energy Services and Products business unit (OSCA) provides specialized oil
and gas well completion products and services including completion and drill-in
fluids, downhole tools, sand control, fracturing and stimulation services to oil
and gas well operators and exploration customers.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Energy Services and Products 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $95 $116
Operating (loss) income (9) 11
- --------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
Sales decreased 18% in 1999 to $95 million primarily as a result of a sharp
decline in oil prices that began in the second half of 1998 and carried into the
first half of 1999. This price softness led to a significant downturn in
drilling activities particularly in the Gulf of Mexico.
The curtailment of exploration and development activities resulted in increased
pricing pressure. The preceding, coupled with $6.1 million of charges in
connection with exiting an environmental remediation project in Mexico led to
the operating loss in 1999.
Oil prices substantially recovered in the second half of 1999 and continued
their trend in early 2000. The energy sector shows signs of recovery as rig
count in the Gulf of Mexico is at its highest level in 18 months. OSCA is well
positioned to respond to the increase in exploration and development investment
expected in 2000.
RESULTS OF CONTINUING OPERATIONS -- 1998 COMPARED WITH 1997
Sales increased 6% to $1,394 million from $1,311 million in 1997. The growth in
sales was driven primarily by strong volume growth in the Performance Chemicals
and Water Treatment business units. Volume for the Company grew 9% including the
acquisition of Anzon, a producer of antimony-based flame retardants which
accounted for 3% of the year-over-year volume growth. The volume growth was
partially offset by a 1% overall decline in selling prices and a 1% effect from
unfavorable foreign currency fluctuations.
Gross profit increased $9 million to $383 million while gross margin decreased 1
percentage point from 28.5% to 27.5%. Gross margin benefited from volume growth,
lower manufacturing costs resulting from cost productivity programs, and
increased asset utilization and favorable raw material prices. These benefits
were more than offset by lower selling prices and a shift in product mix,
primarily in Polymer Additives where the lower margin Anzon business was added
to the portfolio.
Research and development spending was even with 1997 and declined slightly as a
percentage of sales. The Company has refocused and streamlined the development
process to ensure optimal allocation of resources enabling accelerated
commercialization of new products. Selling and administrative expenses increased
$10 million as compared to prior year, but remained flat as a percentage of
sales. The increase is due to a conscious effort to increase the Company's sales
and marketing presence in several key businesses and geographic areas and higher
spending on information technology related to implementation of new ERP
information systems and Year 2000 remediation and readiness.
In 1998, the Company recorded special charges of $116.5 million to consolidate
manufacturing operations, write down or dispose of underperforming or
underutilized assets and product lines, consolidate sales offices and research
and development facilities, and replace the chief executive officer and other
members of the executive leadership team. The restructuring will result in
approximately a 10% reduction of the workforce. As part of the reorganization
the number of positions in sales, marketing and research and development was
increased to provide renewed focus on new products and the customer.
Operating income margin, including special charges, was 5.3% as compared to
10.8% in 1997. Excluding special charges, 1998 operating income margin was
13.7%, a decline of 1 percentage point from the prior year. Strong growth in
Performance Chemicals and Water Treatment and savings from productivity programs
initiated in the second half of 1998 were more than offset by the effects of
competitive pricing pressure in Polymer Additives, lower oil prices on the
Energy Services and Products business and the addition of the lower margin Anzon
antimony business.
Interest and other income increased $5 million to $37 million in 1998. Interest
income increased $9 million due to higher average investment balances resulting
from cash generated by operations and proceeds received in connection with the
spin-off of the Octel business. This increase was partially offset by lower
earnings from equity affiliates.
Interest and other expense decreased by $12 million to $45 million in 1998. The
decline was due in part to lower interest expense resulting from reduced
borrowings. A $1 million increase in goodwill amortization resulting from the
Anzon acquisition was offset by favorable foreign exchange. Both 1998 and 1997
include environmental provisions of approximately $10 million related to former
operating sites.
Income taxes were $10 million or 14.8% of income before taxes compared to 38.7%
in 1997. The lower effective tax rate was due to a favorable $10 million tax
credit related to foreign taxes and the magnitude of the special charges.
Excluding the effect of special charges in 1998 and 1997 and the favorable $10
million foreign tax credit noted above, the effective tax rate in both years
would have been 34%.
Net income from continuing operations was $56 million or $0.95 per share in
1998, as compared to $72 million or $1.19 per share in 1997. Excluding the
after-tax effect of special charges of $75 million and $38 million in 1998 and
1997, respectively, net income was $131 million or $2.21 per share in 1998, as
compared to $110 million, or $1.83 per share in 1997.
SEGMENT INFORMATION
A review of operations by business segment for 1998 compared with 1997 follows.
Businesses sold or disposed of that are not part of one of the reportable
business segments had sales of $7 million in 1997 and are included as part of
corporate and other. The operating income data presented below is before the
special charges recorded in 1998 and 1997.
POLYMER ADDITIVES
Polymer Additives' sales increased 5% to $584 million in 1998. Volume improved
by 10% including the acquisition of Anzon which contributed 8 percentage points
of the increase. Expanded production capabilities, particularly in the United
States, and demand for the Company's proprietary blends and physical forms in
polymer stabilizers fueled the growth. The increase was partially offset by a 3%
decline in selling prices due to competitive price pressures primarily in
polymer stabilizers and the effects of unfavorable currency fluctuations.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Polymer Additives 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $584 $554
Operating income 79 93
- --------------------------------------------------------------------------------
</TABLE>
Operating income in 1998 decreased $14 million to $79 million. The decrease was
the result of the aforementioned price decline, higher spending for
implementation of the Company's new ERP information systems, Year 2000
remediation and readiness and the effects of unfavorable currency fluctuations
partially offset by improving manufacturing costs. The division made major
strides in improving manufacturing costs and efficiency particularly in the
South Arkansas bromine and flame retardant facility and in the European Polymer
Stabilizers operations. However, the improvements were predominantly in the
fourth quarter of 1998 and the full effect, as well as the effects of the
Company's reorganization, will not be fully realized until the end of 1999.
Additionally, operating margin was unfavorably affected by the addition of the
lower margin Anzon antimony business acquired in the fourth quarter of 1997.
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<PAGE> 22
PERFORMANCE CHEMICALS
As a group, Performance Chemicals' sales grew 11% to $315 million in 1998.
Leading the way was the record performance of the Fluorine group, which
continues to gain worldwide recognition and acceptance of its fluorine-based
compounds, FM-200(R) and HFC-32. A stronger second half of 1998 in the OEM
segment coupled with a recovery in Asian demand toward the end of the year
boosted fluorine sales by 21% in 1998. Sales at WIL Research Labs, our
toxicological testing service business, also reached record levels. Increased
demand for developmental and reproductive studies and higher facility
utilization drove a 17% sales improvement. Fine Chemicals' sales were
essentially flat with the prior year as volume improvements were offset by lower
pricing as the end use products, of which the group's intermediates are a part,
moved to commercialization.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Chemicals 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $315 $283
Operating income 70 51
- --------------------------------------------------------------------------------
</TABLE>
In 1998, the Fine Chemicals group initiated steps that moved it along a path
from simply providing building block materials to supplying more complex
intermediates and proprietary compounds which typically offer the greatest
potential to capture value for the organization. Agricultural product sales
posted a 9% sales gain primarily as a result of higher selling prices. The
Bromine Intermediates group benefited from stronger volume in its base products
as well as from HyperSolve(TM), the Company's new bromine-based solvent, to
achieve double digit growth. Sales of this new offering will accelerate once the
EPA ruling under its Significant New Alternatives Policy is issued.
Operating income in 1998 rose 37%, reflecting strong volume growth across most
units comprising this segment. Fine Chemicals achieved a 71% increase in
operating income and a 63% increase in operating margin from selective price
increases, a better mix of value-added product offerings, plant debottlenecking
and strict cost controls. These factors plus higher selling prices for the
segment's Bromine Intermediates and Agricultural Chemical products pushed
operating margins 4 percentage points higher, reaching a level of 22% for the
year.
WATER TREATMENT
1998 represented another exceptional year for Water Treatment, with both sales
and operating income exceeding 1997 record levels. Water Treatment sales
increased 8% to $379 million in 1998. A volume increase of 10% far exceeded the
effects of unfavorable currency fluctuations and resulted in gains almost three
times the inherent growth rate for this market. The success of Water Treatment's
new technology product SHOCK Plus(R), a higher penetration in the important mass
market and a strong early season for cooling tower biocides drove the growth.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Water Treatment 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $379 $350
Operating income 55 46
- --------------------------------------------------------------------------------
</TABLE>
Operating income in 1998 surged 20% to a record $55 million. The aforementioned
record volumes and a richer mix of value-added products leveraging the unit's
customer-first approach coupled with an improvement in manufacturing costs drove
the record performance. The 1997 restructuring efforts by Bayrol Europe were
integral to the manufacturing improvements as Bayrol showed a significant
improvement in the second half of 1998.
ENERGY SERVICES AND PRODUCTS
Sales increased 3% in 1998 to $116 million as depressed oil prices and adverse
weather conditions in the Gulf of Mexico during the second half of the year
significantly reduced drilling activity and increased competitive price
pressure. Crude oil prices ended the year at $11 per barrel, down $4 per barrel
from July.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Energy Services and Products 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $116 $113
Operating income 11 20
- --------------------------------------------------------------------------------
</TABLE>
Operating income declined $9 million as the result of price pressure from the
reduced drilling activity, lost drilling days caused by adverse weather
conditions in the Gulf of Mexico and higher overhead from capacity expansion in
the latter part of 1997 and first half of 1998. The business unit, as part of
the Company's overall reorganization plan, has taken aggressive action to bring
its cost structure in line with market conditions.
FINANCIAL CONDITION AND LIQUIDITY
Cash flow from the operating activities of continuing operations amounted to
$186 million in 1999, compared to the $140 million generated in 1998, which
included a $54 million payment for tax liabilities of Octel. Excluding this
payment, cash flow from operating activities of continuing operations decreased
as compared to the prior year primarily as a result of increased investment in
working capital.
The Octel spin-off on May 22, 1998, generated net cash of approximately $300
million after associated debt repayment of approximately $50 million and tax
liabilities of Octel of $108 million assumed by Great Lakes. The $462 million
received by Great Lakes before associated debt and tax payments is included in
discontinued operations in 1998. Stockholders' equity (retained earnings and
cumulative translation adjustment) was reduced approximately $292 million in
1998 representing the remaining net book value of the Octel asset distribution
to Great Lakes stockholders.
The Company's investment in working capital, excluding cash and cash
equivalents, increased approximately $141 million during 1999. Of this increase,
approximately $64 million was working capital associated with the acquisitions
of NSC Technologies and the PAD division from FMC. The remaining increase was
comprised of approximately $45 million in higher receivables as a larger
percentage of sales in Polymer Additives shifted to Europe and Asia and a
reduction of approximately $40 million in accrued expenses as the Company made
cash outlays associated with its 1997 and 1998 restructuring programs. These
increases in working capital were partially offset by a $23 million decrease in
inventories as the Company increased its emphasis on inventory planning.
Capital spending through December 31, 1999, amounted to $119 million compared to
$161 million in 1998. The reduction was attributable to lower capital spending
on the Company's ERP systems.
The Company has traditionally utilized commercial paper borrowings as its
primary source of external financing. During 1999 the Company moved to lock in
historically low long-term interest rates. On July 15, 1999, the Company sold
$400 million of 7% notes due July 15, 2009. Proceeds from the sale of the notes
were used to replace a portion of the commercial paper borrowings and fund the
acquisitions. The notes were sold under a shelf registration process. Under this
process, the Company filed a Registration Statement on Form S-3 with the
Securities and Exchange Commission and may sell various unsecured
22
<PAGE> 23
debt securities, common stock or rights or warrants to purchase common stock
individually or in combination up to $750 million. The amount remaining on the
registration statement is $350 million. The registration provides the Company
with increased flexibility to finance its growth. The Company's net debt (debt
net of cash and equivalents) was $411 million at December 31, 1999 and was
comprised of $889 million of debt and $478 million of cash and cash equivalents.
The Company maintains a high cash and cash equivalents balance to offset its
commercial paper borrowings and the income from the investments exceeds the
borrowing costs. The Company's investment in marketable securities is comprised
of a mix of highly liquid, investment grade securities. Debt increased $369
million in 1999. The increase was due primarily to the previously mentioned
acquisitions and the repurchase of $4.2 million shares of common stock for $159
million. At December 31, 1999, the Company's senior debt rating is A2/A and its
commercial paper rating is A1/P1. Debt to total capitalization at December 31,
1999, was 46% as compared to 32% at December 31, 1998.
Stockholders' equity was $1.0 billion, or $18.24 per share, at December 31,
1999, as compared to $1.1 billion, or $18.05 per share at the end of 1998.
Dividends declared totaled $18 million or $0.32 per share, compared with $24
million or $0.40 per share in the prior year. The dividend was adjusted in the
second quarter of 1998 to take into account the effect of the spin-off of Octel
in May 1998.
Under a share repurchase authorization from the Board of Directors, the Company
purchased 4.2 million shares of its stock in 1999 for a total cost of $159
million. The average price per share of the stock purchased was $37.97. As of
December 31, 1999, management is authorized to repurchase an additional 1.6
million shares. Management continues to analyze share repurchases as cash flow,
market conditions and investment opportunities warrant.
The cumulative translation adjustment component of stockholders' equity
represents the translation of foreign currency-denominated financial statements
into United States dollars. The 1999 change in the cumulative translation
adjustment decreased stockholders' equity by $25 million. Approximately 63% of
the Company's net assets are outside the United States.
OTHER MATTERS
SPECIAL CHARGES
In the first quarter of 1998, the Board of Directors appointed a new chief
executive officer and over the following months a new senior management team was
assembled. Beginning in the third quarter of 1998, the Company began work on a
plan to fundamentally alter how the Company conducts business around the world
and to improve operating income by repositioning the business to enhance
competitiveness and productivity and increase responsiveness to customer needs.
A formal repositioning plan to accomplish these goals was approved by the Board
of Directors in 1998. In the fourth quarter of 1999, the Board of Directors took
certain additional actions to further streamline the Polymer Additives business
unit, to provide a more flexible data processing solution for 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.
Accordingly, the Company recognized a special charge of $25.4 million, $16.5
million after income taxes or $0.29 per share, during 1999. Offsetting this
charge were certain reversals of the special charges taken in 1998 totaling $7.2
million, $4.7 million after income taxes or $0.08 per share, as explained below.
The net of the 1999 special charges and the reversals of the prior year charges
is reflected in the consolidated statement of income as a separate component of
operating income.
The 1999 special charge consisted of asset impairments in Polymer Additives of
$10.8 million; asset impairments in Corporate and Other of $10.7 million; asset
impairments in Energy Services and Products of $1.8 million; and severance costs
of $2.1 million. Asset impairment losses in Polymer Additives relate to the
shutdown of certain unprofitable operating units and the replacement of certain
lines with new technology primarily in the El Dorado, Arkansas, facility. Asset
impairment losses in Corporate and Other relate to the write-off of certain
components of the Company's data processing software which have no future use as
a result of the Company's decision to provide a more flexible solution for its
manufacturing operations. The asset impairment charge in Energy Services and
Products relates to a write-down of certain fixed assets formerly used in the
Mexico environmental business. Severance costs include the cost of separation
payments to certain Polymer Additives and Corporate employees who have been or
will be terminated.
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 will be
eliminated.
In connection with the 1998 portion of the repositioning plan, the Company
recognized a special charge of $116.5 million, $74.7 million after income taxes,
or $1.26 per share during 1998. This special charge is reflected in the 1998
consolidated statement of income as a separate component of operating income.
The principal components of the 1998 charge were asset impairments of $56.5
million; severance of $17.6 million; plant closure costs of $10.1 million;
senior management transition costs of $20.5 million; and other related costs of
$11.8 million. Additional information regarding the special charges is provided
in Note 2 to the consolidated financial statements.
The plan has now been substantially completed and the Company expects to achieve
$35 million to $40 million in cost savings on an annual basis. These
improvements will result primarily from improved utilization of the
manufacturing base, elimination of underperforming or unprofitable operations,
reduced personnel related costs and a reduction in the carrying costs of plant
and equipment.
The plan affects all segments of the Company's operations. Outlined below is an
overview of the conditions each of the units is encountering and the actions
being taken to achieve the expected improvements.
The Polymer Additives business unit was formed in mid-1998 through the
combination of the Flame Retardants business, a historical core business, and
the Polymer Stabilizers business that had been built through acquisitions over
the 1993-1996 period. The Polymer Stabilizers business focused on expansion and
did not effectively integrate the acquisitions, develop internal synergy or
consolidate its manufacturing base. These factors provide a significant
opportunity to improve manufacturing efficiency, reduce cost and increase the
focus on the customer. As a result, the repositioning plan provided for the
downsizing of two operating facilities in France; consolidating brominated flame
retardant manufacturing in El Dorado, Arkansas; eliminating excess production
capacity; and reducing the number of sales offices and research and development
facilities. In connection with these activities, the workforce was reduced by
approximately 115 employees. Approximately 100 additional Polymer Additives
employees will be terminated in 2000. Reserves remaining related to Polymer
23
<PAGE> 24
Additives severance totaled $8.6 million at December 31, 1999, primarily as a
result of timing of negotiations with the workers councils in France. These
negotiations are now complete and the associated severance payments will be
completed in 2000. The remaining reserves for Polymer Additives plant closures
of $2.9 million at December 31, 1999, relate primarily to the consolidation of
brominated flame retardant manufacturing in El Dorado, Arkansas, which is
expected to be completed in 2000.
In the Performance Chemicals business unit, the Company is eliminating certain
nonperforming product lines and underutilized assets. As a result, selected
nonstrategic products were discontinued and the workforce was reduced by
approximately 60 employees. Due in part to increased volume requirements
resulting from the NSC Technologies acquisition in 1999, the Company no longer
plans to close one of the plants included in the restructuring plan in 1998. As
a result, $4.4 million of reserves have been reversed in 1999.
The decline in the world oil market had significantly reduced requirements for
oil well completion fluids and services. As a result, the Company's Energy
Services and Products business unit abandoned a lease on a deep water service
vessel, decommissioned the related service equipment, planned to close a calcium
chloride production facility and reduced its workforce by approximately 160
employees. In the fourth quarter of 1999, due to changing market conditions and
a recognition of the need to ensure a reliable source of calcium chloride, the
Company made the decision to continue operating the facility for the foreseeable
future and therefore reversed $2.6 million of the related reserves.
Cash outlays are expected to be substantially complete by the end of 2000. The
remaining liabilities at December 31, 1999, relate primarily to severance costs
and senior management transition. Operating cash flows are expected to be
sufficient to finance the remaining repositioning activities.
The 1997 consolidated statement of income includes pretax charges of $50 million
related to restructuring the Company's European Water Treatment business;
closing a BCDMH manufacturing facility in Louisiana and a pharmaceutical
intermediates production plant in Arkansas; and withdrawing from a bromine
production joint venture in Europe. The components of the pretax charges were
composed of $2 million for employee severance costs, $2 million for facility
closure costs, $5 million for joint venture withdrawal expenses and $41 million
for asset write-offs. The remaining reserve at December 31, 1999, was $1.7
million, which is expected to be fully utilized in 2000.
ACQUISITIONS
On August 2, 1999, the Company completed the acquisition of FMC Corporation's
Process Additives Division (PAD) for $162 million in cash. 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
transaction broadens the Polymer Additives business unit and more than doubles
the industrial segment of the Water Treatment business unit. PAD posted 1998
sales of $160 million, employs 500 and includes manufacturing operations in
Nitro, West Virginia, and Trafford Park (Manchester, England).
On May 3, 1999, the Company completed the acquisition of NSC Technologies from
Monsanto Company for approximately $125 million in cash. NSC Technologies
develops, manufactures and sells chiral pharmaceutical intermediates and select
bulk actives to pharmaceutical companies. The business' core chiral expertise in
unnatural amino acids provides a broad molecular platform from which it develops
novel, high value-added intermediates and bulk actives for antiviral,
cardiovascular and oncology therapeutic drugs. NSC Technologies is part of the
Fine Chemicals group of the Performance Chemicals business unit.
The acquisitions were funded with available cash and borrowing capacity.
SPIN-OFF OF OCTEL
The Board of Directors declared a stock dividend pursuant to which each Great
Lakes stockholder received one share of Octel common stock for every four shares
of Great Lakes common stock owned on the record date of May 15, 1998. Octel
stock began trading on the New York Stock Exchange on May 22, 1998.
In connection with the spin-off, Great Lakes received a special cash dividend,
net of taxes and transaction costs, of approximately $300 million in 1998. The
dividend was funded by cash reserves and debt retained by Octel.
DISPOSITIONS
In December 1997, the Board of Directors approved a restructuring plan including
exiting the furfural and derivatives, Chemol and environmental services
businesses. A pretax charge of $145 million, $96 million after income taxes, was
recorded in connection with these actions. A portion of the Chemol business was
sold during 1998 and essentially all remaining operations have been wound down.
The Company completed the sale of the environmental services business in January
1999 and the sale of the furfural and derivatives business was completed on June
30, 1999. In September 1999, the Company announced its intentions to sell
approximately 50% of its interest in its Energy Services and Products business
(OSCA). OSCA has been included in continuing operations because the Company will
retain the ability to exert significant influence over OSCA due to its
continuing ownership interest.
MARKET RISKS
The Company's operations are exposed to changes in foreign currency exchange and
interest rates primarily in its cash, debt and foreign currency transactions.
The derivative instruments, including swaps, forward contracts and options, are
held to manage certain foreign currency exposures. The derivative instruments
utilized by the Company in its hedging activities are considered risk management
tools and are not used for trading or speculative purposes. The Company
diversifies the counterparties used and monitors the concentration of risk to
limit its counterparty exposure.
International operations, including United States export sales, constitute a
significant portion of revenues and identifiable assets. These operations result
in a large volume of foreign currency commitment and transaction exposures and
foreign currency net asset exposures. Management of commitment and transaction
exposures is coordinated at the corporate level and exposures that are not
offset are hedged. Hedges are set to mature concurrently with the estimated
timing of the underlying transactions. The Company does not hedge foreign
currency net asset positions currently.
Considering the Company's operating profile, a uniform 10% change in the value
of the dollar from December 31, 1999, would result in approximately a $1 million
change in annual net income. A similar change in 1998 would have had a like
effect on annual net income. This calculation assumes that each exchange rate
would change in the same direction relative to the U.S. dollar, and does not
factor in any potential changes in sales levels or local currency prices which
may result from changes in exchange rates.
The Company uses commercial paper as a significant source of external financing
which exposes the Company to changes in short-term interest rates. The Company
carefully monitors interest rate trends. Based on the commercial paper and other
variable rate debt balances outstanding at December 31, 1999, a hypothetical 1
percentage point change in interest rates for a one-year period would change net
income by $4 million. The sensitivity does not consider any effect that a
24
<PAGE> 25
change in interest rates would have on overall economic activity nor management
actions to mitigate interest rate changes.
As of December 31, 1999, the Company had short-term time deposits of $393
million representing investment securities with maturities of three months or
less. A hypothetical 1 percentage point change in interest rates earned on these
deposits for a one-year period would change net income by $3 million.
ENVIRONMENTAL
The Company's operations, like those of most companies which use or make
chemicals, are subject to various laws and regulations relating to maintaining
or protecting the quality of the environment. Such laws and regulations, along
with the Company's own internal compliance efforts, have required and will
continue to require capital expenditures and associated operating costs.
Spending for environmental compliance, including expenditures associated with
waste minimization and pollution prevention programs, amounted to approximately
$27 million in 1999, $34 million in 1998 and $40 million in 1997. These amounts
include approximately $2 million, $2 million and $4 million for capital
equipment in 1999, 1998 and 1997, respectively. Spending for environmental
compliance is anticipated to be approximately $30 million in 2000.
The Company is a party to several proceedings and lawsuits involving
environmental matters, including being named as defendant, respondent or a
potentially responsible party, together with other companies, under CERCLA, and
similar state laws, in which recovery is sought for the cost of cleanup of
contaminated manufacturing and waste disposal sites. Due to the prevailing
practices of manufacturing facilities, waste disposal haulers and disposal
facilities prior to adoption and implementation of various environmental laws
and regulations, it is difficult to accurately determine the Company's liability
with respect to these sites. In each such matter, the Company anticipates,
although there can be no assurance, that liability, if any, will eventually be
equitably apportioned among the companies found to be responsible. In most of
these matters, the Company believes that its responsibility is small relative to
other parties and that it may have meritorious defenses to or claims against
these other parties. Based upon current regulation and the information
available, management believes that adequate provisions have been made in the
financial statements and future costs will not have a material adverse impact on
the Company's consolidated financial condition.
OTHER LITIGATION MATTERS
The Company has been cooperating with the United States Department of Justice
(DOJ) and the European Commission since the spring of 1998 in their respective
investigations of the bromine and brominated products industry. Both
investigations were initiated after the Company self-reported to those agencies
certain business practices that raised questions under the antitrust laws. As a
result of the Company's cooperation, Great Lakes and its current directors and
employees have been accepted into the DOJ's amnesty program. As a result, the
Company will be exempt from United States federal criminal prosecution and fines
relating to the practices in question if the Company complies with certain
conditions, including its continued full cooperation with the DOJ's
investigation and policy regarding reasonable remedial efforts. The Company
believes it has fully complied with all applicable conditions to date and
intends to continue full compliance. Concurrently, the Company is seeking
favorable treatment under a program in the European community that also rewards
self reporting and cooperation. Participation in the above programs does not,
however, provide the Company with immunity from civil liability, including
restitution claims. To date, 10 federal purported class action lawsuits and 3
California purported class actions have been filed against the Company, each
claiming treble damages. These suits claim, among other things, that the Company
conspired with others in violation of the antitrust laws regarding the pricing
of bromine and brominated products.
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.
While it is not possible to predict or determine the outcome of legal actions
brought against the Company, management believes the costs associated with all
such matters will not have a material adverse effect on the Company's
consolidated financial position, liquidity or results of operations.
INFLATION
Inflation has not been a significant factor for the Company over the last
several years. Management believes that the effect of inflation on Company
operations will continue to be moderate over the next several years.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company spent
approximately $9 million in 1999 in connection with remediating its systems. Of
this amount, approximately $3 million was expensed; the remainder represented
costs for new systems and equipment and was capitalized. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
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.
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 1999 operating costs by approximately $10 million.
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, as amended by
SFAS No.137, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000, and 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 the impact of adoption on the
results of operations or financial position.
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MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Great Lakes Chemical Corporation is responsible for the
preparation and presentation of the accompanying consolidated financial
statements and all other information in this Annual Report. The financial
statements are prepared in accordance with generally accepted accounting
principles and include amounts that are based on management's informed
judgements and estimates.
The Company maintains accounting systems and internal accounting controls which
management believes provide reasonable assurance that the Company's financial
reporting is reliable, that assets are safeguarded and that transactions are
executed in accordance with proper authorization. This internal control
structure is supported by the selection and training of qualified personnel and
an organizational structure which permits the delegation of authority and
responsibility. The systems are monitored worldwide by an internal audit
function that reports its findings to management.
The Company's financial statements have been audited by Ernst & Young LLP,
independent auditors, in accordance with generally accepted auditing standards.
These standards provide for the review of internal accounting control systems to
plan the audit and determine auditing procedures and tests of transactions to
the extent they deem appropriate.
The Audit Committee of the Board of Directors, which consists solely of
non-employee directors, is responsible for overseeing the functioning of the
accounting systems and related internal controls and the preparation of annual
financial statements. The Audit Committee periodically meets with management and
the independent auditors to review and evaluate their accounting, auditing and
financial reporting activities and responsibilities. The independent auditors
and internal auditors have full and free access to the Audit Committee without
management's presence to discuss internal accounting controls, results of their
audits and financial reporting matters.
(SIGNATURE)
Mark E. Tomkins
Senior Vice President and Chief Financial Officer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of Great Lakes
Chemical Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Great Lakes
Chemical Corporation and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
(SIGNATURE)
Indianapolis, Indiana
February 18, 2000
26
<PAGE> 27
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(millions, except per share data)
YEAR ENDED DECEMBER 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,453.3 $1,394.3 $1,311.2
OPERATING EXPENSES
Cost of products sold 1,030.2 1,011.5 937.5
Selling, general and administrative expenses 242.8 192.4 182.1
Special charges 18.2 116.5 49.8
- --------------------------------------------------------------------------------------------------------------------------------
1,291.2 1,320.4 1,169.4
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 162.1 73.9 141.8
INTEREST AND OTHER INCOME 44.3 37.0 31.7
INTEREST AND OTHER EXPENSE 31.0 44.7 56.3
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 175.4 66.2 117.2
INCOME TAXES 35.8 9.8 45.4
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS 139.6 56.4 71.8
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS -- 32.6 (14.9)
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $139.6 $89.0 $56.9
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE:
BASIC
Continuing operations $2.42 $0.96 $1.20
Discontinued operations -- 0.55 (0.25)
- --------------------------------------------------------------------------------------------------------------------------------
$2.42 $1.51 $0.95
- --------------------------------------------------------------------------------------------------------------------------------
DILUTED
Continuing operations $2.41 $0.95 $1.19
Discontinued operations -- 0.55 (0.25)
- --------------------------------------------------------------------------------------------------------------------------------
$2.41 $1.50 $0.94
- --------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER SHARE $0.32 $0.40 $0.63
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(millions)
DECEMBER 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $478.3 $411.6
Accounts and notes receivable, less allowance of $4.7 and $4.1, respectively 339.6 258.0
Inventories 316.8 293.2
Prepaid expenses 32.8 32.8
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,167.5 995.6
- --------------------------------------------------------------------------------------------------------------------------------
PLANT AND EQUIPMENT 751.8 689.5
GOODWILL 246.5 115.6
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES 55.5 80.3
OTHER ASSETS 39.7 21.1
NET ASSETS OF DISCONTINUED OPERATIONS -- 102.5
$2,261.0 $2,004.6
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $136.5 $129.3
Accrued expenses 123.7 163.8
Income taxes payable 40.5 44.2
Dividends payable 4.5 4.7
Notes payable and current portion of long-term debt 6.0 4.6
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 311.2 346.6
- --------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT PORTION 883.4 515.3
OTHER NONCURRENT LIABILITIES 34.4 37.1
DEFERRED INCOME TAXES 37.9 51.3
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 200 shares 72.9 72.7
Additional paid-in capital 132.0 128.6
Retained earnings 1,769.2 1,657.1
Accumulated other comprehensive income (56.5) (32.9)
Less treasury stock, at cost (923.5) (771.2)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 994.1 1,054.3
- --------------------------------------------------------------------------------------------------------------------------------
$2,261.0 $2,004.6
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(millions)
YEAR ENDED DECEMBER 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income from continuing operations $139.6 $56.4 $71.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and depletion 80.8 78.6 69.9
Amortization of intangible assets 8.7 4.9 3.8
Deferred income taxes 19.1 (14.1) (0.5)
Net (unremitted) remitted earnings of affiliates (1.2) 1.7 (1.9)
(Gain) Loss on disposition of assets (8.3) 0.7 0.3
Special charges 18.2 116.5 49.8
Other 6.2 (0.4) (6.8)
Change in operating assets and liabilities,
net of effects from business combinations:
Accounts receivable (46.5) (3.3) 1.9
Inventories 19.1 9.8 (22.3)
Other current assets (1.1) (2.6) (7.9)
Accounts payable and accrued expenses (51.7) (32.7) 40.5
Income taxes and other current liabilities 3.6 (76.8) (15.9)
Other noncurrent liabilities (0.2) 1.6 10.3
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS 186.3 140.3 193.0
DISCONTINUED OPERATIONS (see note below):
Net income (loss) -- 32.6 (14.8)
Change in net assets 75.9 433.6 78.7
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 262.2 606.5 256.9
INVESTING ACTIVITIES
Plant and equipment additions (119.0) (160.6) (133.0)
Business combinations, net of cash acquired (286.8) 0.6 (91.1)
Proceeds from sale of assets 13.2 1.8 1.2
Other (4.3) (9.2) (2.1)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (396.9) (167.4) (225.0)
FINANCING ACTIVITIES
Net borrowings and (repayments) under short-term credit lines 1.5 (2.4) 3.6
Net proceeds from long-term borrowings 393.9 6.7 6.6
Net (decrease) increase in commercial paper and other (25.5) (53.0) 58.1
long-term obligations
Proceeds from stock options exercised 5.1 5.3 2.3
Cash dividends paid (18.6) (28.4) (37.6)
Repurchase of common stock (158.7) (28.5) (128.6)
Other 4.3 (1.0) --
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 202.0 (101.3) (95.6)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (0.6) 0.1 (4.0)
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 66.7 337.9 (67.7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 411.6 73.7 141.4
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $478.3 $411.6 $73.7
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cash flow from discontinued operations in 1998 was $466.2 million of which
$461.9 million was received from Octel.
Parentheses indicate decrease in cash and cash equivalents.
See notes to consolidated financial statements.
29
<PAGE> 30
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(millions)
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Balance at January 1 72.7 $72.7 72.6 $72.6 72.5 $72.5
Exercise of stock options net of shares exchanged 0.2 0.2 0.1 0.1 0.1 0.1
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 72.9 72.9 72.7 72.7 72.6 72.6
- --------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at January 1 128.6 123.4 121.2
Exercise of stock options net of shares exchanged 3.0 1.1 1.2
Tax benefits of early disposition
of stock by optionees 0.8 0.9 1.0
Restricted stock activity 1.3 3.2 --
Employee stock plan activity (1.7) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 132.0 128.6 123.4
- --------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at January 1 1,657.1 1,912.5 1,893.1
Net income 139.6 89.0 56.9
Dividends (18.3) (23.6) (37.5)
Spin-off of Octel -- (320.8) --
Other (9.2) -- --
BALANCE AT DECEMBER 31 1,769.2 1,657.1 1,912.5
- --------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Balance at January 1 (14.3) (771.2) (13.6) (745.6) (10.8) (617.0)
Shares repurchased (4.2) (158.7) (0.7) (28.5) (2.8) (128.6)
Employee stock plan activity 0.1 6.4 -- 2.9 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 (18.4) (923.5) (14.3) (771.2) (13.6) (745.6)
- --------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Cumulative translation adjustment
Balance at January 1 (30.1) (52.9) 17.1
Translation adjustment (34.6) (6.2) (70.0)
Other 9.2 -- --
Spin-off of Octel -- 29.0 --
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 (55.5) (30.1) (52.9)
Minimum Pension Liability
Balance at January 1 (2.8) (2.6) --
Minimum pension liability adjustment 1.8 (0.2) (2.6)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 (1.0) (2.8) (2.6)
- --------------------------------------------------------------------------------------------------------------------------------
Total Balance at December 31 (56.5) (32.9) (55.5)
- --------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 54.5 $994.1 58.4 $1,054.3 59.0 $1,307.4
- --------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS)
Net income $139.6 $89.0 $56.9
Translation adjustment (34.6) (6.2) (70.0)
Minimum pension liability adjustment 1.8 (0.2) (2.6)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (LOSS) $106.8 $82.6 $(15.7)
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except as indicated)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
Continuing operations represent the specialty chemical operations of the
Company. Reported as discontinued operations are the petroleum additives
business (Octel) which was spun off to shareholders in May 1998; the Eastern
European Trading business (Chemol) whose operations were concluded in 1998; the
environmental services business which was sold in January 1999; and the furfural
and derivatives business which was sold in June 1999. In September 1999, the
Company announced its intentions to sell approximately 50% of its interest in
its Energy Services and Products business (OSCA) through an initial public
offering. OSCA has been included in continuing operations because the Company
will retain the ability to exert significant influence over OSCA due to its
continuing ownership interest.
NATURE OF OPERATIONS
The Company is a diversified specialty chemical company. Primary manufacturing
operations are located in the United States and Europe. The Company manages its
business and reports segmental information based on the nature of its products
and services. The Company's segments are Polymer Additives, Performance
Chemicals, Water Treatment and Energy Services and Products. The Company's
products are sold globally. The principal markets include: computer and business
equipment, consumer electronics, data processing, construction materials,
telecommunications, pharmaceuticals and pool and spa dealers and distributors.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all subsidiaries of the Company
after elimination of significant intercompany accounts and transactions.
Investments in less than majority-owned companies in which the Company has the
ability to exercise significant influence over operating and financial policies
of the investees are recorded at cost, plus equity in their undistributed
earnings since acquisition.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from sales of products is recognized at the time title passes to the
customer. Revenue from services is recognized when the services are provided to
the customer.
CASH EQUIVALENTS
Investment securities with maturities of three months or less when purchased are
considered to be cash equivalents.
INVENTORIES
The Company values its inventories at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Depreciation of buildings and equipment
is provided over the estimated useful lives of the assets using the
straight-line method. The estimated useful lives for purposes of computing
depreciation are: buildings, 10-40 years; manufacturing equipment, 7-20 years;
and office equipment, 3-5 years.
GOODWILL
Goodwill, the excess of investment over net assets of subsidiaries acquired, is
amortized over periods of 8 to 40 years using the straight-line method. As of
December 31, 1999 and 1998, accumulated amortization was $22 million and $17
million, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS
When events or circumstances indicate that the carrying amount of long-lived
assets to be held and used or intangible assets might not be recoverable, the
expected future undiscounted cash flows from the assets is estimated and
compared with the carrying amount of the assets. If the sum of the estimated
undiscounted cash flows is less than the carrying amount of the assets, an
impairment loss is recorded. The impairment loss is measured by comparing the
fair value of the assets with their carrying amounts. Fair value is determined
based on discounted cash flow or appraised values, as appropriate. Long-lived
assets that are held for disposal are reported at the lower of the assets'
carrying amount or fair value less costs related to the assets' disposition.
INCOME TAXES
Income taxes are provided on the portion of the income of foreign affiliates
that is expected to be remitted to the parent company and be taxable. Unremitted
earnings of foreign affiliates where taxes have not been provided is immaterial.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans. As provided for under SFAS No. 123, the Company accounts for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Compensation cost for stock options, if any, is measured as the
excess of the quoted market price of the Company's stock at the date of grant
over the amount an employee must pay to acquire the stock. Compensation cost for
restricted stock awards is recorded over the requisite vesting periods based on
the market value on the date of grant.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses various derivative instruments including swaps, forward
contracts and options to manage certain foreign currency and interest rate
exposures. These instruments are entered into under the Company's corporate
financial risk management policy to manage exposures and are not for speculative
trading purposes. Management periodically reviews the effectiveness of the use
of derivative instruments.
Derivatives used for hedging purposes must be designated as, and effective as, a
hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in the market value of the derivative contract must be
highly correlated with changes in the market value of the underlying hedged item
at inception of the hedge and over the life of the hedge contract. Any
derivative instrument designated but no longer effective as a hedge would be
reported at market value and the related gains and losses would be recognized in
earnings.
Derivatives that are designated as, and effective as, a hedge of firm foreign
currency commitments are accounted for using the deferral method. Gains and
losses from instruments that hedge firm commitments are deferred and recognized
as part of the economic basis of the transactions underlying the commitments
when the associated hedged
31
<PAGE> 32
transaction occurs. Gains and losses from instruments that hedge
foreign-currency-denominated receivables, payables and debt instruments are
reported in earnings and offset the effects of foreign exchange gains and losses
from the associated hedged items. Gains or losses from early termination of
derivative financial instruments are deferred and amortized over the remaining
terms of the related item being hedged. If the underlying item being hedged is
extinguished, any related gain or loss is included in earnings.
NEW ACCOUNTING STANDARDS
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 1999 operating costs by approximately $10 million.
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 No.137,
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. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. Hedge ineffectiveness, the amount by which the
change in the value of a hedge does not exactly offset the change in the value
of the hedged item, will be immediately recognized in earnings. 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.
NOTE 2: SPECIAL CHARGES
In the first quarter of 1998, the Board of Directors appointed a new chief
executive officer and over the following months a new senior management team was
assembled. Beginning in the third quarter of 1998, the Company began work on a
plan to fundamentally alter how the Company conducts business around the world
and to improve operating income by repositioning the business to enhance
competitiveness and productivity and increase responsiveness to customer needs.
A formal repositioning plan to accomplish these goals was approved by the Board
of Directors in 1998. In the fourth quarter of 1999, the Board of Directors took
certain additional actions to further streamline the Polymer Additives business
unit, to provide a more flexible data processing solution for 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.
Accordingly, the Company recognized a special charge of $25.4 million, $16.5
million after income taxes or $0.29 per share, during 1999. Offsetting the 1999
special charges were certain reversals of the special charges taken in 1998
totaling $7.2 million, $4.7 million after income taxes or $0.08 per share, as
explained below. The net of the 1999 special charges and the reversals of the
prior year charges is reflected in the consolidated statement of income as a
separate component of operating income.
Details of the 1999 special charge by business unit and a reconciliation to the
reserve balance at December 31, 1999, follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Reserve
Amount Balance at
of Charge 1999 December 31_
Description in 1999 Activity 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Impairment (non cash):
Polymer Additives $10.8 $10.8 $--
Energy Services
and Products 1.8 1.8 --
Corporate 10.7 10.7 --
- -----------------------------------------------------------------------------------------------------
23.3 23.3 --
Severance Costs:
Polymer Additives 1.2 0.2 1.0
Corporate 0.9 -- 0.9
2.1 0.2 1.9
$25.4 $23.5 $1.9
- -----------------------------------------------------------------------------------------------------
</TABLE>
Asset impairment losses in Polymer Additives relate to the shutdown of certain
unprofitable operating units and the replacement of certain lines with new
technology primarily in the El Dorado, Arkansas, facility. The asset impairment
charge in Energy Services and Products relates to a write-down of certain fixed
assets formerly used in the Mexico environmental business. Asset impairment
losses in Corporate relate to the write-off of certain components of the
Company's data processing software which have no future use as a result of the
Company's decision to provide for more flexibility in its manufacturing systems.
The Company recorded an impairment loss to write down the carrying value of
these assets to fair value. Fair value was determined using appraised values.
The adjusted carrying value of the assets will be depreciated over the remaining
lives of the assets.
Severance costs include the cost of separation payments to certain employees who
have been or will be terminated. These costs have either been negotiated
individually with the employee or are based upon the provisions of statutory or
contractual severance plans. The Company will be eliminating approximately 65
positions as a result of the 1999 actions. As of December 31, 1999,
substantially all personnel involved have been terminated or have been given
specific notice of termination dates. Notification to European employees has
been made through their unions and workers councils. The Polymer Additives
terminations relate to a decision to consolidate research activities in the
United States and Europe into two Technology Centers, one located in West
Lafayette, Indiana, and the other in Bolgiano, Italy. Researchers in West
Lafayette will focus primarily on halogen and non-halogen based flame retardant
and performance additives and fluids technology. Those in Bolgiano will
concentrate on polymer stabilizers. All European Technical Service and
Applications capabilities will be consolidated in a new Customer Technical
Service and Applications Center in Geel, Belgium. European Polymer Additives
customers will receive all the technical service and analytical support they
need from a single location, which is located near 80 percent of the Company's
European customers. The Corporate severance costs relate to information systems
personnel.
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 will be
eliminated.
32
<PAGE> 33
Accordingly, the Company recognized a special charge of $116.5 million, $74.7
million after income taxes or $1.26 per share during 1998. This special charge
is reflected in the consolidated statement of income as a separate component of
operating income. Of the $116.5 million, $48.3 million was recorded for actions
taken in the third quarter of 1998 and another $52.7 million was recorded in the
fourth quarter of 1998. Additionally, $15.5 million related to costs associated
with the transition of the chief executive officer was recorded in the first
quarter of 1998 and was included in the special charge.
Details of the 1998 special charge by business unit and a reconciliation to the
reserve balance at December 31, 1999 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Reserve Reserve
Amount of Balance at Balance at
Charge 1998 December 31, 1999 1999 December 31,
Description in 1998 Activity 1998 Activity Reversals 1999
<S> <C> <C> <C> <C> <C> <C>
Asset Impairment (non-cash):
Polymer Additives $25.9 $(25.9) $-- $-- $-- $--
Performance Chemicals 12.7 (12.7) -- -- -- --
Energy Services and Products 7.9 (7.9) -- 2.6 (2.6) --
Corporate 10.0 (10.0) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
56.5 (56.5) -- 2.6 (2.6) --
Severance Costs:
Polymer Additives 10.9 -- 10.9 (2.3) -- 8.6
Performance Chemicals 3.3 (1.6) 1.7 (1.1) 0.3 0.9
Energy Services and Products 0.4 (0.3) 0.1 (0.1) -- --
Corporate 3.0 (0.2) 2.8 (0.9) (0.9) 1.0
- --------------------------------------------------------------------------------------------------------------------------------
17.6 (2.1) 15.5 (4.4) (0.6) 10.5
Plant Closure and Environmental:
Polymer Additives 3.2 -- 3.2 (0.5) 0.2 2.9
Performance Chemicals 6.9 -- 6.9 (0.3) (4.4) 2.2
- --------------------------------------------------------------------------------------------------------------------------------
10.1 -- 10.1 (0.8) (4.2) 5.1
Senior Management
Transition (Corporate) 20.5 (11.2) 9.3 (3.1) (0.1) 6.1
Lease Costs
(Energy Services and Products) 4.4 (0.8) 3.6 (1.8) -- 1.8
Other 7.4 (3.4) 4.0 (4.3) 0.3 --
- --------------------------------------------------------------------------------------------------------------------------------
$116.5 $(74.0) $42.5 $(11.8) $(7.2) $23.5
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Asset impairment losses relate to consolidation of certain product lines,
primarily in the Polymer Additives business unit, where the Company has
sufficient capacity to meet anticipated requirements, and the shutdown of
certain unprofitable operating units. Approximately $41.4 million of the asset
impairment loss is related to assets which were to be held and used until the
facility closures could be completed; most of these facilities have now been
closed. The balance of the asset impairment loss relates primarily to certain
components of the Company's data processing software which has no future use.
The Company recorded an impairment loss to write down the carrying value of
these assets to fair value. Fair value was determined using appraised values.
The adjusted carrying value of the assets will be depreciated over the remaining
lives of the assets. The reversal of $2.6 million in 1999 relates to an Energy
Services and Products calcium chloride production facility which was held for
sale. In the fourth quarter of 1999, due to changing market conditions and a
recognition of the need to ensure a reliable source of calcium chloride, the
Company made the decision to continue utilizing the facility for the foreseeable
future. This decision resulted in a change to the 1998 repositioning plan such
that the calcium chloride plant will now not be sold or abandoned.
Severance costs include the cost of separation payments to certain employees who
have been or will be terminated. These costs have either been negotiated
individually with the employee, or are based upon the provisions of statutory or
contractual severance plans. The Company eliminated approximately 500 positions
as a result of the 1998 actions. While all areas of the Company will be affected
by the workforce reductions, the majority of the terminations occurred in
manufacturing. The reversal of $0.6 million in 1999 occurred due to the costs
associated with the termination of certain management positions being less than
originally expected.
The decision to abandon facilities results in closure costs, such as
dismantling, decontamination and remediation. Spending related to these costs
will begin after the facilities have been closed. Due in part to increased
volumes resulting from the NSC Technologies acquisition in 1999, the Company no
longer plans to close a plant which was included in the restructuring plan in
1998. As a result, $4.2 million of plant closure and environmental reserves have
been reversed in 1999, primarily in the Performance Chemicals business unit.
Included in the senior management transition costs is $15.5 million for the
change in the chief executive officer. The majority of these payments will be
completed by 2001. The reversal of $0.1 million in 1999 occurred due to the
costs associated with the terminations of certain senior management positions
being less than originally expected.
The lease component of the repositioning plan represents the remaining lease
payments, net of sublease income, on one of the Energy Services and Products
business unit's deep water oil well service. Payments under the lease agreement
extend through 2001.
33
<PAGE> 34
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. Details of the 1997 charge and a
reconciliation to the reserve balance at December 31, 1999 follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Reserve Reserve
Amount Balance at Balance at
of Charge December 31, 1999 December 31,
Description in 1997 1998 Activity 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset impairment
(non-cash) $38.0 $ -- $ -- $ --
Severance costs 1.9 0.9 0.1 1.0
Other 9.9 2.3 (1.6) 0.7
- -----------------------------------------------------------------------------------------------------
$49.8 $3.2 $(1.5) $1.7
- -----------------------------------------------------------------------------------------------------
</TABLE>
The asset impairment relates primarily to the abandonment of a BCDMH
manufacturing facility in Louisiana, a pharmaceutical intermediates production
plant in South Arkansas, a pool chemicals plant in Germany and certain mineral
leases.
Severance costs are for the involuntary termination of approximately 20 Water
Treatment business unit employees. The original provision for Other included
$5.0 million for the cost of exiting a European bromine joint venture and $2.5
million to terminate a facility lease. The remaining reserve of $1.7 million is
expected to be fully utilized in 2000.
NOTE 3: DISCONTINUED OPERATIONS
During 1997, the Board of Directors approved a plan to spin off Octel to the
stockholders and to exit the furfural and derivatives business, Chemol and
environmental services businesses. These operations are included in discontinued
operations. The 1997 results include a special provision of $137 million net of
income tax benefits of $49 million related to the estimated losses on
divestitures and an income tax provision of $38 million related to the
anticipated repatriation of Octel earnings. Reserves for the discontinued
operations amounted to $15 million and $145 million at December 31, 1999 and
1998, respectively.
The Octel spin-off was completed on May 22, 1998, through a tax-free
distribution of one share of Octel common stock for every four shares of the
Company's common stock outstanding. Prior to the spin-off, the Company received
a distribution from Octel of approximately $462 million and assumed tax
liabilities of approximately $108 million. Stockholders' equity (retained
earnings and cumulative translation adjustment) was reduced by approximately
$292 million in 1998 representing the net book value of the distribution to the
stockholders.
A portion of the Chemol business was sold during 1998 and essentially all
remaining operations were concluded. The environmental services business was
sold in January 1999. The furfural and derivatives business was sold in June
1999.
Summary statements of income and net assets for the discontinued operations are
set forth below:
SUMMARY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $351.7 $768.7
Income before income taxes 48.6 181.0
Income taxes 16.0 58.9
- -----------------------------------------------------------------------------------------------------
Income from operations
(net of taxes) 32.6 122.1
Special provision (net of taxes) -- 137.0
Net income (loss) from
discontinued operations $32.6 $(14.9)
- -----------------------------------------------------------------------------------------------------
Summary Statements of Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31 1998
- -----------------------------------------------------------------------------------------------------
<S> <C>
Current assets $147.5
Net property and equipment 92.5
Goodwill and other assets 40.0
- -----------------------------------------------------------------------------------------------------
Total assets 280.0
Reserve for losses 145.4
Current liabilities 15.0
Other liabilities 17.1
Net assets $102.5
- -----------------------------------------------------------------------------------------------------
</TABLE>
Net assets (liabilities) of discontinued operations at December 31, 1999,
amounting to $(5.2) million have been included in other assets on the
consolidated balance sheet.
NOTE 4: ACQUISITIONS
On May 3, 1999, the Company completed the acquisition of NSC Technologies from
Monsanto Company for approximately $125 million in cash. NSC Technologies
develops, manufactures and sells chiral pharmaceutical intermediates and select
bulk actives to pharmaceutical companies. The business' core chiral expertise in
unnatural amino acids provides a broad molecular platform from which it develops
novel, high value-added intermediates and bulk actives for antiviral,
cardiovascular and oncology therapeutic drugs. NSC Technologies is part of the
Fine Chemicals group of the Performance Chemicals business unit.
The acquisition was accounted for using the purchase method of accounting with
the results of NSC Technologies included since the date of acquisition. Goodwill
resulting from the acquisition amounted to approximately $89 million which is
being amortized over 30 years. The allocation of the purchase price to the
acquired assets and assumed liabilities, including goodwill, is preliminary
since discussions are ongoing with the seller regarding potential purchase price
adjustments.
On August 2, 1999, the Company completed the acquisition of FMC Corporation's
Process Additives Division (PAD) for $162 million in cash. 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
transaction broadens the Polymer Additives business unit and more than doubles
the industrial segment of the Water Treatment business unit.
The acquisition was accounted for using the purchase method of accounting with
the results of PAD included since the date of acquisition. Goodwill resulting
from the acquisition amounted to approximately $62 million which is being
amortized over 35 years. The allocation of the purchase price to the acquired
assets and
34
<PAGE> 35
assumed liabilities, including goodwill, is preliminary since discussions are
ongoing with the seller regarding potential purchase price adjustments.
The following represents the unaudited pro forma results of continuing
operations as if the NSC Technologies and PAD acquisitions had occurred as of
January 1 of each year presented.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,557.6 $1,619.3
Net income 141.8 63.8
Earnings per share 2.45 1.08
- -----------------------------------------------------------------------------------------------------
</TABLE>
The pro forma results do not represent the Company's actual operating results
had the acquisition been made at the beginning of the respective years, or the
results which may be expected in the future.
On November 3, 1997, the Company completed the acquisition of Cookson Group
plc's global antimony products business, Anzon, for $90 million. Approximately
$46 million of goodwill resulted from the acquisition which is being amortized
over 40 years. Anzon is a global producer of antimony-based flame retardants.
The acquisition was accounted for as a purchase and the results of operations
are included in the consolidated financial statements from the date of
acquisition.
NOTE 5: CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 85.4 $ 88.4
Cash equivalents 392.9 323.2
$478.3 $411.6
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE 6: INVENTORIES
The major components of inventories are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished products $227.9 $211.3
Raw materials 60.1 50.0
Supplies 28.8 31.9
- -----------------------------------------------------------------------------------------------------
$316.8 $293.2
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7: PLANT AND EQUIPMENT
Plant and equipment consist of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 18.2 $ 19.8
Buildings 109.6 121.9
Equipment 1,150.3 939.8
Construction in progress 79.3 160.1
- -----------------------------------------------------------------------------------------------------
1,357.4 1,241.6
Less allowances for depreciation,
depletion and amortization 605.6 552.1
$ 751.8 $ 689.5
- -----------------------------------------------------------------------------------------------------
</TABLE>
Maintenance and repairs charged to costs and expenses were $63 million, $57
million and $60 million for 1999, 1998 and 1997, respectively.
NOTE 8: DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable $401.0 $ 0.6
Commercial paper 455.8 481.3
Industrial development bonds 12.3 12.3
Other 20.3 25.7
- -----------------------------------------------------------------------------------------------------
889.4 519.9
Less current portion 6.0 4.6
$883.4 $515.3
- -----------------------------------------------------------------------------------------------------
</TABLE>
On July 15, 1999, the Company sold $400 million of 7% notes due July 15, 2009.
Proceeds from the sale of the notes were used to replace a portion of the
commercial paper borrowings. The notes contain restrictive financial covenants,
including an interest coverage ratio. The notes were sold under a shelf
registration process. Under this process, the Company filed a Registration
Statement on Form S-3 with the Securities and Exchange Commission and may sell
various unsecured debt securities, common stock or rights or warrants to
purchase common stock individually or in combination up to $750 million. The
amount remaining on the registration statement is $350 million.
The average rate of interest on commercial paper borrowing was 5.8% at December
31, 1999. The interest rate on industrial development bonds was 3.5% at December
31, 1999. The bonds have maturities through 2025.
The Company has a $600 million revolving credit agreement with 11 banks which
serves as a backup for the Company's commercial paper program that expires in
2001. The agreement provides various interest rate options, including the banks'
prime interest rate, and contains restrictive financial covenants, including an
interest coverage ratio. The Company's commercial paper is rated A-1 by Standard
and Poor's and P-1 by Moody's.
Long-term debt matures as follows: 2000, $6 million; 2001, $459 million; 2002,
$3 million; 2003, $3 million; 2004, $2 million; and thereafter $416 million.
During 1999, 1998 and 1997, interest costs were $35 million, $31 million and $34
million, respectively, which included interest capitalized as additional costs
of plant and equipment of $4 million for 1999 and $6 million in years 1998 and
1997. In these years, interest payments were $22 million, $32 million and $34
million, respectively.
35
<PAGE> 36
NOTE 9: INCOME TAXES
The following is a summary of domestic and foreign income before income taxes,
the components of the provisions for income taxes, a reconciliation of the
United States federal income tax rate to the effective income tax rate and the
components of deferred tax assets and liabilities.
Income Before Income Taxes:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $112.7 $18.3 $79.9
Foreign 62.7 47.9 37.3
$175.4 $66.2 $117.2
- -----------------------------------------------------------------------------------------------------
</TABLE>
Provisions for Income Taxes:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $(5.2) $6.5 $32.8
State 1.7 4.9 4.4
Foreign 20.2 12.5 8.7
16.7 23.9 45.9
- -----------------------------------------------------------------------------------------------------
Deferred:
Domestic 20.8 (20.5) (2.8)
Foreign (1.7) 6.4 2.3
19.1 (14.1) (0.5)
$35.8 $9.8 $45.4
- -----------------------------------------------------------------------------------------------------
</TABLE>
Effective Income Tax Rate Reconciliation:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal income tax rate 35.0% 35.0% 35.0%
Change resulting from:
State income tax 0.6 4.8 2.4
Depletion (0.9) (3.3) (2.2)
Foreign sales corporation (1.8) (4.8) (3.5)
Tax exempt interest (0.5) (1.7) --
Dividends received
deduction (1.3) (3.3) (2.5)
Low income housing credit (1.6) (3.2) (1.5)
International operations (1.1) (5.5) 1.5
Statutory tax rate changes -- -- (2.1)
Special charge
rate differential -- 2.7 4.8
Stock redemption -
Huntsman (1.3) -- --
Release of previously
provided tax provisions (7.2) -- --
Other 0.5 (5.9) 6.8
Effective income tax rate 20.4% 14.8% 38.7%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Components of Deferred Tax Assets and Liabilities:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31 1999 1998
- -----------------------------------------------------------------------------------------------------
Deferred tax assets
<S> <C> <C>
Accrued expenses $7.4 $13.0
Special charges 9.1 15.6
Tax credit carryforwards 11.0 --
Other 16.9 13.6
$44.4 $42.2
- -----------------------------------------------------------------------------------------------------
Deferred tax liabilities
Depreciation $47.9 $40.1
Foreign liabilities pending settlements -- 20.0
Other 22.2 19.6
$70.1 $79.7
- -----------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1999, the Company has unutilized tax credits of $11.0
million. Of this amount, $5.4 million expire in 2003; $0.3 million expire in
2004; and the remainder have no expiration dates.
Cash payments for income taxes were $24 million, $109 million and $36 million in
1999, 1998 and 1997, respectively.
NOTE 10: STOCKHOLDERS' EQUITY
The Company is authorized to issue up to 200 million shares of common stock with
a par value of $1 per share.
On February 15, 1999, the Company's Board of Directors approved a new
Stockholders Rights Plan, replacing a plan which was scheduled to expire in
September 1999. The outstanding rights under the prior Stockholders Rights Plan
were redeemed at a price of $0.0025 per right for stockholders of record on
April 1, 1999. Under the new Stockholders Rights Plan, the stockholders received
one right (the "Right") for each outstanding share of common stock of the
Company that they owned on the record date. The new Rights have an exercise
price of $170 per right, subject to adjustment. Until the Rights become
exercisable, they are attached to, and will trade with, the common stock.
The Rights become exercisable and transferable apart from the common stock if a
person becomes the beneficial owner of, or offers to acquire, 15% or more of the
Company's outstanding common stock or if the Board declares a 10 percent-or-more
stockholder an "Adverse Person" based on certain criteria set forth in the Plan.
After a person becomes the beneficial owner of 15% or more of the Company's
outstanding common stock or is declared an Adverse Person (each such event is
referred to as a "triggering event"), each Right would entitle the holder,
except the acquiring person or Adverse Person, to purchase, at the Right's
then-current exercise price, the number of Great Lakes common shares having a
market value equal to twice the Right's exercise price.
If after one of the triggering events described above, the Company is acquired
in a merger or other business combination, and the Rights have not been
previously redeemed, the holder of each Right is entitled to purchase, at the
Right's then-current exercise price, that number of the acquiring company's
common shares having a market value equal to twice the Right's exercise price.
Under certain conditions, the Rights may be redeemed by the Company at a price
of $0.01 per Right (subject to adjustment) prior to their expiration on February
15, 2009.
36
<PAGE> 37
NOTE 11: EARNINGS PER SHARE
Basic earnings per share is based on the weighted-average number of common
shares outstanding during the period, while diluted earnings per share includes
the effect of options and restricted stock that were dilutive and outstanding
during the period. The computation of basic and diluted earnings per share is
determined using net income or loss as reported as the numerator, and the number
of shares included in the denominator is calculated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Denominator for basic
earnings per share
(weighted average shares) 57.8 59.0 60.0
Effect of dilutive securities 0.2 0.2 0.3
Denominator for diluted
earnings per share 58.0 59.2 60.3
- -----------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase shares of common stock of 1.6 million, 1.4 million and 1.1
million in 1999, 1998 and 1997, respectively, were outstanding but were excluded
from the computation of diluted earnings per share because the exercise prices
were greater than the average market price of the common shares during those
years, and therefore the effect would have been antidilutive.
NOTE 12: STOCK COMPENSATION PLANS
The Company has three plans that provide for the granting of stock awards to
officers and key employees. The 1998 and the 1993 Stock Compensation Plans have
stock awards available for grant; the third plan has options exercisable as of
December 31, 1999. The Company is authorized to grant options for up to 4.3
million shares under the plans, of which 2.1 million have been granted. Options
under the plans have been granted at the market value at the date of grant,
become exercisable over periods of one to five years and expire 10 years from
the date of grant.
In addition to the options awarded under the plans, the Company on April 6,
1998, granted the chief executive officer an option to acquire 0.7 million
shares of the Company's stock. The options were granted at market value on the
date of grant; 0.2 million of the shares became exercisable upon grant with the
balances becoming exercisable ratably over four years. The options expire 10
years from the grant date.
The status of the Company's stock options is summarized below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Weighted
Shares Under Average
Option Exercise Price
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1997 1.7 $52.61
Granted 0.4 43.05
Exercised (0.1) 16.82
Terminated (0.1) 55.89
- -----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 1.9 52.79
Granted 1.3 43.46
Exercised (0.2) 22.05
Terminated (0.6) 57.02
Adjustment for Octel spin-off 0.3 --
- -----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 2.7 43.57
Granted 0.8 40.29
Exercised (0.2) 22.01
Terminated (0.2) 44.99
Outstanding at December 31, 1999 3.1 $43.96
Currently Exercisable 1.5 $47.32
- -----------------------------------------------------------------------------------------------------
</TABLE>
Concurrent with the May 1998 spin-off of Octel, the number of options
outstanding was increased by 14% or 0.3 million shares and grant prices were
reduced by approximately 14% to maintain the total value of the options at
pre-spin-off levels. In the preceding table, prior years' information has not
been restated.
During 1999 and 1998 the Company awarded restricted stock totaling 0.1 million
and 0.2 million shares, respectively, to directors and other key employees.
These awards become exercisable over a period of 1 to 24 years. The Company
recognizes compensation expense consistent with the vesting of each award. The
compensation expense incurred in 1999 and 1998 related to these awards totaled
$1.3 million and $3.2 million, respectively.
Options outstanding at December 31, 1999, expire from March 2000 to December
2009. A total of 2.2 million shares are reserved for future grants as of
December 31, 1999.
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Range of Exercise Prices $21-$35 $36-$50 $51-$69
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding:
Weighted average
remaining contractual life 8.7 yrs. 8.3 yrs. 5.7 yrs.
Weighted average exercise price $33.81 $41.42 $61.85
Number 0.5 2.0 0.6
Options exercisable:
Weighted average exercise price $22.60 $40.12 $61.85
Number 0.1 0.9 0.5
- -----------------------------------------------------------------------------------------------------
</TABLE>
The Company accounts for stock compensation costs in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, no compensation
cost has been recognized for its fixed stock option plans. The following table
sets forth pro forma information as if compensation cost had been determined
based on the fair value at the grant date for awards under the Company's stock
plans consistent with the requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation." For the purposes of the pro forma disclosure, the
estimated compensation costs are amortized to expense over the options' vesting
period, principally three years. Therefore, because SFAS 123 is applicable to
options granted subsequent to December 31, 1994, its pro forma effect is only
fully reflected in 1999 and 1998.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average fair value
per share of options
granted during the year(1) $ 14.36 $ 13.96 $ 13.14
Net income from continuing operations:
As reported 139.6 56.4 71.8
Pro forma 132.8 47.6 67.5
Diluted earnings per share:
As reported 2.41 0.95 1.19
Pro forma 2.30 0.81 1.12
Assumptions:
Expected volatility 27.7% 23.9% 21.0%
Expected life in years 6.5 6.5 6.5
Risk free interest rate 4.9% 5.5% 6.2%
Dividend yield 0.8% 0.9% 1.4%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) On date of grant using the Black-Scholes option pricing model.
37
<PAGE> 38
NOTE 13: RETIREMENT PLANS
The Company sponsors various defined benefit pension plans. The following table
provides a progression of the plans' benefit obligations and fair value of
assets for 1999 and 1998, and reconciles the funded status to the amounts
recognized in the balance sheets for those years.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $156.8 $121.9
Service cost 9.2 6.7
Interest cost 10.2 9.1
Plan participants' contributions 0.7 0.4
Amendments and terminations 1.5 2.1
Net actuarial loss/(gain) (22.4) 20.8
FAS 88 gain (1.7) --
Benefits paid (5.1) (4.8)
Foreign currency translation loss/(gain) (1.2) 0.6
Benefit obligation at end of year $148.0 $156.8
- -----------------------------------------------------------------------------------------------------
Change in fair value of plan assets:
Fair value of plan assets at beginning of year $129.3 $130.6
Actual return on plan assets 25.8 (1.7)
Employer contributions 6.2 4.6
Benefits and expenses paid (5.6) (5.4)
Foreign currency translation (loss)/gain (0.2) 1.2
Fair value of plan assets at end of year $155.5 $129.3
- -----------------------------------------------------------------------------------------------------
Reconciliation of funded status to
amounts recognized in the balance sheets:
Funded status $7.5 $(27.5)
Unrecognized prior service cost 2.1 0.9
Unrecognized transition obligation 0.7 0.9
Unrecognized net actuarial loss/(gain) (24.6) 12.6
Net accrued benefit cost $(14.3) $(13.1)
- -----------------------------------------------------------------------------------------------------
Amounts recognized in the balance sheets consist of:
Prepaid benefit costs $1.8 $2.4
Accrued benefit liability (19.1) (21.7)
Intangible asset 1.5 1.9
Accumulated other comprehensive income 1.5 4.3
Net accrued benefit cost $(14.3) $(13.1)
- -----------------------------------------------------------------------------------------------------
Weighted average assumptions at end of year:
Discount rates 6.5% to 8.0% 6.0% to 6.75%
Expected return on plan assets 7.0% to 9.0% 7.0% to 9.0%
Rates of compensation increases 4.0% to 4.5% 4.0% to 4.8%
</TABLE>
The increase in the discount rate assumption in 1999 decreased the projected
benefit obligation by approximately $25 million. The decrease in the discount
rate assumption in 1998 increased the projected benefit obligation by
approximately $22 million.
The components of net periodic benefit costs are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $9.2 $6.7 $5.7
Interest cost 10.2 9.1 8.5
Expected return on plan assets (11.4) (11.6) (9.6)
Amortization of prior service cost 0.2 0.2 0.1
Amortization of transition obligation 0.2 0.2 0.2
Recognized net actuarial loss 1.3 0.1 0.2
Termination benefits 0.1 1.4 --
Net benefit costs transferred
from discontinued operations -- -- 1.2
Net periodic benefit cost $9.8 $6.1 $6.3
- -----------------------------------------------------------------------------------------------------
</TABLE>
The net benefit costs transferred from discontinued operations represents
benefit costs attributable to employees who participated in the Octel pension
plans and remained with the Company after the spin-off. In 1998, the benefits
for these employees were incorporated into the Company plans.
Amounts applicable to the Company's pension plans with accumulated benefit
obligations in excess of plan assets are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $11.5 $60.2
Accumulated benefit obligation 10.3 54.0
Fair value of plan assets -- 38.7
- -----------------------------------------------------------------------------------------------------
</TABLE>
The Company provides no significant post-retirement benefits other than
pensions.
NOTE 14: RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were approximately $45.7 million, $42.3
million and $41.8 million in 1999, 1998 and 1997, respectively.
NOTE 15: 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 Polymer Additives segment produces brominated, non-halogen, intumescent and
antimony-based flame retardants, UV and antioxidant stabilizers and impact
modifiers. The segment serves manufacturers in the following markets: electrical
and electronic; construction; automotive; and furnishings.
The Performance Chemicals segment produces chemicals to exact specifications or
to meet specific applications requirements. The product offering is
characterized by technology-based product solutions that benefit specific
customers. The businesses included in the segment are: fine chemicals for
pharmaceutical and life sciences companies; fluorine chemicals for use in fire
suppression systems, refrigerants and medical and pharmaceutical products;
brominated intermediates and agricultural products and toxicological testing
services for chemical, pharmaceutical and food additive producers.
The Water Treatment segment is a producer of water treatment chemicals for the
recreational swimming pool and spas water treatment industry. These products are
sold to pool and spa dealers, distributors and mass market retailers. The Water
Treatment segment also produces specialty biocides for use in cooling tower
water treatment, wastewater treatment and pulp and paper production and
desalination products.
The Energy Services and Products segment provides services and products to oil
and gas well operators. The segment produces bromine-based clear fluids and
completion fluids and provides ancillary well completion services such as gravel
packing, high-pressure fracturing, packing, well stimulation and coil-tube
intervention.
The Company evaluates business unit performance and allocates resources based on
operating income which 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 business units based on the percentage of production consumed. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.
38
<PAGE> 39
Corporate includes the corporate offices and the discontinued operations.
Segment assets primarily include accounts receivable, inventory, net plant and
equipment and other miscellaneous assets. Assets included in Corporate
principally are cash and cash equivalents; insurance receivables; deferred
income taxes; certain investments and other assets; and certain unallocated
plant and equipment, including the Company's new ERP software systems.
Geographic sales information is reported based on the location which invoices
the external customer. Geographic long-lived assets are grouped by the location
of the reporting country. Intersegment sales are insignificant and are
eliminated in consolidation.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales by Segment
to External Customers:
Polymer Additives $613.0 $584.2 $553.9
Performance Chemicals 346.9 314.8 282.7
Water Treatment 399.8 378.7 350.1
Energy Services
and Products 95.2 115.7 112.9
- -----------------------------------------------------------------------------------------------------
Total sales of
reportable segments 1,454.9 1,393.4 1,299.6
Corporate (1.6) 0.9 11.6
$1,453.3 $1,394.3 $1,311.2
- -----------------------------------------------------------------------------------------------------
Segment Profit:
Polymer Additives $78.0 $78.9 $92.9
Performance Chemicals 78.7 70.2 51.1
Water Treatment 73.1 54.5 46.3
Energy Services
and Products (8.5) 11.0 20.3
- -----------------------------------------------------------------------------------------------------
Total profits of
reportable segments 221.3 214.6 210.6
Corporate (41.0) (24.2) (19.0)
Special charges (18.2) (116.5) (49.8)
Operating Income 162.1 73.9 141.8
- -----------------------------------------------------------------------------------------------------
Interest and other income 44.3 37.0 31.7
Interest and other expense 31.0 44.7 56.3
Income before Income Taxes $175.4 $66.2 $117.2
- -----------------------------------------------------------------------------------------------------
Depreciation Expense:
Polymer Additives $34.7 $37.9 $32.6
Performance Chemicals 19.1 20.8 18.9
Water Treatment 10.5 9.1 10.4
Energy Services
and Products 9.7 8.7 6.9
Corporate 6.8 2.1 1.1
- -----------------------------------------------------------------------------------------------------
$80.8 $78.6 $69.9
Segment Assets:
Polymer Additives $782.6 $664.3 $650.6
Performance Chemicals 436.1 302.4 307.2
Water Treatment 303.3 227.7 239.3
Energy Services
and Products 131.1 147.3 128.1
Corporate 613.1 560.4 218.7
Net assets of discontinued
operations (5.2) 102.5 726.5
$2,261.0 $2,004.6 $2,270.4
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment in Equity
Method Investees:
Polymer Additives $18.1 $10.7 $11.3
Expenditures for
Long-lived Assets:
Polymer Additives $40.7 $52.0 $118.9
Performance Chemicals 29.0 29.4 27.4
Water Treatment 13.1 11.1 7.0
Energy Services
and Products 13.1 28.7 21.0
Corporate 23.1 39.4 33.7
$119.0 $160.6 $208.0
- -----------------------------------------------------------------------------------------------------
Geographic Information
Net Sales to
External Customers:
United States $888.1 $880.8 $826.0
United Kingdom 147.9 313.1 271.8
Switzerland 130.9 -- --
Other Foreign 286.4 200.4 213.4
$1,453.3 $1,394.3 $1,311.2
- -----------------------------------------------------------------------------------------------------
Long-lived Assets:
United States $740.5 $644.9 $622.6
United Kingdom 123.7 78.0 78.1
Other Foreign 189.6 162.5 145.5
$1,053.8 $885.4 $846.2
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE 16: INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
As of December 31, 1999, the Company's investment in unconsolidated affiliates
consists mainly of a 50% interest in Tetrabrom Technologies, Ltd., an Israeli
manufacturer of tetrabromobisphenol-A, and a preferred stock interest in
Huntsman Chemical Corporation (HCC) consisting of 14,675 shares of series A
cumulative preferred stock with an annual dividend rate of 14%. Beginning in the
year 2000, the annual dividend rate will increase 1% per year to a maximum rate
of 25%. The Company sold 44,025 shares of the HCC preferred stock in 1999 and
recognized a before tax gain of approximately $9 million. The preferred shares
held at December 31, 1999 have a face value of $15 million. Preferred dividends
from HCC amounted to $7 million, $8 million and $8 million for 1999, 1998 and
1997, respectively. The Company is also a limited partner in certain low income
housing investments that generate benefits in the form of tax credits.
The Company's equity in earnings (loss) of unconsolidated affiliates was $1
million, $(0.2) million and $2 million for 1999, 1998 and 1997, respectively.
NOTE 17: FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE RISK MANAGEMENT
In the normal course of business, operations of the Company are subject to risks
associated with changing financial exchange rates. These fluctuations can vary
the costs of financing, investing and operating. Accordingly, the Company hedges
certain portions of its exposure to foreign currency fluctuations through the
use of options and forward exchange contracts to protect the value of its
existing foreign currency asset and liability commitments and anticipated
foreign currency revenues.
It is the Company's policy to enter into foreign currency hedging transactions
only to the extent considered necessary to achieve the objectives stated above.
The Company does not enter into foreign currency transactions for speculative
purposes.
39
<PAGE> 40
The Company enters into currency option and forward contracts to hedge
anticipated foreign currency transactions during the next 12 months. The
principal currencies hedged are the Japanese yen, British pound and euro.
The Company uses currency swap contracts to hedge a long-term intercompany loan.
These contracts hedge the Italian lira against the British pound. The terms of
the swap contracts match the loan principal repayment terms. Any gains or losses
on these contracts would be offset by losses or gains on the underlying
intercompany loan.
Gains and losses arising from the use of such instruments, except those
considered to be hedges of long-term investments, are recorded in the income
statement concurrently with gains and losses arising from the underlying hedged
transactions. At December 31, 1999 and 1998, the Company had deferred losses
related to hedging activities of $0 and $0.2 million, respectively. Deferred
amounts to be recognized can change with market conditions and will be
substantially offset by changes in the value of the related hedged transactions.
The impact of currency options used for foreign exchange risk management on
pretax income in 1999 and in 1998 was a net (loss) gain of approximately $(0.7)
million and $0.9 million, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts and notes receivable, accounts payable and accrued
expenses, the stated values approximate fair value due to their short-term
nature. Consequently, such financial instruments are not included in the
following table that provides information about the stated values and estimated
fair values of other financial instruments, both on and off the balance sheets:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1999 1998
Stated Fair Stated Fair
Value Value Value Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt
including
current portion $889.4 $870.9 $519.9 $519.9
Interest rate
swap agreements -- (8.4) -- --
Foreign currency
options and
forward contracts 23.2 22.2 13.3 7.8
Foreign currency
swap contracts 46.8 53.5 108.8 115.6
- --------------------------------------------------------------------------------------------------
</TABLE>
The estimated fair value of long-term debt is based primarily on quoted market
prices for the same or similar issues. The fair value of option, forward
exchange and swap contracts are based on quoted market prices of comparable
instruments.
CONCENTRATIONS OF CREDIT RISK
The Company sells a broad range of products to a diverse group of customers
operating throughout the world. These industries generally are not significantly
affected by changes in economic or other factors. Credit limits, ongoing credit
evaluation and account monitoring procedures are utilized to minimize the risk
of loss. Collateral is generally not required. Counterparties to the currency
swap agreements are major financial institutions. Credit losses from
counterparty non-performance are not anticipated.
NOTE 18: COMMITMENTS AND CONTINGENCIES
The Company has various purchase commitments for raw materials, supplies and
plant and equipment incident to the ordinary conduct of business. None of the
raw material and supply commitments represents an unconditional purchase
obligation. In the aggregate, such commitments are not at prices in excess of
current market. At December 31, 1999, the Company had committed approximately
$77 million to complete capital projects.
The Company has various operating leases primarily for the use of office space,
computer equipment and services and marine service vessels. Future minimum lease
payments under these non-cancelable operating leases totaled $73 million at
December 31, 1999, due as follows: 2000 - $19 million; 2001 - $18 million; 2002
- - $13 million; 2003 - $12 million; and 2004 - $11 million.
Rent expense for all operating leases amounted to $20 million, $24 million and
$16 million for 1999, 1998 and 1997, respectively.
The Company is subject to various lawsuits and claims with respect to matters
such as governmental regulations, income taxes and other actions arising out of
the normal course of business. The Company is also subject to contingencies
pursuant to environmental laws and regulations that in the future may require
the Company to take action to correct the effects on the environment of prior
manufacturing and waste disposal practices.
The Company has been cooperating with the U.S. Department of Justice (DOJ) and
the European Commission since the spring of 1998 in their respective
investigations of the bromine and brominated products industry. Both
investigations were initiated after the Company self-reported to those agencies
certain business practices that raised questions under the antitrust laws. As a
result of the Company's cooperation, the Company and its current directors and
employees have been accepted into the DOJ's amnesty program. As a result the
Company will be exempt from United States federal criminal prosecution and fines
relating to the practices in question if the Company complies with certain
conditions, including its continued full cooperation with the DOJ's
investigation and policy regarding reasonable remedial efforts. The Company
believes it has fully complied with all applicable conditions to date and
intends to continue full compliance. Concurrently, the Company is seeking
favorable treatment under a program in the European community that also rewards
self reporting and cooperation. Participation in the above programs does not,
however, provide the Company with immunity from civil liability, including
restitution claims. To date, 10 federal purported class action lawsuits and 3
California purported class actions have been filed against the Company, each
claiming treble damages. These suits claim, among other things, that the Company
conspired with others in violation of the antitrust laws regarding the pricing
of bromine and brominated products.
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.
Environmental remediation costs that relate to current operations are expensed
or capitalized as appropriate. Costs that relate to an existing condition caused
by past operations, and which do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments are made or remedial efforts are probable and the costs can be
reasonably estimated.
Environmental liabilities and litigation accruals of approximately $14 million
have been reflected as accrued expenses in the Company's consolidated balance
sheet at December 31, 1999.
While it is not possible to predict or determine the outcome of actions brought
against the Company or the ultimate cost of environmental matters, the Company
believes that the costs associated with all such matters will not have a
material adverse effect on its consolidated financial position or consolidated
results of operations.
40
<PAGE> 41
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(millions, except per share data)
1999 - Three Months Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $334.2 $374.8 $374.4 $369.9
Operating expenses
Cost of products sold 236.4 262.0 266.1 265.7
Selling, general and administrative expenses 51.5 55.7 62.7 72.9
Special charges -- -- -- 18.2
287.9 317.7 328.8 356.8
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 46.3 57.1 45.6 13.1
Interest and other income 7.7 10.1 12.7 13.8
Interest and other expense 7.0 7.2 8.7 8.1
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 47.0 60.0 49.6 18.8
Income taxes (benefit)(1) 16.0 17.2 15.4 (12.8)
Net income $31.0 $42.8 $34.2 $31.6
- --------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $0.53 $0.73 $0.59 $0.56
Diluted $0.53 $0.73 $0.59 $0.56
Cash dividends paid per share $0.08 $0.08 $0.08 $0.08
- --------------------------------------------------------------------------------------------------------------------------------
Stock Price Data(2)
High 44 3/16 50 47 9/16 38 9/16
Low 35 1/2 36 1/4 37 1/4 33 3/16
Year-end close 38 3/16
</TABLE>
<TABLE>
<CAPTION>
1998 - Three Months Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $334.7 $401.9 $340.5 $317.2
Operating expenses
Cost of products sold 241.4 286.6 249.8 233.7
Selling, general and administrative expenses 46.0 54.9 48.2 43.3
Special charges 15.5 -- 48.3 52.7
302.9 341.5 346.3 329.7
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 31.8 60.4 (5.8) (12.5)
Interest and other income 8.1 8.1 12.3 8.5
Interest and other expense 12.4 11.0 4.8 16.5
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 27.5 57.5 1.7 (20.5)
Income taxes (benefit) 10.3 19.6 0.5 (20.6)
- --------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 17.2 37.9 1.2 0.1
Net income from discontinued operations 25.5 7.1 -- --
Net income $42.7 $45.0 $1.2 $0.1
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic
Continuing operations $0.29 $0.64 $0.02 $--
Discontinued operations 0.44 0.12 -- --
$0.73 $0.76 $0.02 $--
- --------------------------------------------------------------------------------------------------------------------------------
Diluted
Continuing operations $0.29 $0.64 $0.02 $--
Discontinued operations 0.43 0.12 -- --
- --------------------------------------------------------------------------------------------------------------------------------
$0.72 $0.76 $0.02 $--
Cash dividends paid per share $0.16 $0.16 $0.08 $0.08
- --------------------------------------------------------------------------------------------------------------------------------
Stock Price Data(2)
High 54 54 3/16 41 1/2 45 7/16
Low 40 37 13/16 36 11/16 37 7/16
Year-end close 40
</TABLE>
(1) Income taxes (benefit) for 1999 reflects fourth quarter adjustments
amounting to $18.5 million due primarily to the release of previously provided
taxes.
(2) Stock prices prior to May 22, 1998, do not reflect the Octel
spin-off.
41
<PAGE> 42
CORPORATE OFFICERS
MARK P. BULRISS
Chief Executive Officer and President
LARRY J. BLOOM
Executive Vice President and President of Water Treatment
LOUIS M. MARESCA
Executive Vice President and President of Performance Chemicals
C. HUGH MORTON
Executive Vice President and President of Polymer Additives
RICHARD L. BOEHNER
Senior Vice President, Corporate Development and Strategic Planning
RICHARD J. KINSLEY
Senior Vice President, Human Resources and Communications
JEFFREY M. LIPSHAW
Senior Vice President, General Counsel and Corporate Secretary
MARK E. TOMKINS
Senior Vice President and Chief Financial Officer
ANGELO BRISIMITZAKIS
Vice President, Global Supply Chain Management
STEPHEN D. CLARK
Vice President, General Manager, Asia/Pacific y Polymer Additives
GREGORY J. HEINLEIN
Vice President, Treasurer and Assistant Secretary
ROBERT L. HOLLIER
Vice President and President of OSCA, Inc.
KEVIN J. MULCRONE
Vice President and Controller
MARY P. MCCLANAHAN
Assistant Corporate Secretary
STEPHEN E. BREWER
Assistant Treasurer
BOARD OF DIRECTORS
MARK P. BULRISS 3, 4, 5, 6
Chief Executive Officer and President
Director since 1998
JAMES CROWNOVER
Director of Xpedior, Inc.
Director since 2000
THOMAS M. FULTON 2, 3, 4
President and Chief Executive Officer
Landauer, Inc.
Director since 1995
MARTIN M. HALE 1, 4, 5, 6
Chairman of the Board of Great Lakes;
Executive Vice President
Hellman Jordan Management Company, Inc.
Investment advisors
Director since 1978
LOUIS E. LATAIF 1, 2
Dean of the School of Management, Boston University
Director since 1995
JOHN C. LECHLEITER
Senior Vice President
Pharmaceutical Products
Eli Lilly and Company
Director since 1999
RICHARD H. LEET 2, 3, 4
Retired Vice Chairman and Director
Amoco Corporation
Director since 1994
MACK G. NICHOLS 1, 2, 3
Retired President and Chief Operating Officer
Mallinckrodt Inc.
Director since 1998
JAY D. PROOPS 1, 4, 5, 6
Former Vice Chairman
The Vigoro Corporation
Director since 1996
1 Audit Committee
2 Compensation and Incentive Committee
3 Environmental, Safety and Health Committee
4 Executive Committee
5 Finance Committee
6 Succession Planning Committee
42
<PAGE> 43
WHOLLY OWNED SUBSIDIARIES
Bayrol Chemische Fabrik GmbH
Swimming Pool and Spa Products
Bio-Lab, Inc.
Swimming Pool and Spa Products
Great Lakes Chemical (Europe), Ltd.
Specialty Chemicals
Great Lakes Chemical France S.A.
Specialty Chemicals
Great Lakes Chemical International, Inc.
Export Sales-FSC
Great Lakes Chemical Italia S.r.l.
Specialty Chemicals
Great Lakes Fine Chemicals, Ltd.
Manufacturer of Fine and Specialty Chemicals
and Intermediates
LOWI Polymer Stabilizers GmbH
Specialty Chemicals
OSCA, Inc.
Oil Field Services
WIL Research Laboratories, Inc.
Toxicological Testing
SHAREHOLDER INFORMATION
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for Great Lakes' stock is Harris Trust
and Savings Bank. Stockholders who wish to transfer their stock, or change the
name in which the shares are registered, should contact:
HARRIS TRUST AND SAVINGS BANK
Attn: Shareholder Services
311 West Monroe Street, 11th Floor
Chicago, Illinois 60606-4607
(312) 461-6001
hearing impaired: (312) 461-5633
www.harrisbank.com
INDEPENDENT AUDITORS
Ernst & Young LLP
Indianapolis, Indiana
LISTINGS
New York Stock Exchange
New York, New York
PACIFIC STOCK EXCHANGE
Los Angeles and San Francisco, California
Ticker Symbol: GLK
ANNUAL MEETING
The Annual Meeting of the Stockholders will be held at 11:00 a.m., Thursday, May
4, 2000, at the Parkwood IV, 500 East 96th Street, Conference Center,
Indianapolis, Indiana.
FORM 10-K AND OTHER INFORMATION
A complimentary copy of the company's 1999 Annual Report to the Securities and
Exchange Commission on Form 10-K is available upon request. For this, or for
other information concerning the company, please contact:
Jeffrey Potrzebowski
Director, Investor Relations
or
Gregory J. Griffith
Director, Corporate Communications
Great Lakes Chemical Corporation
500 E. 96th Street, Suite 500
Indianapolis, Indiana 46240 USA
Phone: (317) 715-3000
www.greatlakeschem.com
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Great Lakes Chemical Corporation of our report dated February 18, 2000,
included in the 1999 Annual Report to Stockholders of Great Lakes Chemical
Corporation.
Our audits also included the financial statement schedule of Great Lakes
Chemical Corporation listed in Item 14(a). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in Registration Statement
Number 33-02069 on Form S-3, dated December 11, 1985, in Post-Effective
Amendment Number 1 to the Registration Statement Number 33-02074 on Form S-8,
dated February 3, 1995, in Registration Statement Number 33-02075 on Form S-8,
dated December 11, 1985, in Registration Statement Number 33-42477 on Form S-3,
dated August 28, 1991, in Registration Statement Number 33-57589 on Form S-8,
dated February 3, 1995, in Registration Statement Number 33-300543 on Form S-8,
dated January 30, 1996, in Registration Statement Number 333-49127 on Form S-8,
dated April 1, 1998, in Registration Statement Number 333-61609 on Form S-8,
dated August 17, 1998, and in Registration Statement Number 333-78515 on Form
S-3, dated May 14, 1999, of our report dated February 18, 2000, with respect to
the consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Great Lakes
Chemical Corporation for the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME, AND STATEMENT OF CASHFLOW AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 478
<SECURITIES> 0
<RECEIVABLES> 344
<ALLOWANCES> 5
<INVENTORY> 317
<CURRENT-ASSETS> 1,168
<PP&E> 1,357
<DEPRECIATION> 606
<TOTAL-ASSETS> 2,261
<CURRENT-LIABILITIES> 311
<BONDS> 883
0
0
<COMMON> 73
<OTHER-SE> 921
<TOTAL-LIABILITY-AND-EQUITY> 2,261
<SALES> 1,453
<TOTAL-REVENUES> 1,498
<CGS> 1,030
<TOTAL-COSTS> 1,291
<OTHER-EXPENSES> (1)
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 175
<INCOME-TAX> 36
<INCOME-CONTINUING> 140
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140
<EPS-BASIC> 2.42
<EPS-DILUTED> 2.41
</TABLE>
