-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Tm3eKrKAW0mJrjeb540quzmOPI7BGI7nOjaQ06/Ifx9XtfaD+gILEAafUwg6GzcA UHCIl6nZVFmSUJqGN3OYxA== 0000950124-94-000665.txt : 19940404 0000950124-94-000665.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950124-94-000665 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT LAKES CHEMICAL CORP CENTRAL INDEX KEY: 0000043362 STANDARD INDUSTRIAL CLASSIFICATION: 2800 IRS NUMBER: 951765035 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06450 FILM NUMBER: 94519286 BUSINESS ADDRESS: STREET 1: HIGHWAY 52 NORTHWEST CITY: WEST LAFAYETTE STATE: IN ZIP: 47906 BUSINESS PHONE: 3174976100 FORMER COMPANY: FORMER CONFORMED NAME: MCCLANAHAN OIL CO DATE OF NAME CHANGE: 19700925 FORMER COMPANY: FORMER CONFORMED NAME: GREAT LAKES OIL & CHEMICAL CO DATE OF NAME CHANGE: 19700925 10-K 1 FORM 10-K 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, 1993 Commission file number 1-6450 GREAT LAKES CHEMICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-1765035 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ONE GREAT LAKES BOULEVARD P. O. BOX 2200 WEST LAFAYETTE, INDIANA 47906 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 317-497-6100 __________________________________________ 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 7, 1994, the aggregate market value of the voting stock held by non-affiliates of the registrant was $5,420,940,160. As of March 7, 1994, 71,328,160 shares of the registrants' stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1993 Annual Report to Stockholders are incorporated by reference into Parts I, II and IV. Portions of the annual proxy statement dated March 29, 1994 are incorporated by reference into Part III. 2 PART I ------ Item 1. BUSINESS GENERAL Great Lakes Chemical Corporation is a Delaware corporation incorporated in 1933, having its principal executive offices in West Lafayette, Indiana. The Company's operations consist of one dominant industry segment - chemicals and allied products. Within this segment the Company is well diversified focusing on performance chemicals, water treatment chemicals, petroleum additives and specialized services and manufacturing. The Corporate profile on page 3 and the Review of Operations on pages 14 through 19 of the 1993 Annual Report to Stockholders is incorporated herein by reference. The term "Great Lakes" as used herein means Great Lakes Chemical Corporation and Subsidiaries unless the context indicates otherwise. Net sales by product group are set forth in the following table (dollars in millions):
Year ended December 31 1993 1992 1991 ------ ------ ------- Performance Chemicals $ 603 $ 534 $ 488 Water Treatment Chemicals 364 259 252 Petroleum Additives 551 542 477 Specialized Services and Manufacturing 274 161 91 ------ ------ ------- $1,792 $1,496 $ 1,308 ------ ------ ------- ------ ------ -------
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PRODUCTS AND SERVICES The following is a list of principal and certain other products and services provided by Great Lakes: PERFORMANCE CHEMICALS Plants & Major Raw Products & Services Principal Markets Facilities Materials - ------------------- ----------------- ---------- ---------- POLYMER ADDITIVES Brominated and intumescent Computer and Business ElDorado, AR Bromine, flame retardants; Antioxidants, Equipment, Consumer Newport, TN Bisphenol A, UV absorbers or Light Electronics, Textiles, Persan, France Diphenyl Stabilizers, Plasticizers Building and Construction, Catenoy, France Oxide Transportation Waldkraiburg, Germany FUNCTIONAL INTERMEDIATES AND FINE CHEMICALS Bromine-based specialty Foundry Industry, Lube Oil ElDorado, AR Bromine, chemicals, including Furfural Refining, Pharmaceutical Memphis, TN Agricultural and furfural-based specialty Industry, Agrochemical Omaha, NE By-Products chemicals, including furfuryl Industry, Electronics Belle Glade, FL alcohol and POLYMEG(R) Polyols Geel, Belgium Organofluorine compounds Widnes, U.K. INDUSTRIAL SPECIALTY CHEMICALS Bromine, sodium, chlorine, Telecommunications, Military, Marysville, AR Chlorine, furfural and their derivatives, Soil, Crop and Structural ElDorado, AR Salt, Electricity Methyl bromide, Fire extin- Pest Control, Producers of Ellesmere Port, U.K. Sulfur guishing agent FM-200(TM), Photographic Papers and Amlwch, U.K. Halon recycling services Film and Rubber Compounds WATER TREATMENT CHEMICALS RECREATIONAL Water sanitizers - Pool and Spa Dealers, Conyers, GA Bromine, BioGuard(R), OMNI(R), Distributors, Mass Market Munich, Germany Chlorinated Hydrotech(R), Guardex(R), Retailers, Builders 33 U.S. Distribution Isocynurates Pool Time(R) Distributors, Mass Market locations Algicides, oxidizers, pH balancers, mineral balancers and specialty chemicals Key operating equipment INDUSTRIAL BromiCide(R) and LiquiBrom(TM) Industrial Cooling Water Adrian, MI Bromine SpecialtyBiocides Treatment, Industrial and ElDorado, AR Biocide dispensing Municipal Wastewater Treat- equipment ment, Pulp and Paper and Food Processing
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PETROLEUM ADDITIVES Plants & Major Raw Products & Services Principal Markets Facilities Materials - ------------------- ----------------- ---------- ---------- Antiknock boosters for Major Oil Refineries and Fuel Ellesmere Port, U.K. Sodium, leaded gasoline, Cetane Blenders Worldwide Paimbouef, France Ethylene, number improvers, Multi- Bussi, Italy Lead, functional gasoline and diesel Methyl Chloride fuel additives, Gasoline and diesel detergents, Petroleum oxidants, stabilizers and corrosion inhibitors SPECIALIZED SERVICES AND MANUFACTURING CUSTOM MANUFACTURING Contract research, Process Pharmaceuticals, Agro- Konstanz, Germany development, Custom manu- chemicals, Industrial Newport, TN facturing of fine Specialties Widnes, U.K. and specialty chemicals ENVIRO-ENERGY PERFORMANCE GROUP Completion fluids, Sand Worldwide Oil and Gas Lafayette, LA Bromine, control and filtration, Industry Zinc, Sodium, Reservoir analysis, Calcium Down-hole tools Waste Management, Petrochemical Companies, Greensboro, NC Contamination assessment Waste Management Firms, and remediation, Oil Refineries, Forest Geotechnical engineering, Product Companies, Resource recovery and Government Agencies material handling TOXICOLOGICAL SERVICES All phases of nonclinical Pharmaceutical, Chemical, Ashland, OH toxicological testing and Veterinary, Medical, Agri- bioanalytical services, cultural, Food, Consumer Design of specialized Products Industries toxicological, metabolic and analytical chemistry programs ENGINEERED SURFACE TREATMENTS Dry film lubrication corrosion Aerospace, Automotive, North Hollywood, Molysulfide, and abrasion-resistant, chip- Railroad, Machine Tool, CA Various solvents and scuff-proof coatings, All Manufacturing Fort Worth, TX and resins Electrically conductive Industries coatings INTERNATIONAL TRADING Organic and inorganic Central and Eastern Budapest, Hungary chemicals, Plastic resins, European Chemical Finished agrochemicals and Industry fertilizers
3 5 1993 Developments In June 1993, the Company augmented its polymer additives business with the acquisition of Chemische Werke LOWI GmbH & Co. (Lowi), a leading manufacturer of antioxidants, and hindered amine light stabilizers (HALS). This acquisition also expanded the polymer additives business into the rubber and adhesives markets. In the Functional Intermediates and Fine Chemicals Group, the Company increased bromine capacity and other derivative production to meet incremental market demands for bromine-based specialty derivatives. Also, the Company expanded production facilities in El Dorado, AR, to meet increased demand for tetrabromobisphenol-A. Octel Chemicals Limited (OCL) doubled its sales, performing a wide range of custom synthesis activities, enhancing Great Lakes' presence in the European specialty and fine chemicals industry. A new industrial specialty chemicals plant was commissioned to produce high purity bromide salts used in photographic materials, catalysts, pharmaceutical intermediates and other fine chemicals. Also, FM-200(TM), a clean gaseous fire extinguishing agent that replaces halon-based products, received U.S. EPA approval and the Underwriters Laboratories (UL) listing mark, and passed testing for U.S. Military and Factory Mutual insured facilities applications. The Water Treatment Chemicals Group completed two acquisitions during 1993 that strengthened its presence in the recreational market. In January 1993, Bayrol Chemische Fabrik GmbH was acquired which extended the Company's presence in the European market. In May 1993, Aqua Chem was acquired which provides an important foothold in mass merchandising, the fastest growing sector of the pool and spa products market. In the Petroleum Additives Group, Octel supplied additional quantities of antiknock compound for the Mexican market through the extension of an earlier marketing and distribution agreement with DuPont. Also, a long-term agreement to supply Ethyl Corporation's requirements for alkyl lead antiknock compound will take effect in the middle of 1994. The Specialized Services and Manufacturing Group expanded its environmental services business with the January 1993 acquisition of Four Seasons Industrial Services, Inc. and two associated companies. Raw Materials The sources of essential raw materials for bromine are the brine from company-owned wells in Arkansas, sea water extraction plants in Europe and bromine purchased from an affiliated company. 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 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 conservatively estimated to be adequate for the foreseeable future. Furfural is extracted from agricultural by-products and waste materials such as corncobs, sugar cane bagasse, rice hulls and oat hulls for which there are few alternative uses. These raw material sources for furfural production are expected to remain abundant and relatively inexpensive. 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. 4 6 International Operations Great Lakes has a substantial presence in foreign markets. The Company's investment in foreign countries is principally in Western Europe and represents $793 million or 42 percent of total assets. Sales to customers in foreign countries (primarily Europe and the Far East) amount to 62, 61 and 58 percent of total sales for the years ended December 31, 1993, 1992, and 1991, respectively. Approximately 15, 19, and 21 percent of these foreign sales, respectively for the three years shown, are products exported from the U.S., with the balance primarily being products manufactured and sold by the Company's European subsidiaries and branches. The profitability on foreign sales (including U.S. exports and foreign manufactured products, except Octel) approximates those for domestic operations. Because of value-added pricing, Octel's alkyl lead products have a higher profitability than do most of the Company's other products. The geographic segment data contained in the note "Industry Segments and Foreign Operations" of Notes to Consolidated Financial Statements on page 36 of the 1993 Annual Report to Stockholders is incorporated herein by reference. Customers and Distribution During the last three years, no single customer accounted for more than 10 percent of Great Lakes' total consolidated sales. The Company has no material contract or subcontract with the government. 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 users or 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 and alkyl lead producer in the United States who competes with the Company in varying degrees, depending on the product involved. There is also one major overseas bromine competitor. In addition, there are several small producers in the U.S. and overseas who are competitors in several individual products. The Company is the only U.S. producer of furfural and furfuryl alcohol, and it enjoys a strong market share in every major geographic and product market in which it competes. The Company competes with several manufacturers and distributors of swimming pool and spa chemicals and equipment. Through its Bio-Lab subsidiary, the Company operates 33 branch distribution outlets for chemicals and pool and spa equipment in the U.S. Products are differentiated by brand names to the retail, wholesale and mass merchandising markets. 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. One negative factor in its ability to compete with the major overseas producer of bromine is the fact that this producer receives significant subsidies from its government, and enjoys favorable duty advantages on its exports to certain markets. Seasonality and Working Capital The products, which the Company sells to the agricultural and swimming pool markets, do exhibit some seasonality; however, the effect on overall Company sales and profits is not material. Seasonality results 5 7 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 alkyl lead products have somewhat larger working capital requirements than do the Company's other major products, because of extended distribution lines and credit terms for large volume refinery customers. 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 the note "Research and Development Expense" of the Notes to Consolidated Financial Statements on page 36 of the 1993 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 Due to the hazardous nature of certain of its products, the Company is keenly aware of the potential damage that could be done to the environment if effective pollution controls were not maintained. Therefore, the Company has made a commitment as one of its business objectives to install, maintain and improve pollution control facilities wherever they are needed. The Company meets or exceeds all presently known governmental requirements for protection of the environment. In addition, all new facilities include provisions for any necessary pollution controls as a normal part of their projected costs. Employees The Company has approximately 7,000 employees. Item 2. PROPERTIES Great Lakes has plants at 32 locations in 14 states and 14 plants in 8 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 6 8 exceed $100,000. The following proceedings may result in sanctions exceeding $100,000. In 1993, the Company and the United States Environmental Protection Agency agreed in principle to settle an action brought by the EPA under Section 15(1)(c) of TOSCA for a payment of $125,000 and the performance of $2,000,000 of environmentally beneficial capital projects at the Company's ElDorado, Arkansas, site. The proposed consent decree states that the Company does not admit the allegations made by the EPA. The United States Environmental Protection Agency and the Company have agreed in principle to a payment by the Company of a civil penalty in the amount of $190,000 in full satisfaction of claims by the EPA that the Company violated the Clean Water Act based on allegations of discharges from its ElDorado, Arkansas, facility. No complaint has been filed and no formal action has been commenced. The proposed consent decree states that the Company does not admit the allegations made by the EPA. 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, 1993. PART II ------- Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of March 7, 1994, there were approximately 4,850 registered holders of Great Lakes Common Stock. Additional information is contained in the 1993 Annual Report to Stockholders, under the captions "Stock Price Data" and "Cash Dividends Paid" on pages 1 and 26, respectively, all of which are incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA This information is contained in the 1993 Annual Report to Stockholders, under the caption "Financial Review" on pages 20 and 21, 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 Results of Operations and Financial Condition" on pages 14 through 19 and pages 22 through 26 of the 1993 Annual Report to Stockholders, is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements together with the report thereon of Ernst & Young dated January 31, 1994, appearing on pages 27 through 38 and the "Quarterly Results of Operations" on page 39 of the 1993 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. 7 9 PART III -------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Executive Officers
Served as Name and Age Office Officer Since - ------------ ------ ------------- Emerson Kampen, 65 Chairman, President and Chief Executive Officer 1962 Robert T. Jeffares, 58 Senior Vice President and Chief Financial Officer 1983 Robert B. McDonald, 57 Senior Vice President 1981 David R. Bouchard, 50 Vice President, International 1990 David A. Hall, 49 Vice President, Development 1987 Robert L. Hollier, 51 Vice President 1991 Lowell C. Horwedel, 61 Vice President 1984 L. Donald Simpson, 58 Vice President 1992 John B. Talpas, 50 Vice President 1988 Rudolph J. H. Voorhoeve, 55 Vice President, Technology 1990 Charles T. Ludwig, 46 Associate Vice President, Flame Retardants and Specialties 1991 David C. Sanders, 50 Associate Vice President, Research and Development 1990 Richard R. Ferguson, 42 Treasurer and Corporate Secretary 1991 Robert J. Smith, 47 Corporate Controller 1993
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 1994 Annual Meeting of Shareholders dated March 29, 1994, which is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION The information under the heading "Executive Compensation and Other Information" in the 1994 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 1994 Proxy Statement is included 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 1994 Proxy Statement is included 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 dated January 31, 1994, appearing on pages 27 through 38 of the 1993 Annual Report to Stockholders, are incorporated by 8 10 reference in Item 8: Consolidated Balance Sheets -- December 31, 1993 and 1992 Consolidated Statements of Income and Retained Earnings -- Years ended December 31, 1993, 1992 and 1991 Consolidated Statements of Cash Flows -- Years ended December 31, 1993, 1992 and 1991 Notes to Consolidated Financial Statements 2. Financial Statement Schedules The following additional information is filed as part of this report and should be read in conjunction with the 1993 financial statements. Schedule VIII -- 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. 3. Exhibits 11. Computation of Per Share Earnings 13. 1993 Annual Report to Stockholders 21. Subsidiaries -- Incorporated herein by reference is the list of subsidiaries appearing on page 40 of the 1993 Annual Report to Stockholders. 23. Consents of Independent Auditors (b) Reports on Form 8-K There were no Form 8-K's filed during the quarter ended December 31, 1993. (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. 9 11
SCHEDULE VIII GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1993 Additions Balance at --------------------------------- Beginning Charges to Costs Charged to Balance at End Description of Period and Expenses Other Accounts Deductions of Period - ----------- ----------- --------------- -------------- ----------- --------------- 1993: Reserve deducted from asset: Allowance for doubtful accounts receivable $ 4,317,000 $ 2,833,000 $ 2,005,000(A) $ 2,067,000(B) $ 7,088,000 ----------- --------------- ---------------- --------------- ------------- Accumulated amortization of excess of investment over net assets of subsidiaries acquired $ 25,272,000 $ 17,970,000 $ -0- $ -0- $ 43,242,000 ----------- --------------- -------------- -------------- --------------- 1992: Reserve deducted from asset: Allowance for doubtful accounts receivable $ 4,710,000 $ 9,428,000 $ -0- $ 9,821,000(B) $ 4,317,000 ----------- --------------- -------------- -------------- -------------- Accumulated amortization of excess of investment over net assets of subsidiaries acquired $ 17,624,000 $ 7,648,000 $ -0- $ -0- $ 25,272,000 ----------- --------------- -------------- ------------- --------------- 1991: Reserve deducted from asset: Allowance for doubtful accounts receivable $ 5,491,000 $ 2,393,000 $ -0- $ 3,174,000(B) $ 4,710,000 ----------- --------------- -------------- ------------- -------------- Accumulated amortization of excess of investment over net assets of subsidiaries acquired $ 11,225,000 $ 6,399,000 $ -0- $ -0- $ 17,624,000 ----------- --------------- -------------- ------------- --------------
(A) Reserve balance of Bayrol and Lowi at date of acquisition. (B) Uncollectible accounts receivable written off, net of recoveries and foreign currency translation. 10 12 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. GREAT LAKES CHEMICAL CORPORATION - -------------------------------- (Registrant) Date March 1, 1994 /s/ Emerson Kampen - -------------------------------- ----------------------------------- Emerson Kampen, Chairman, 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 1, 1994 /s/ Robert T. Jeffares - ------------------ ----------------------------------- Robert T. Jeffares Senior Vice President and Chief Financial Officer Date March 1, 1994 /s/ Robert J. Smith - ------------------ ----------------------------------- Robert J. Smith, Controller (Principal Accounting Officer) Date March 1, 1994 /s/ William H. Congleton - ------------------ ----------------------------------- William H. Congleton, Director Date March 1, 1994 /s/ John S. Day - ------------------ ----------------------------------- John S. Day, Director Date March 1, 1994 /s/ Herschel H. Friday - ------------------ ----------------------------------- Herschel H. Friday, Director Date March 1, 1994 /s/ Martin M. Hale - ------------------ ----------------------------------- Martin M. Hale, Director Date March 1, 1994 /s/ Leo H. Johnstone - ------------------ ----------------------------------- Leo H. Johnstone, Director Date March 1, 1994 /s/ Emerson Kampen - ------------------ ----------------------------------- Emerson Kampen, Director
11 13 INDEPENDENT AUDITORS' REPORT To the Stockholders of Arkansas Chemicals, Inc.: We have audited the balance sheets of Arkansas Chemicals, Inc. as of December 31, 1993 and 1992, and the related statements of income and retained earnings and of cash flows for each of the three years in the period ended December 31, 1993 (not presented separately herein). 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 generally accepted auditing standards. 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, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Deloitte & Touche Pittsburgh, Pennsylvania January 31, 1994 12 14 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Huntsman Chemical Corporation: We have audited the consolidated balance sheets of Huntsman Chemical Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended (not presented separately herein). These financial statements are the responsibilities 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 generally accepted auditing standards. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Huntsman Chemical Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Deloitte & Touche Salt Lake City, Utah January 26, 1994 (March 18, 1994 as to note 5) 13 EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1
EXHIBIT 11 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS Year Ended December 31 ---------------------------------------------------------------------- 1993 1992 1991 ------------------ ---------------- ------------------ Primary - ------- Net income $272,784,000 $232,735,000 $157,473,000 Average number of shares outstanding 71,329,145 71,164,010 70,700,332 Net income per share $ 3.82 $ 3.27 $ 2.23 Fully diluted - Assuming the exercise of all outstanding stock options using the treasury stock method. - ------------- Average number of shares outstanding 71,329,145 71,164,010 70,700,332 Dilutive shares 1,060,166 1,217,205 1,495,110 ---------- ---------- ---------- 72,389,311 72,381,215 72,195,442 Net income per share $ 3.77 $ 3.22 $ 2.18
EX-13 3 1993 ANNUAL REPORT 1 1993 Financial Highlights Exhibit 13 Great Lakes Chemical Corporation and Subsidiaries
(in thousands of dollars, except per share data) Percentage Growth Current Five Ten 1993 1992 Year Years Years Revenues....................... $1,827,796 $1,538,169 +18.8 +24.3 +23.1 Income Before Taxes and Minority Interest...... $ 415,023 $ 361,022 +15.0 +23.7 +26.6 Percent of revenues.... 22.7 23.5 Net Income..................... $ 272,784 $ 232,735 +17.2 +21.4 +27.6 Per share.............. $ 3.82 $ 3.27 +16.8 +20.9 +25.0 Percent of revenues........ 14.9 15.1 Percent of stockholders' average equity........ 23.6 23.8 Cash Dividends Declared per Share.. $ .35 $ .31 +12.9 +14.2 +15.9 Capital Expenditures............... $ 79,270 $ 69,368 Stockholders' Equity............... $1,256,563 $1,052,851 +19.3 +21.1 +24.4 Per share................. $ 17.50 $ 14.71
2 REVIEW OF OPERATIONS PERFORMANCE CHEMICALS GROUP AS A RESULT OF STRONG WORLDWIDE DEMAND FOR MANY OF THE COMPANY'S BROMINE-BASED SPECIALTY CHEMICALS, AND THE INTRODUCTION OF NEW PRODUCTS, REVENUES FOR THE PERFORMANCE CHEMICALS GROUP INCREASED TO $603.4 MILLION. {GRAPH -- PERFORMANCE CHEMICALS GROUP (in millions of dollars)} The Performance Chemicals Group continued to advance in 1993, reflecting a strong demand for most brominated derivatives. Great Lakes' high value-added products serve an ever-growing range of applications in specialty markets the world over. This diverse group is composed of three discrete sectors: polymer additives, functional intermediates and fine chemicals, and industrial specialty chemicals. POLYMER ADDITIVES By offering the most comprehensive line of bromine-based flame retardant compounds in the world, Great Lakes benefits from market driven, geographic diversification. While demand in the United States remained strong, business conditions in the Pacific Rim also improved despite the fact that Japan, one of the region's largest markets, remained mired in recession. Likewise in Europe, the Company's Great Lakes Chemical (Europe), Ltd., subsidiary reported increased volumes from the prior year while contending with the well-documented economic woes in that part of the world. In order to meet its commitment to supplying customer requirements, Great Lakes increased production capacities of elemental bromine and a number of derivatives. Demand for two of the Company's primary flame retardant products, tetrabromobisphenol-A and decabromodiphenyl oxide, dictated additional expansion. Other debottlenecking and manufacturing improvements will come on-stream this year. These actions promise to keep Great Lakes at the forefront of the brominated polymer additive business. Building on this base, the Company expanded its worldwide plastics additives business through the acquisition of Chemische Werke LOWI GmbH & Co. (Lowi), a leading manufacturer of antioxidants and UV absorbers. This acquisition produced an immediate bottom-line impact and positioned the Company to extend its base in two existing world market areas. Lowi's technology base includes hindered amine light stabilizers (HALS), an important class of UV absorbers. Additionally, Lowi expands our polymer additives business into rubber and adhesives applications. Two other initiatives expanded our presence in key markets. The Company further developed reactive brominated flame retardant products by creating new dibromostyrene derivatives for resins, fibers and textile backcoating applications. Secondly, full registration of NH-1197(R), a proprietary char forming flame retardant, enables the Company to meet specific market requirements on a global basis. FUNCTIONAL INTERMEDIATES AND FINE CHEMICALS The largest contributor in this sector, the Company's furfural and furfural derivatives business, mitigated severe market conditions with reduced manufacturing costs and increased sales of higher margin products. A lingering recession in the world foundry industry continues to restrict demand, compounded by excess inventories and manufacturing capacity. The combined [PHOTO] THE ADDITION OF ANTIOXIDANTS AND HINDERED AMINE LIGHT STABILIZERS (HALS) TO GREAT LAKES' LINE OF POLYMER ADDITIVES ALLOWS ITS GLOBAL CUSTOMERS TO PROTECT POLYMERS FROM THERMAL DEGRADATION, OUTDOOR DISCOLORATION, AS WELL AS MEET TOUGH FLAME RETARDANT CODES IN SUCH APPLICATIONS AS TEXTILE FIBERS, UPHOLSTERY, WALL COVERINGS AND CARPETS. 14 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION PERFORMANCE CHEMICALS GROUP effect has created severe competition and significantly reduced selling prices. Several cost reductions and engineering improvements implemented by the Company have improved productivity. At the same time, process improvements have enhanced the profitability of the Company's POLYMEG(R) polyols product line. During the year, the Company took a number of steps for the future. The manufacturing facilities in Memphis, Tennessee, and Geel, Belgium, received ISO 9002 certification. This designation represents our commitment to stringent quality standards. Octel Chemicals Limited (OCL) performed a wide range of complex manufacturing activities, which doubled their business. This increased activity enhanced Great Lakes' presence in the European specialty and fine chemicals industry while augmenting the Company's manufacturing know-how in a wide range of high value-added specialty chemicals. INDUSTRIAL SPECIALTY CHEMICALS This sector also took steps to secure long-term growth for a number of important products. FM-200(TM), Great Lakes' breakthrough environmentally friendly fire extinguishant, received U.S. EPA approval for replacing Halon 1301. FM-200 combines excellent fire extinguishing properties with zero ozone depletion potential and sound toxicological properties. In an unrelated area, the Company commissioned a new plant to manufacture high purity bromide sales for a wide variety of applications in photographic materials, catalysts, pharmaceutical intermediates and other fine chemicals. This facility offers another value-added extension of bromine technology. OUTLOOK The Performance Chemicals Group offers the means for significant growth in 1994 and beyond. Just as in the past, the Company will benefit from a new product pipeline as fertile as ever, selective acquisitions, new market penetrations and expansion of its existing businesses. This strategy enabled the Company to not only grow during economic recessions in several major markets, but it will accelerate our progress in 1994 as these conditions improve. WATER TREATMENT CHEMICALS GROUP REGISTERING SOME OF THE CORPORATION'S SHARPEST GAINS, THE WATER TREATMENT CHEMICALS GROUP POSTED REVENUES NEARLY 40 PERCENT HIGHER THAN 1992. KEY ACQUISITIONS AND THE CONTINUED PENETRATION INTO U.S. AND INTERNATIONAL MARKETS CONTRIBUTED TO THIS SUCCESS. {GRAPH -- WATER TREATMENT CHEMICALS GROUP (in millions of dollars)} Sales for the Water Treatment Chemicals Group surpassed all previous levels in 1993. This business benefited from market penetrations around the world, new product introductions, and overall improved efficiencies in the manufacture and marketing of the Company's products. A return to normal weather conditions in important regions of the United States extended the pool season and contributed meaningfully to the year's success. RECREATIONAL As a premier full-line supplier of both chemicals and equipment for pools and spas, Great Lakes' wholly-owned subsidiary Bio-Lab, Inc., continued to open new doors to vast new markets. The early 1993 acquisition of Bayrol Chemische Fabrik GmbH, Europe's leading supplier to recreational markets, enabled Great Lakes to immediately access important markets in Mediterranean countries, as well as throughout the continent. Added to Bio-Lab's established presence in Canada, Australia, and New Zealand, Great Lakes is positioned to serve the profitable recreational water treatment business in the world's key markets. Bio-Lab took another key step in its growth strategy with the acquisition of Aqua Chem. This move brought with it a number of benefits such as increased U.S. market share and a well-established line of products. Most importantly, Aqua Chem provided direct access to the fastest growing sector of the pool and spa products distribution market, mass merchandisers such as retail powerhouses Home Depot, K-Mart and Sam's Wholesale Club. Bio-Lab achieved its premier position by delivering comprehensive customer support and innovative product development. It offers the most sophisticated computerized pool water analysis in the industry today. A consumer may go to any of Bio-Lab's over 5,000 outlets and receive applications support designed to keep all the elements of pool water balanced at the proper levels. Again in 1993, Bio-Lab introduced new products and launched a patented program to penetrate a new market sector. 4 REVIEW OF OPERATIONS WATER TREATMENT CHEMICALS GROUP The new BioGuard(R) SoftSwim(TM) system offers pool owners an effective non-chlorine system for treating pool water. For pool owners who prefer a more conventional approach, Bio-Lab offers the BioGuard(R) Smart Sticks(TM) that allow a convenient, once-a-week application. Bio-Lab also unveiled the Vantage(TM) Commercial System, which utilizes patented bromine-based technology, for municipal pools, water parks, resort or specialty pools, and other large commercial pools. INDUSTRIAL Around the world, countries are striving to implement more stringent standards to protect water as a vital natural resource. Great Lakes is meeting this global demand for new water treatment technology with its high-performance, bromine-based biocides. For some time now, we have documented the factors driving the advent of bromine technology in industrial applications. Great Lakes' proprietary products offer the ability to replace traditional biocides with environmentally suitable alternatives; address safety and handling problems encountered with conventional products; and meet the growing need for products that will comply with increasingly stringent toxicological and regulatory standards. Given these attributes, the Company's products are penetrating markets not only in the United States, but around the world as well. A new consumer application recently approved in Japan promises to increase dramatically the demand for bromine-based products throughout the Pacific Rim. At the same time, our wholly-owned subsidiary Great Lakes Chemical (Europe), Ltd., is actively meeting market needs in Western Europe. One of the most significant accomplishments during the year occurred when GLC(E) secured product approvals for BromiCide(R) in Sweden. This country is widely considered to have the most stringent environmental requirements in Europe. With this certification in hand, Great Lakes is gaining access in other markets. In Germany, for example, regulatory authorities have qualified BromiCide(R) for pulp and paper applications. Having demonstrated its viability, the product is currently under review for similar uses in the United States and Canada, where these markets await alternatives to current products. [PHOTO] EXTENDING ITS MARKET PRESENCE, BIO-LAB RECENTLY ACQUIRED THE AQUA CHEM(R) SWIMMING POOL CHEMICALS DIVISION, WHICH PROVIDES AN ESTABLISHED FOOTHOLD IN MAJOR RETAIL OUTLETS ACROSS THE COUNTRY. OUTLOOK The future of Great Lakes' Water Treatment Chemicals Group remains bright. The Company is one of this country's top suppliers of pool and spa chemicals and equipment in the $1 billion-plus U.S. market. And through its extensive international presence, the Company is advancing on a global scale. At the same time, demand is increasing for its bromine-based industrial water treatment products that have excellent biocidal characteristics and meet important environmental considerations. New, emerging opportunities in this country range from broader penetration in wastewater treatment to potable water treatment applications in home and municipal markets. 16 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION PETROLEUM ADDITIVES GROUP A NUMBER OF INITIATIVES, RANGING FROM AN AGGRESSIVE DIVERSIFICATION STRATEGY TO FORTIFYING ITS LEADERSHIP POSITION IN WORLD MARKETS, CONTRIBUTED TO THE ONGOING EXPANSION OF THE COMPANY'S PETROLEUM ADDITIVES GROUP, WHICH REGISTERED REVENUES OF $551.2 MILLION. {GRAPH - PETROLEUM ADDITIVES GROUP (in millions of dollars)} Like its other major groups, Great Lakes' Petroleum Additives operations posted impressive gains in earnings and revenues by improving the fundamentals of its existing business, increasing its manufacturing efficiencies and penetrating new markets with innovative product development. At the heart of this business is Octel Associates, the world's leading producer of certain antiknock compounds and a leading developer and manufacturer of other fuel additives and specialty chemical products. Octel completed two initiatives to enhance the future of its primary business. Earlier in the year, Octel began supplying additional quantities of antiknock compound to Du Pont for the Mexican market through an extension of its earlier supply agreement with Du Pont. An in January 1994, Octel announced it had reached a long-term agreement to supply Ethyl Corporation's antiknock compound requirements. Ethyl, in turn, will shut down its only remaining facility for this product on March 31, 1994. This will enable Octel to maintain its high manufacturing rates, its low unit costs, and will extend the manufacturing viability of its plants. Octel stands today better positioned to lead this market through the challenges that lie ahead. Another key element of Octel's strategy for future growth entails improving manufacturing efficiency. Working in cooperation with Great Lakes engineers, Octel improved its bromine extraction technology to increase production by about one-third. This move not only impacts antiknock compound economics, but also provides a lower cost source of European-based bromine for future product line expansion in that area of the world. As the world's largest producer of bromine from seawater, and the world's second largest producer of sodium, Octel offers the Company an abundant supply of low-cost raw materials for use in specialty chemicals. Combined with its European manufacturing base and international marketing and distribution network, Octel is fully equipped to emerge as a major producer of specialty chemicals. Aggressive research and development efforts have generated several new intermediates, plus a number of organic products developed for existing markets. Three agrochemicals with definite market potential have advanced to the commercialization stage. Octel's primary diversification efforts, however, focus on other fuel additives, including cetane enhancers, gasoline and [PHOTO] WELL KNOWN AS A WORLD LEADER IN FUEL ADDITIVES TECHNOLOGY, OCTEL ASSOCIATES IS ALSO ACTIVELY ENGAGED IN INNOVATIVE RESEARCH INTO NEW SPECIALTY CHEMICALS SUCH AS WORK IN CHIRAL CHEMISTRY DESIGNED TO DEVELOP THIN LAYER COATINGS FOR USE IN THE ELECTRONICS INDUSTRY. 17 6 REVIEW OF OPERATIONS PETROLEUM ADDITIVES GROUP diesel detergents, combustion and cold flow improves for diesel fuel, and a variety of corrosion inhibitors. At the forefront of our fuel additives research is Octel's Milton Keynes Engine Laboratory, a world-class fuel and development facility. Once Octel launches a new product for specific market requirements, it is fully equipped to introduce these products on a global basis. The joint marketing agreement with Du Pont will open North American markets for Octel's fuel additives. During the year, Octel restructured its sales force to place increasing emphasis on market opportunities outside of the antiknock area. As a result, sales of its growing range of fuel additives increased substantially, not only in its traditional markets, but also in North America. OUTLOOK The Company's Petroleum Additives business promises to meet our expectations for years to come. Today, the prospects for Octel's primary business have never been brighter, nor its competitive position stronger. By implementing a well-defined strategy, Octel has secured its prominent position. It is prepared to serve current markets, as well as new demands in growth markets such as Russia, China, and Eastern Europe. While meeting its stewardship responsibilities in its main product line, Octel will advance its diversification efforts across many technologies. Its new fuel additives and specialty chemical products will accelerate the transformation of this company to serve more diverse markets and plan an even more integral role in Great lakes' future. SPECIALIZED SERVICES AND MANUFACTURING GROUP GREAT LAKES' SPECIALIZED SERVICES AND MANUFACTURING GROUP DELIVERED A RECORD PERFORMANCE IN 1993, POSTING REVENUES 69 PERCENT HIGHER THAN THE PREVIOUS YEAR. OUTSTANDING PERFORMANCES BY THE COMPANY'S SUBSIDIARIES--EIM CORPORATION, WTL RESEARCH LABORATORIES, AND THE NEWLY-FORMED ENVIRA-ENERGY PERFORMANCE GROUP--ADDED TO THE EXCELLENT GAINS. {GRAPH -- SPECIALIZED SERVICES AND MANUFACTURING GROUP (in millions of dollars)} No matter how large it grows, Great Lakes remains an entrepreneurial company committed to developing and acquiring technologies that serve fast-growing markets. By selectively targeting emerging technologies, the Company accesses businesses that produce high margins and high returns on equity. CUSTOM MANUFACTURING Great Lakes extends its engineering and manufacturing expertise by working on single customer projects to develop and manufacture custom compounds and intermediates that meet complex performance, environmental and quality requirements. This sophisticated work is conducted primarily at the Company's manufacturing facilities in Memphis and Newport, Tennessee; Konstranz, Germany; and Manchester, England. These plants maintain a total quality management system that offers customers worldwide assurance of the very highest of quality standards. In 1993, Great Lakes added to its track record by obtaining a multi-year contract to manufacture an intermediate used in the production of pesticide products and animal health products. Secrecy agreements prevent further disclosure of this and other new opportunities that build upon the Company's highly regarded ability for speedy scale-up from basic chemistry to full-production manufacture. ENVIRO-ENERGY PERFORMANCE GROUP Reorganized in 1993 to reflect its broadened capabilities, this group consists of OSCA, Inc., and three subsidiaries: Four Seasons Environmental, Aquaterra and IES which all perform environmental services. In 1993, OSCA posted record results as a leading producer and supplier of bromine-based clear completion fluids, as well as a variety of ancillary services used in the production of oil and natural gas. This record performance reflected a marked increase in activity in the oil and gas industry along the Gulf of Mexico. OSCA also benefitted from the penetration of new international markets, both in the North Sea production fields and in Central and South America. OSCA's 1993 acquisitions, which extended its presence in the environmental services sector, rounded its diversification objectives. The success of this initiative is marked by new contracts which could generate revenues in excess of $90 million over the next four years. This work represents both public and private sector commitments for environmental remediation services. 18 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SPECIALIZED SERVICES AND MANUFACTURING GROUP TOXICOLOGICAL TESTING Great Lakes' WIL Research Laboratories, Inc., subsidiary is one of a select few fully integrated toxicological testing facilities in the U.S. It performs an integral role in the development and approval processes for new products. WIL set new financial highs for a sixth consecutive year in 1993. WIL conducts sophisticated testing for major pharmaceutical and chemical companies around the world. Together with newly expanded capabilities for toxicological reviews, WIL is well-positioned to continue along this growth curve for years to come. [PHOTO] GREAT LAKES' ENVIRO-ENERGY PERFORMANCE GROUP OFFERS A COMPREHENSIVE LINE OF ENVIRONMENTAL CONSULTING AND REMEDIATION SERVICES, INCLUDING FOUR SEASONS' INNOVATIVE MOBILE THERMAL TREATMENT SYSTEM WHICH IS A COST-EFFECTIVE METHOD FOR TREATING CONTAMINATED SOILS. ENGINEERED SURFACE TREATMENTS E/M Corporation, a wholly-owned Great Lakes subsidiary, is a leading developer and applicator of engineered surface coatings and finishes that impart a variety of value-added properties to surfaces, including corrosion control, electromagnetic shielding or conductivity, lubricity, texture and color. Extending its leadership position in engineered surface treatment technology across a myriad of markets, E/M more than offset continued declines in the aerospace industry, one of its principal markets. This past year, the business realized an important benefit from its halon recycling business. This unique environmental program created a viable opportunity for the fire service industry to manage redistribution of halon fire extinguishants while providing a commercial grade supply of halon during the interim period when certain applications convert to FM-200(TM). INTERNATIONAL TRADING Through Great Lakes' 78 percent ownership, Chemol RT provides access to key Central and Eastern European markets for a wide range of the Company's products and services. Chemol, the former state-owned trading company of Hungary imports and exports chemical products that include organic and inorganic chemicals, petrochemicals and finished agrochemicals. While the business has been adversely affected by recessionary conditions throughout Europe, Chemol had demonstrated its ability to penetrate these markets and successfully introduce Great Lakes' products to a new customer base. OUTLOOK The Specialized Services and Manufacturing Group is positioned for across-the-board growth as the Company continues to apply its fundamental business principles. Each of them has strategically created leadership positions in specialty markets that promise continued growth well into the future. 19 8 FINANCIAL REVIEW
(in thousands of dollars, except per share data) 1993 1992 1991 1990 SUMMARY OF EARNINGS Revenues $ 1,827,796 1,538,169 1,347,881 1,113,519 Percent increase over previous year... 18.8 14.1 21.0 31.4 Income before taxes and minority interest.... $ 415,023 361,022 320,321 289,890 Percent of revenues..... 22.7 23.5 23.8 26.0 Income taxes............ $ 110,600 100,000 68,000 68,600 Percent of income before taxes...... 28.8 30.1 30.2 32.8 Net income.............. $ 272,784 232,735 157,473 140,849 Per share*.............. $ 3.82 3.27 2.23 2.00 Percent of revenues..... 14.9 15.1 11.7 12.6 Percent of stockholders' average equity....... 23.6 23.8 19.2 21.1 FINANCIAL POSITION AT YEAR-END Working capital......... $ 489,179 342,171 338,009 301,092 Current ratio........... 2.3 1.8 2.1 2.0 Capital expenditures.... $ 79,270 69,368 71,243 48,565 Total assets............ $ 1,900,864 1,731,989 1,649,132 1,406,296 Long-term debt.......... $ 61,041 45,642 139,788 76,657 Percent of total capitalization....... 5.1 7.3 4.4** 12.8 SHARE DATA Stockholders' equity.... $ 1,256,563 1,052,851 900,344 744,158 Per share*................ $ 17.50 14.71 12.66 10.54 Cash dividends per share* Declared during year...... $ .35 .31 .27 .23 Paid during year.......... $ .34 .30 .26 .22 Payout as percent of net income................. 9.2 9.5 12.1 11.5 Shares outstanding* Average during year....... 71,329,145 71,164,010 70,700,332 70,287,088 At year-end............... 71,817,996 71,576,558 71,090,090 70,609,250 Stock price* High...................... $ 84 71 3/8 58 34 Low....................... $ 64 1/2 50 1/4 30 3/8 20 3/8 At year-end............... $ 74 5/8 69 1/4 57 1/4 31 7/8
*Restated to reflect the 100 percent stock dividends on January 30, 1992, October 31, 1989, and October 1, 1983. **Excludes debt of $125 million incurred to fund the acquisition of Shell's interest in Octel. 20 9 Great Lakes Chemical Corporation and Subsidiaries
Ten-Year Growth 1989 1988 1987 1986 1985 1984 1983 Percentage 847,738 616,046 501,010 305,703 281,952 283,261 228,220 23.1 37.6 23.0 63.9 8.4 (.5) 24.1 30.6 201,671 143,488 85,036 42,717 45,368 56,543 39,180 26.6 23.8 23.3 17.0 14.0 16.1 20.0 17.2 45,000 40,200 29,500 15,900 16,550 20,975 15,338 21.8 26.8 28.0 34.7 37.2 36.5 37.1 39.1 122,918 103,288 55,536 26,817 28,818 35,568 23,842 27.6 1.76 1.48 .83 .44 .48 .60 .41 25.0 14.5 16.8 11.1 8.8 10.2 12.6 10.4 22.9 23.6 18.2 13.0 15.7 22.6 18.2 236,648 100,238 101,083 113,370 78,009 66,728 50,856 25.4 2.1 1.8 1.9 2.4 2.3 2.4 2.3 40,466 47,017 35,186 18,327 25,601 28,770 20,370 1,097,400 663,838 577,087 491,567 323,121 284,414 227,040 23.7 113,700 19,266 42,149 163,319 36,862 35,011 25,098 17.5 3.7 9.4 40.1 15.5 15.6 14.9 590,861 482,225 392,602 216,265 195,416 172,750 141,410 24.4 8.41 6.91 5.64 3.60 3.26 2.89 2.38 22.1 .20 .18 .16 .14 .12 .10 .08 15.9 .19 .17 .15 .13 .11 .09 .08 15.6 11.1 11.8 18.6 30.2 23.8 16.0 19.0 69,885,212 69,658,840 66,469,556 59,992,472 59,841,260 59,654,404 58,606,696 70,232,826 69,767,184 69,580,948 60,044,516 59,908,468 59,741,792 59,436,564 24 16 1/2 19 1/4 11 1/8 11 1/8 9 5/8 9 7/8 14 1/8 12 1/8 9 7 1/2 7 7/8 6 4 1/4 23 5/8 14 5/8 13 1/2 9 9 3/4 8 3/8 8 1/2 24.3
21 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING RESULTS 1993 COMPARED WITH 1992 Revenues for 1993 were a record $1,827.8 million, an increase of 18.8 percent over the $1,538.2 million reported in 1992. For the five and ten-year periods ended in 1993, the Company's revenues have grown at an annual compound rate of 24 percent and 23 percent, respectively. Net sales in 1993 were $1,792 million, an increase of 19.8 percent over 1992's net sales of $1,496.5 million. Price and volume gains in the core business amounted to approximately $95 million and acquisitions contributed about $290 million. These gains were offset by $90 million of unfavorable currency effects. The acquisitions of Bayrol, Lowi, Four Seasons and Aqua Chem, completed in 1993, added approximately $120 million in sales. In addition, the full year effect of the 1992 acquisitions of Chemol, Societe Francaise d'Organo-Synthese (GLCF) and Octel Kuhlmann added approximately $170 million in sales. Again in 1993, approximately 50 percent of the Company's sales were denominated in foreign currencies, particularly the British pound sterling. To minimize the impact of currency fluctuations, the Company uses foreign exchange contracts, average put options, and other financial instruments. In early 1993, a dollar billing program was implemented which converted approximately 40 percent of Octel's sales from pound sterling to dollars. This program's objective is to insulate Octel's profits, as measured in dollars, from fluctuations of the pound sterling. For the year 1993, approximately 30 percent of Octel's sales were billed in dollars. It is anticipated that 1994 dollar billing will amount to approximately 40 percent of sales. Despite the success of these programs, the relative strength of the dollar against most European currencies, including the pound sterling, negatively impacted sales by approximately $90 million. Price increases, primarily for petroleum additives and the Company's halon products which were phased out of production at the end of 1993, offset approximately two-thirds of the currency effect. Volume increases and favorable product mix resulted in a net increase in sales of approximately $35 million. Volume gains were registered in the Company's domestic Performance Chemicals, Water Treatment Chemicals and the oil field services businesses. The recessionary economy in Europe and Japan negatively affected volumes especially for furfural-based products.
- --------------------------------------- Percent Increase in Year Net Sales from Prior Years - --------------------------------------- 1993 19.8 1992 14.4 1991 22.6 - ---------------------------------------
Equity in earnings of affiliates and other income was $35.8 million, down 14 percent from $41.7 million achieved in 1992. The Company's share of income from affiliates declined $4.2 million to $10.9 million, reflecting a decline in the recognized earnings of Huntsman Chemical Corporation after goodwill amortization and the effect of acquiring a 100 percent interest in Octel Kuhlmann in August 1992. Prior to the acquisition, Octel's 50 percent interest in Octel Kuhlmann was recorded on an equity basis. Lower interest rates in 1993 resulted in interest income declining $3 million, or 22 percent, to $10.6 million, despite an increase in average short-term investments. Other income in 1992 included $3.9 million of insurance reimbursements for litigation expense incurred in 1987 to 1991 relative to ethylene dibromide (EDB). Other income in 1993 included a comparable amount related to the October 1993 sale of the Company's lube oil additives business that was acquired as part of the October 1992 purchase of GLCF. The sale of this business will allow management to focus more attention on its core polymer additives business. Gross margins of 36.8 percent remained essentially unchanged from the 36.9 percent achieved in 1992. Gross profits of $659 million were up $106 million, or 19 percent over 1992's $552 million. On an overall basis, about half of the increase in gross profits was contributed by recent acquisitions. Profit margins of these businesses, especially the Hungarian trading company, Chemol RT, are generally lower than the Company's average. Actions are progressing to affect the synergies, cost savings, and market expansions necessary to bring performance in line with corporate goals. The remainder of the gross profit increase came from the aforementioned price and volume improvements which more than offset negative currency effects. Changes in production costs and 22 11 Management's Discussion and Analysis of Results of Operations and Financial Condition purchased material prices were not a significant factor on gross margin. More specifically, Performance Chemicals showed improvement on the strength of the flame retardant business. The demand for these products and other bromine-based products has resulted in capital projects to debottleneck bromine capacity and to expand production capacity for other bromine derivatives which will come on stream in early 1994. Octel improved their already excellent margins on the strength of price increases and production efficiency. Alkyl lead additives sales volume declined about 2.5 percent from 1992, before factoring in the acquisition of Octel Kuhlmann. This acquisition plus the recently announced agreement to supply Ethyl Corporation's requirements are expected to extend the life of Octel's manufacturing facilities and improve the efficiency of its worldwide distribution activities. Gross margins increased at Bio-Lab as a result of higher sales volumes due to a relatively good weather year, coupled with the acquisition of Aqua Chem, the introduction of new products and manufacturing process improvements. OSCA continued the improvement started in the second half of 1992, buoyed by a relatively high level of drilling activity in the U.S. Gulf Coast. More importantly, OSCA was able to extend its participation in international markets, principally the North Sea, and become a full-line supplier to drilling companies. QO Chemicals' margins declined as the protracted European and Japanese recession kept foundry industry activity at very low levels, and foreign competition lowered prices in an attempt to obtain market share. Cost reductions and productivity gains were partially successful in offsetting the effects of the price and volume declines.
- ------------------------------------- Gross Profit as a Year Percentage of Net Sales - ------------------------------------- 1993 36.8 1992 36.9 1991 36.3 - -------------------------------------
Selling, administrative and research (SAR) expenses in 1993 were $234 million, an increase of $45 million, or 24 percent, over last year's $189 million. As a percentage of sales, SAR expense increased to 13.1 percent from 12.6 percent. Acquisitions accounted for most of the increase in expense and higher SAR percent to sales ratio. Bayrol, for example, a packager and distributor of pool chemicals, has higher sales and marketing requirements in relation to sales compared to the Company's core businesses. Increased emphasis on research and development projects in core businesses added approximately $6 million to SAR expense. Over the past few years, the Company has concentrated on upgrading its research and development capabilities and expanding its laboratory and pilot plant facilities. Research and development efforts have been focused on the development of new flame retardants, halon replacements, furfural based adhesives, and pharmaceutical intermediates at West Lafayette, as well as new fuel additives at Octel and water treatment products at Bio-Lab.
- ---------------------------------------------------- SAR Expense as a Percentage of Net Sales Selling & Year Administration R&D Total - ---------------------------------------------------- 1993 10.0 3.1 13.1 1992 9.5 3.1 12.6 1991 9.6 3.0 12.6 - ----------------------------------------------------
Interest and other expenses amounted to $45.5 million in 1993, compared to $43.7 million in 1992. Interest expense, net of amounts capitalized, was $7.2 million, down from $11.4 million in 1992, reflecting reduced borrowings at lower interest rates. Amortization of intangible assets, primarily goodwill, increased $11 million to $27.5 million from the $16.5 million recorded in 1992. In 1993, the Company accelerated the amortization of goodwill related to the purchase of Octel to better match amortization with the anticipated decline of the lead compound business resulting in an additional $9 million charge this year. The balance of the goodwill amortization increase is associated with recent acquisitions. Foreign currency exchange gains and losses, which are netted in other expense, resulted in gains of $0.5 million, down from gains of $3.1 million in 1992. In 1993, other expenses declined $7.7 million from 1992. This decline is due in large part to the 1992 write-off of a $9.1 million Russian receivable relating to sales made in 1991. The minority interest in income of subsidiaries, which includes both an approximate 12 percent minority interest in Octel and a 22 percent minority interest in Chemol, increased 11.8 percent to $31.6 million, due to the higher earnings of these operations. The minority interest in Octel is before income taxes since earnings are predominantly from a partnership and, therefore, taxes apply to each partner individually.
- ---------------------------------------------------- Income Before Taxes and Minority Year Interest as a Percentage of Revenues - ---------------------------------------------------- 1993 22.7 1992 23.5 1991 23.8 - ----------------------------------------------------
Income taxes of $110.6 million increased 10.6 percent over last year's $100 million as a result of higher pretax income. The effective tax rate 23 12 Management's Discussion and Analysis for the year was 28.8 percent compared to 30.1 percent in 1992. The 1.3 point decline in the rate results from adoption of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" and the reversal of certain prior year tax provisions that are no longer required. The reductions are offset in part by the cumulative effect of the change in tax laws resulting from the passage of the 1993 Tax Act.
- -------------------------------------------------------------------- Effective Tax Rate Year Percentage - -------------------------------------------------------------------- 1993 28.8 1992 30.1 1991 30.2 - --------------------------------------------------------------------
Net income in 1993 was $272.8 million, a 17.2 percent increase over 1992 net income of $232.7 million. Earnings per share increased to $3.82 per share, up 16.8 percent from the $3.27 per share earned in 1992. Net income as a percentage of revenues was 14.9 percent, down slightly from 15.1 percent in 1992 due to the lower relative earnings to revenues of some of the recent acquisitions.
- ---------------------------------------------------------------------- Year Net Income Per Share - ---------------------------------------------------------------------- 1993 $3.82 1992 3.27 1991 2.23 - ----------------------------------------------------------------------
1992 COMPARED TO 1991 Revenues for 1992 were $1,538.2 million, an increase of 14.1 percent over the $1,347.9 million reported in 1991. The growth reflects higher alkyl lead sales by Octel; the acquisitions of Octel Kuhlmann, Chemol, GLCF, and Ward Blenkinsop (now Octel Chemicals Limited); high demand for flame retardants; and increased custom manufacturing business. Gross profits for 1992 were $552 million, an increase of 17 percent over the $474 million reported in 1991. Gross margins were 36.9 percent and 36.3 percent for 1992 and 1991, respectively. Improvements in flame retardants, industrial water treatment, fuel additives, and custom manufacturing were the principal contributors to the margin gain. The recreational water treatment business maintained margins in a very poor weather year, and QO Chemicals maintained its market position in an extremely competitive environment. OSCA's results were dampened by sluggish U.S. drilling activity. SAR expenses of $189 million in 1992 were up 15 percent over 1991's $164 million but remained at 13 percent of sales. While most of the increase was due to acquisitions, the Company's new European headquarters and the expenses related to Bio-Lab's distribution business were also factors. Research and development costs amounted to $47 million in 1992, a 20 percent increase over 1991. Acquisitions, additional applications laboratories, expanded pilot plant programs, and research related to government product registrations all contributed to the higher costs. Net income for 1992 was a record $232.7 million, a 48 percent increase over 1991 income of $157.5 million. On a per share basis, earnings were $3.27, or 47 percent better than the $2.23 earned in 1991. FINANCIAL CONDITION AND LIQUIDITY The Company again exceeded its goal of returning 20 percent or more on stockholders' equity, achieving 23.6 percent. This return reflects management's emphasis on allocating resources to projects and strategic acquisitions that meet or exceed the Company's return on investment targets in addition to strong earnings of the core businesses.
- ------------------------------------------------------------------ Year Return on Equity - ------------------------------------------------------------------ 1993 23.6 1992 23.8 1991 19.2 - ------------------------------------------------------------------
Cash provided by operating activities was $300 million in 1993. This strong cash flow has allowed the Company to finance the expansion of its core businesses, make strategic acquisitions, and increase stockholders' dividends, while at the same time pay down debt and increase available cash. At December 31, 1993, the level of debt to total capitalization was 5.1 percent, down from 7.3 percent as of December 31, 1992. Cash and cash equivalents were $179.7 million, including $151.3 million of short-term cash investments, an increase in total cash and cash equivalents of $38.9 million over the prior year-end. The Company's investment in working capital, excluding cash and cash equivalents, increased $108 million to $309 million at December 31, 1993. Inventory and accounts receivable have increased while accounts payable and debt have been reduced. The increase in accounts receivable amounting to $42 million, or 12 percent, results from strong late in the year sales of specialty chemicals, fuel additives, and recreational water treatment chemicals. Days sales outstanding in accounts receivable increased 5 days from December 31, 1992, to 76 days outstanding as of December 31, 1993, reflecting the pattern of petroleum additive sales to refineries which have extended terms. Inventories increased approximately $17 million due to the additional pool chemical inventories associated with the 1993 acquisitions of Bayrol and Aqua Chem. Inventory turnover at 3.9 times remained essentially unchanged from the prior year-end. Plant and equipment additions of $79.3 million were approximately 14.3 percent more than the $69.4 million in 1992. In 1993 the Company spent $6 million to complete its new world headquarters, approximately $12 million on environmental related projects, with the balance of the spending for capacity additions and process improvements. Capital spending in 1994 is expected to be in the $80 million 24 13 Managements's Discussion and Analysis of Results of Operations and Financial Condition range. Capital spending related to environmental projects should be comparable to 1993. Commercial paper markets continued to be the Company's primary source of external financing as interest rates remained extremely low during the year. At December 31, 1993, no commercial paper debt was outstanding. During the year, the Company made use of commercial paper borrowing to supplement cash flow for seasonal working capital requirements and arbitrage opportunities. The Company recently negotiated a 3-year, $190 million credit facility with various banks, which provides a backup to the commercial paper program. The new facility replaces an existing facility that expires in May 1994. Additionally, the Company has a shelf registration on file with the Securities and Exchange Commission for $200 million of debt securities which could be issued if needed to finance acquisitions or other corporate requirements. Management has no immediate plans to draw down the revolving credit facility or issue debt securities under the registration statement. Other noncurrent liabilities of $124 million include a $48.6 million reserve for expected future personnel reductions, plant closure and decontamination costs at Octel's alkyl lead plants in the United Kingdom, France and Italy as demand for these products diminishes. Approximately $3.5 million was expended in 1993 compared to $5.2 million in 1992 primarily to complete the closure of a facility in Germany. While the recent agreement to supply Ethyl Corporation's requirements for alkyl lead will keep all the plants operating at a high level, it is anticipated that operations in France and Italy will cease over the next three to five years. Production at the United Kingdom plant should continue into the next century at the current rate of decline. Deferred revenues of $62.4 million included in other noncurrent liabilities represent partial payments for future delivery of product under a long-term supply agreement with a major customer. The Company recognizes revenue using the units-of-production method to amortize deferred revenue for this product over the expected life of the contract. There was no production under this agreement in 1993. Under the terms of the contract, the Company is entitled to retain the advanced payment regardless of production volumes. Stockholders' equity was $1,256.6 million, or $17.50 per share, at December 31, 1993, compared to $1,052.9 million, or $14.71 per share, at the end of 1992. Over the past ten years, stockholders' equity has grown at a compound rate of 24.4 percent. Dividends increased for the twenty-first consecutive year totaling $25 million, or $0.35 per share, compared with $22.1 million, or $0.31 per share, in the prior year. In 1993, the Company purchased 377,100 shares of its stock for a total cost of $25.5 million under a one million share repurchase program authorized by the Board of Directors. The average price per share of the stock purchased was $67.73. Management's intention is to acquire additional shares to the extent of the authorization when market conditions warrant. The cumulative translation adjustment component of stockholders' equity represents the remeasurement of foreign currency denominated assets and liabilities into U.S. dollars. The cumulative translation adjustment decreased stockholders' equity by $25.1 million in 1993. The decline reflects the weakening of European currencies, particularly the British pound sterling, against the dollar. Approximately 42 percent of the Company's net assets are in Europe, predominantly the United Kingdom. OTHER MATTERS The Company's operations, like those of most companies involved in the chemical industry, are subject to increasingly stringent laws and regulations relating to maintaining or improving 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 higher operating costs. Normal spending for environmental compliance, including those associated with waste minimization and pollution prevention programs, amounted to approximately $25 million in both 1993 and 1992 including approximately $12 million for capital equipment in each year. Spending for environmental compliance is anticipated to be in the same range in 1994. 25 14 MANAGEMENTS'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company is a party to various governmental and private environmental actions associated with current and former manufacturing sites and waste disposal sites, including some sites that are on the Environmental Protection Agency's Superfund National Priority List. In most instances, the Company has been viewed as a de minimis contributor and has not expended any significant amounts for remediation of these sites. Future environmental compliance and remediation costs are, at best, difficult to quantify with reasonable assurance. This is due to many factors including the speculative nature of remediation methods and costs, conflicting and imprecise data regarding the nature and extent of waste, the number of other parties involved, and changing governmental regulations. Based upon the information currently available, management believes that adequate provisions have been made in the financial statements and future costs will not have a materially adverse impact on the Company's consolidated financial position. The Company has settled in principle for an immaterial amount two lawsuits and one claim relating to groundwater containing EDB, a soil fumigant which was approved by governmental agencies until banned by the U.S. government in 1983. The Company is actively defending itself in two remaining lawsuits in California which are considerably smaller in scope than the recently settled matters. Management does not believe they will result in material financial consequences to the Company. In 1993, the Company made downward revisions of both the discount rate and the salary rate assumptions used in determining the actuarial present value of the projected benefit obligation to be consistent with prevailing market conditions. These changes will result in pension costs increasing by approximately $1 million after taxes in 1994. Inflation has not been a significant factor for the Company over the last several years. Management believes that inflation will continue to be moderate over the next several years and can be offset through a combination of price increases and productivity improvements. Statement of Financial Accounting Standards Board No. 112, "Employers Accounting for Postemployment Benefits" will be adopted by the Company in 1994 as required. Implementation of this standard will result in an after-tax charge of approximately $1 million. With the Company's strong balance sheet, substantial free cash flow, and access to low-cost external financing, the Company is well-positioned to capitalize on opportunities that may arise in 1994.
Cash Dividends Paid (in dollars) 1993 1992 1st Quarter .08 .07 2nd Quarter .085 .075 3rd Quarter .085 .075 4th Quarter .09 .08
Cash dividends paid per share of common stock of Great Lakes Chemical Corporation, restated to reflect the 100 percent stock dividend on January 30, 1992, and October 31, 1989.
Stock Price Data (in dollars) 1993 Low High 1st Quarter 66 3/4 81 1/4 2nd Quarter 65 1/2 84 3rd Quarter 64 1/2 72 5/8 4th Quarter 70 3/4 79 1/4 Year-End Close 74 5/8
1992 Low High 1st Quarter 50 1/4 62 7/8 2nd Quarter 51 5/8 71 3/8 3rd Quarter 56 1/2 71 4th Quarter 63 70 1/2 Year-End Close 69 1/4
Historical market price ranges by year for the past ten years contained in this report, in dollars per share, of Great Lakes Chemical Corporation common stock in its principal market, the New York Stock Exchange. Share prices have been restated to reflect the 100 percent stock dividends on January 30, 1992, and October 31, 1989. 26 15 Consolidated Statements of Income and Retained Earnings Great Lakes Chemical Corporation and Subsidiaries (in thousands of dollars, except per share data)
YEAR ENDED DECEMBER 31 1993 1992 1991 REVENUES Net sales............................$ 1,792,042 $ 1,496,478 $ 1,307,607 Equity in earnings of affiliates and other income........ 35,754 41,691 40,274 --------- ---------- ----------- 1,827,796 1,538,169 1,347,881 --------- ---------- ----------- COSTS AND EXPENSES Cost of products sold................ 1,133,352 944,186 833,584 Selling, administrative and research expenses.............. 233,909 189,282 164,156 Interest and other expenses.......... 45,512 43,679 29,820 --------- ---------- ----------- 1,412,773 1,177,147 1,027,560 --------- ---------- ----------- INCOME BEFORE TAXES AND MINORITY INTEREST.. 415,023 361,022 320,321 MINORITY INTEREST IN INCOME OF SUBSIDIARIES 31,639 28,287 94,848 --------- ---------- ----------- INCOME BEFORE TAXES........................ 383,384 332,735 225,473 INCOME TAXES............................... 110,600 100,000 68,000 --------- ---------- ----------- NET INCOME................................. 272,784 232,735 157,473 --------- ---------- ----------- RETAINED EARNINGS AT BEGINNING OF YEAR..... 912,352 701,698 563,332 CASH DIVIDENDS DECLARED.................... 24,963 22,081 19,107 --------- ---------- ----------- RETAINED EARNINGS AT END OF YEAR...........$ 1,160,173 $ 912,352 $ 701,698 --------- ---------- ----------- --------- ---------- ----------- NET INCOME PER SHARE.......................$ 3.82 $ 3.27 $ 2.23 CASH DIVIDENDS DECLARED PER SHARE..........$ .35 $ .31 $ .27 AVERAGE SHARES OUTSTANDING................. 71,329,145 71,164,010 70,700,332
See notes to consolidated financial statements. 27 16 Consolidated Balance Sheets Great Lakes Chemical Corporation and Subsidiaries (in thousands of dollars)
DECEMBER 31 1993 1992 ASSETS CURRENT ASSETS Cash and cash equivalents...... $ 179,734 $ 140,801 Accounts and notes receivable, less allowance of $7,088 and $4,317, respectively........... 383,129 340,922 Inventories...................... 275,062 258,009 Prepaid expenses................. 18,994 33,517 ---------- ---------- TOTAL CURRENT ASSETS............. 856,919 773,249 ---------- ---------- PLANT AND EQUIPMENT.................... 468,010 429,834 EXCESS OF INVESTMENT OVER NET ASSETS OF SUBSIDIARIES ACQUIRED............ 341,079 299,635 INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES........... 185,789 186,070 OTHER ASSETS........................... 49,067 43,201 ---------- ---------- $1,900,864 $1,731,989 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable.................... $ 10,253 $ 20,401 Accounts payable................. 136,957 176,806 Accrued expenses................. 92,612 71,677 Income taxes payable............. 109,746 112,246 Dividends payable................ 6,415 5,713 Current portion of long-term debt................ 11,757 44,235 ---------- ---------- TOTAL CURRENT LIABILITIES........ 367,740 431,078 ---------- ---------- LONG-TERM DEBT, LESS CURRENT PORTION... 61,041 45,642 OTHER NONCURRENT LIABILITIES........... 123,618 118,723 DEFERRED INCOME TAXES.................. 73,298 63,269 MINORITY INTEREST...................... 18,604 20,426 STOCKHOLDERS' EQUITY Common stock, $1 par value, authorized 200,000,000 shares, issued 71,817,996 and 71,576,558 shares, respectively............ 71,818 71,576 Paid-in capital.................. 107,268 100,957 Retained earnings................ 1,160,173 912,352 Cumulative translation adjustment...................... (54,563) (29,441) Less treasury stock, at cost, 543,200 and 166,100 shares, respectively.................... (28,133) (2,593) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY....... 1,256,563 1,052,851 ---------- ---------- $1,900,864 $1,731,989 ---------- ---------- ---------- ----------
See notes to consolidated financial statements. 28 17 Consolidated Statements of Cash Flows Great Lakes Chemical Corporation and Subsidiaries (in thousands of dollars)
YEAR ENDED DECEMBER 31 1993 1992 1991 OPERATING ACTIVITIES Net income............................ $272,784 $232,735 $157,473 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion............ 62,475 58,433 49,776 Amortization of intangible assets..... 27,541 16,450 14,041 Deferred income taxes................. (3,000) 3,000 5,400 Unremitted earnings of affiliates..... (4,348) (5,374) (10,191) Gain on sale of assets................ (4,418) 114 (686) Other................................. 2,792 (4,609) 3,259 Change in operating assets and liabilities, net of effects from business combinations: Accounts receivable................... (33,281) (4,454) (1,605) Inventories........................... 6,670 3,484 (18,436) Other current assets.................. 2,042 (9,265) (2,353) Accounts payable and accrued expenses............................ (51,048) (12,197) (8,109) Income taxes and other current liabilities......................... 21,765 42,257 13,261 -------- -------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES... 299,974 320,574 201,830 INVESTING ACTIVITIES Plant and equipment additions......... (79,270) (69,368) (71,243) Business combinations, net of cash acquired............................ (89,827) (204,087) (44,119) Use of time deposit to fund acquisition......................... -- (114,000) (125,000) Proceeds from sale of assets.......... 14,024 480 6,669 Other................................. (8,449) 9,161 822 --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES....... (163,522) (149,814) (232,871) FINANCING ACTIVITIES Net repayment and borrowings under short-term credit lines............. (11,941) 4,256 12,977 Proceeds from long-term borrowings.... 15,234 9,047 13,773 Net increase (decrease) in commercial paper and other long-term obligations.......... (49,995) (92,958) 24,371 Payments of other noncurrent liabilities.......................... (4,015) (5,640) (9,313) Minority interest..................... (822) 6,301 11,837 Proceeds from stock options exercised............................ 3,203 2,873 4,187 Cash dividends declared............... (24,963) (22,081) (19,107) Repurchase of common stock............ (25,540) -- -- -------- ------- ------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES................................ (98,839) (98,202) 38,725 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS...................... 1,320 (12,728) 12,695 ------ ------- ------ INCREASE IN CASH AND CASH EQUIVALENTS....... 38,933 59,830 20,379 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 140,801 80,971 60,592 ------- ------ ------ CASH AND CASH EQUIVALENTS AT END OF YEAR................................... $179,734 $140,801 $ 80,971 -------- -------- -------- -------- -------- --------
See notes to consolidated financial statements. Parentheses indicate decrease in cash and cash equivalents. 29 18 Notes to Consolidated Financial Statements ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all subsidiaries of the Company after elimination of all 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. CASH EQUIVALENTS The Company considers investment securities with maturities of three months or less, when purchased, to be cash equivalents. INVENTORIES Approximately 84 percent of inventories are stated at the lower of cost (first-in, first-out method) or market. Finished products inventories of QO Chemicals, Inc., are stated at the lower of cost (last-in, first-out method) or market. PLANT AND EQUIPMENT Plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets using the straight-line, declining-balance and unit-of-production methods. The costs of gas wells, leases and royalty interests are amortized by the unit-of-production method based upon estimated recoverable reserves and annual volumes of production. EXCESS OF INVESTMENT OVER NET ASSETS OF SUBSIDIARIES ACQUIRED Excess of investment over net assets of subsidiaries acquired is amortized over periods of eight to 40 years. As of December 31, 1993 and 1992, accumulated amortization was $43,242,000 and $25,272,000, respectively. INCOME TAXES Income taxes are provided on the portion of the income of unconsolidated affiliates that is expected to be remitted to the parent company and be taxable. RETIREMENT PLANS Noncontributory defined benefit pension plans cover substantially all employees located in the United States, and contributory defined benefit plans cover substantially all employees in the United Kingdom. Accrued pension costs of qualified plans are funded. Pension contributions are computed actuarially under the projected unit credit cost method and include normal costs and amortization of prior service costs over approximately 30 years. SHARE DATA Net income per share is computed on the weighted average number of shares outstanding for all periods presented. The effect on net income per share resulting from the assumed issuance of shares reserved for stock options is not material. ACQUISITIONS In 1993 the Company completed four acquisitions described below at a total cost of $72,000,000, including $10,000,000 in future payments to be made over four years. The excess of purchase cost over the net assets acquired amounted to approximately $30,000,000. Two acquisitions were completed in 1993 that strengthened the Company's position in the recreational water treatment market. On January 4, 1993, the Company completed the purchase of Bayrol Chemische Fabrik GmbH, (Bayrol). Bayrol's headquarters and manufacturing plants are in Munich, Germany, and it maintains sales and distribution centers in France and Spain. On May 3, 1993, the Company acquired Aqua Chem, a supplier of swimming pool and spa chemicals to mass merchants in the United States. On January 13, 1993, the Company completed the purchase of Four Seasons Industrial Services, Inc., and two associated companies. Located at Greensboro, North Carolina, Four Seasons provides environmental remediation, consulting and on-site treatment services to customers in the southeastern United States. 30 19 Great Lakes Chemical Corporation and Subsidiaries On June 23, 1993, the Company acquired Chemische Werke LOWI GmbH & Company, a German-based manufacturer of antioxidants and UV absorbers, to complement the Company's worldwide plastics additives business. On October 2, 1992, the Company acquired all the outstanding shares of Societe Francaise d'Organo-Synthese (GLCF), a specialty chemicals subsidiary of Rhone-Poulenc Chemie. The purchase price consisted of approximately $55,000,000 in cash at closing and annual cash payments for a period of five years totaling approximately $9,000,000. The excess of purchase price over the book value of net assets acquired amounted to approximately $12,000,000. GLCF, headquartered near Paris with manufacturing facilities in Catenoy and Persan, France, produces polymer additives and specialty polymers for the ink and coatings industries. On March 16, 1992, the Company completed its purchase of Shell U.K. Limited's (Shell) 36.67 percent interest in Octel Associates and The Associated Octel Company, Limited. Together with the Company's previous acquisition of 51.15 percent on May 18, 1989, its total interest in Octel is 87.82 percent. The purchase agreement had a July 1, 1991, effective date but closing was delayed pending resolution of various partnership issues. The Company has included the additional earnings from Octel effective January 1, 1992. At closing the Company paid Shell approximately $138,000,000 plus interest from July 1, 1991. The Company received from Shell approximately $46,000,000 plus interest representing Shell's share of partnership distributions since July 1, 1991. The agreement further provided that the Company compensate Shell for the United Kingdom income tax liability on the partnership profits attributable to Shell's interest in Octel from July 1, 1991, to closing. The excess of purchase price over the book value of net assets acquired was approximately $21,000,000 including purchase accounting adjustments. The Company's May 18, 1989, acquisition agreement for Octel with three major oil companies provides for profit participation payments for specified periods of time after the date of acquisition. Such profit participation is treated as an adjustment to the purchase price. These payments amounted to approximately $36,000,000 in 1993 and to approximately $133,000,000 since acquisition. During 1992, the Company also acquired, in separate transactions with an aggregate cost of approximately $41,000,000 in cash, all the outstanding shares of Ward Blenkinsop and Company, Limited, a fine chemical manufacturing business near Manchester, England; a 78 percent ownership in Chemol RT, the former state-owned chemical trading company of Hungary, headquartered in Budapest; and a 100 percent interest in Octel Kuhlmann, the French fuel additives manufacturing facility which had previously been a 50 percent owned affiliate. The excess of purchase price over the book value of net assets acquired totaled approximately $7,000,000. All acquisitions have been accounted for as purchases and the results of operations of the acquired businesses are included in the consolidated financial statements from the dates of acquisition. The following represents the unaudited proforma results of operations as if the above-noted business combinations had occurred at the beginning of the respective year in which the companies were acquired as well as at the beginning of the immediately preceding year:
(in thousands, except earnings per share) YEAR ENDED DECEMBER 31 1993 1992 1991 - --------------------------------------------------------------------------------------- Net sales ........... $1,821,500 $1,848,600 $1,649,500 Net income .......... $ 274,000 $ 236,900 $ 201,400 Earnings per share ............ $ 3.84 $ 3.33 $ 2.85
The proforma results do not purport to present the Company's actual operating results had the acquisitions been made at the beginning of 1993, 1992 and 1991, or the results which may be expected in the future. 31 20 Notes to Consolidated Financial Statements CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of the following:
(in thousands) DECEMBER 31 1993 1992 - --------------------------------------------------------------------- Cash .............................. $ 28,415 $ 25,925 Time deposits....................... 151,319 114,876 --------- -------- $ 179,734 $140,801 --------- -------- --------- --------
INVENTORIES The major components of inventories are as follows:
(in thousands) DECEMBER 31 1993 1992 - ---------------------------------------------------------------------- Finished products...... $190,867 $178,449 Raw materials.......... 54,333 53,406 Supplies............... 29,862 26,154 -------- -------- $275,062 $258,009 -------- -------- -------- --------
Cost of applicable inventories using the last-in, first-out valuation method approximates current cost at December 31, 1993 and 1992. PLANT AND EQUIPMENT Plant and equipment consist of the following:
(in thousands) DECEMBER 31 1993 1992 - ----------------------------------------------------------------------------- Land........................................$ 14,200 $ 11,831 Buildings and land improvements............. 86,293 66,794 Equipment and leasehold improvements........ 674,354 620,228 Gas wells, leases and royalty interests..... 4,670 4,541 Construction in progress (estimated additional cost to complete at December 31, 1993, $20,000)........... 51,267 34,676 -------- -------- 830,784 738,070 Less allowances for depreciation, depletion and amortization ........... 362,774 308,236 -------- -------- $468,010 $429,834 -------- -------- -------- --------
The estimated useful lives for purposes of computing depreciation are: buildings and land improvements, 7-40 years; equipment and leasehold improvements, 2-17 years. Maintenance and repairs charged to costs and expenses were $81,420,000, $72,070,000 and $65,978,000 for 1993, 1992 and 1991, respectively. Rent expense for all operating leases amounted to $16,138,000, $12,248,000 and $11,110,000 for 1993, 1992 and 1991, respectively. NOTES PAYABLE Data concerning borrowings are as follows:
1993 1992 1991 - ---------------------------------------------------------------------------- Amounts borrowed (in thousands): Maximum during the year........ $31,082 $25,487 $20,473 Average for the year........... $17,734 $16,606 $ 6,431 Weighted average interest rates: At December 31................. 8.5% 9.4% 10.1% On borrowings during the year.. 7.6% 9.4% 8.6%
The Company has no confirmed short-term credit lines, but has available for its use substantial non-confirmed credit lines. LONG-TERM DEBT Long-term debt is summarized as follows:
(in thousands) DECEMBER 31 1993 1992 - ---------------------------------------------------------------------------- Commercial paper, at average year-end interest rate of 3.7%................... $ -- $36,643 Industrial development bonds, at fixed and variable interest rates from 3.3% to 7% at December 31, 1993 (weighted average 3.7%), with maturities to May 2025 ..... 22,335 24,350 Other......................................... 50,463 28,884 ------- ------- 72,798 89,877 Less current portion ......................... 11,757 44,235 ------- ------- $61,041 $45,642 ------- ------- ------- -------
In early 1994, the Company entered into a three-year $190,000,000 revolving credit facility with seven banks which serves as a backup for the Company's commercial paper program. The facility replaced a $180,000,000 credit agreement that would have expired in May 1994. The agreement provides various interest rate options, including the banks' prime interest rate, and contains restrictive financial covenants, including a maximum leverage ratio and an interest coverage rate. The Company's commercial paper is rated A-1 by Standard and Poor's and P-1 by Moody's. The Company has on file a shelf registration with the Securities and Exchange Commission for $200,000,000 of debt securities. Once issued, the security proceeds will be utilized by the Company as required from time to time for acquisitions and other corporate purposes. Long-term debt matures as follows: 1994, $11,757,000; 1995, $7,274,000; 1996, $6,286,000; 1997, $6,476,000; and 1998, $6,833,000. 32 21 Great Lakes Chemical Corporation and Subsidiaries During 1993, 1992 and 1991, interest costs were $8,174,000, $12,383,000 and $12,291,000, respectively, of which $928,000, $1,023,000 and $1,814,000, respectively, were capitalized as additional costs of equipment and leasehold improvements in connection with the expansion of physical facilities. In these years, interest payments were $8,167,000, $11,946,000 and $12,254,000, respectively. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities consist of the following:
(in thousands) DECEMBER 31 1993 1992 - ------------------------------------------------------------------- Future estimated closing costs of Octel's manufacturing facilities .......... $ 48,646 $ 45,060 Deferred revenue .......................... 62,433 62,563 Other ..................................... 12,539 11,100 --------- --------- $ 123,618 $ 118,723 --------- --------- --------- ---------
Deferred revenue represents funds provided as an advance partial payment for product to be delivered under the terms of a long-term supply contract with a major customer. The Company recognizes the deferred revenue using a units-of-production method. INCOME TAXES Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Statement of Financial Accounting Standards No. 109, ``Accounting for Income Taxes.'' The cumulative effect of adopting this Statement as of January 1, 1993, was an increase in net income of $3,000,000. The following is a summary of domestic and foreign income before income taxes, the components of the provisions for income taxes and deferred income taxes, and a reconciliation of the U.S. statutory income tax rate to the effective income tax rate. The 1993 tax data is presented on the liability method. The 1992 and 1991 data is on the deferred method.
Income Before Taxes: (in thousands) YEAR ENDED DECEMBER 31 1993 1992 1991 - ------------------------------------------------------------------------ Domestic ........................ $148,078 $127,745 $104,787 Foreign ......................... 235,306 204,990 120,686 ------- ------- ------- $383,384 $332,735 $225,473 ------- ------- ------- ------- ------- -------
Provisions for Income Taxes: (in thousands) YEAR ENDED DECEMBER 31 1993 1992 1991 - ---------------------------------------------------------------------------------------- Current: Federal ............. $ 39,600 $ 34,250 $ 20,782 State ............... 5,600 4,700 5,000 Foreign ............. 68,400 58,050 36,818 ------- ------ ------ 113,600 97,000 62,600 ------- ------ ------ Deferred: Domestic............. 1,300 1,200 6,700 Foreign ............. (4,300) 1,800 (1,300) ------- ------ ------ (3,000) 3,000 5,400 ------- ------ ------ $ 110,600 $ 100,000 $ 68,000 ------- ------- ------ ------- ------- ------
Provisions for Deferred Income Taxes: (in thousands) YEAR ENDED DECEMBER 31 1993 1992 1991 - ----------------------------------------------------------------------------------- Depreciation ............... $ 1,735 $ 4,196 $4,063 Other ...................... (4,735) (1,196) 1,337 ----- ----- ----- $(3,000) $ 3,000 $5,400 ----- ----- ----- ----- ----- -----
Effective Income Tax Rates Reconciliation: YEAR ENDED DECEMBER 31 1993 1992 1991 - -------------------------------------------------------------------------------- U.S. statutory income tax rate ....... 35.0% 34.0% 34.0% Increase (decrease) resulting from: SFAS 109............................ (0.8) -- -- Reversal of prior provisions........ (2.3) -- -- Other............................... (3.1) (3.9) (3.8) ---- ---- ---- Effective income tax rate............. 28.8% 30.1% 30.2% ---- ---- ---- ---- ---- ----
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: (in thousands) DECEMBER 31 1993 - -------------------------------------------------------- Deferred tax assets ...................... $15,339 ------ ------ Deferred tax liabilities: Depreciation ........................ $50,700 Foreign liabilities pending settlements .......................... 20,000 Undistributed affiliate earnings............................. 9,665 Other ................................ 4,632 ----- $84,997 ------ ------
Cash payments for income taxes were $105,169,000, $55,988,000 and $42,607,000 in 1993, 1992 and 1991, respectively. 33 22 Notes to Consolidated Financial Statements STOCKHOLDERS' EQUITY In May 1993, the Company's stockholders approved an increase in the authorized shares of common stock from 100,000,000 to 200,000,000. Changes in common stock and paid-in capital accounts are summarized as follows:
Common Stock Paid-In (dollar amounts in thousands) Shares Amount Capital - -------------------------------------------------------------------------------- Balance at December 31, 1990... 35,304,625 $35,305 $119,821 ---------- ------ ------- ---------- ------ ------- 1991 Transactions: Exercise of stock options, net of shares exchanged...... 240,420 240 3,947 Tax benefit from early disposition of stock by optionees................. - - 3,347 100 percent stock dividend..... 35,545,045 35,545 (35,545) ---------- ------ ------- Balance at December 31, 1991.............. 71,090,090 $71,090 $ 91,570 ---------- ------ ------- ---------- ------ ------- 1992 Transactions: Exercise of stock options, net of shares exchanged...... 486,468 486 2,387 Tax benefit from early disposition of stock by optionees.................. - - 7,000 ---------- ------ ------- Balance at December 31, 1992.............. 71,576,558 $71,576 $100,957 ---------- ------ ------- ---------- ------ ------- 1993 Transactions: Exercise of stock options, net of shares exchanged 241,438 242 2,961 Tax benefit from early disposition of stock by optionees................. - - 3,350 ---------- ------ ------- Balance at December 31, 1993.............. 71,817,996 $71,818 $107,268 ---------- ------ ------- ---------- ------ -------
The Company has a Stockholder Rights Plan. Under the Plan, the stockholders have received a right (the "Right") for each outstanding share of common stock of the Company. Each Right entitles the holder to purchase from the Company at an exercise price of $92.50 (after adjustment pursuant to the Plan), one unit consisting initially of one-tenth of a share of the Company's common stock and a note in a principal amount equal to nine-tenths of the market price of a share of the Company's common stock on the date of exercise. The Right becomes exercisable and transferable apart from the common stock only if a person or group acquires, obtains a right to acquire, or announces and/or commences a tender offer to acquire ("Acquiring Holder") beneficial ownership of 15 percent or more of the Company's outstanding common stock. Under certain conditions, the Right may be redeemed by the Company at a price of $.0025 per Right (after adjustment pursuant to the Plan) prior to their expiration on September 22, 1999. If the Right becomes exercisable and is not redeemed, the holder of each Right, except any Acquiring Holder, is entitled 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 the Company is acquired in a merger or other business combination, and the Right has not been 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. During 1993, the Company acquired 377,100 shares of its stock for a total cost of $25,540,000. Changes in the cumulative translation adjustment account are as follows:
(in thousands) Year Ended December 31 1993 1992 1991 Balance at beginning of year...... $(29,441) $ 38,579 $28,293 Translation adjustments and gains and losses from hedging transactions.............. (25,122) (64,720) 10,746 Allocated income taxes............ - (3,300) (460) ------ ------ ------ Balance at end of year.............. $(54,563) $(29,441) $38,579 ------ ------ ------ ------ ------ ------
The 1993 and 1992 decreases in the cumulative translation adjustment account were principally due to the effect of the much stronger U.S. dollar in relation to the currencies of the various foreign countries in which the Company operates, particularly the pound sterling. STOCK OPTIONS In May 1993, the stockholders adopted the 1993 Employee Stock Compensation Plan for officers and other key employees, authorizing the issuance of 2,000,000 shares of the Company's common stock upon exercise of incentive stock options, non-qualified stock options or other stock-based awards. The Plan generally replaces the 1984 Plan which expires in May 1994. Under the Plans, options are granted at the market value at date of grant, may be exercisable over periods of one to three years after grant and expire ten years from the date of grant. As of December 31, 1993, no options had been issued under the 1993 Plan. 34 23 Great Lakes Chemical Corporation and Subsidiaries
The following summarizes the changes in options under the Plans for the years 1992 and 1993: Shares Option Under Option Prices - ------------------------------------------------------------------------------ Outstanding at December 31, 1991 2,232,824 $3.13 to $53.50 --------- --------------- --------- --------------- 1992 Transactions: Granted....................... 227,400 51.38 to 69.25 Exercised..................... (525,842) 3.13 to 41.25 Terminated.................... (10,900) 4.45 to 53.50 --------- --------------- Outstanding at December 31, 1992 1,923,482 5.88 to 69.25 --------- --------------- --------- --------------- 1993 Transactions: Granted....................... 227,100 67.63 to 78.25 Exercised..................... (258,387) 5.88 to 61.88 Terminated.................... (8,632) 5.88 to 78.25 --------- --------------- Outstanding at December 31, 1993 1,883,563 $6.89 to $78.25 --------- --------------- --------- --------------- Currently Exercisable........... 1,513,286 $6.89 to $69.25 --------- --------------- --------- ---------------
Options outstanding at December 31, 1993, have an average option price of $32.62 per share and expire from March 13, 1994, to December 8, 2003. A total of 2,033,432 shares are reserved for future grants as of December 31, 1993. RETIREMENT PLANS The Company maintains several noncontributory defined benefit pension plans covering substantially all U.S. employees. Benefits are based on salary and years of credited service reduced by social security benefits according to a plan formula. Normal retirement age is 65, but provisions are made for early retirement. The Company's funding policy is to contribute amounts to the plans to meet the funding requirements of federal laws and regulations, as determined by the Company's actuary. The plans' assets are invested by an insurance company, two banks, and one investment management company in various commingled and segregated funds holding equities, bonds, guaranteed income contracts and cash or cash equivalents. The Company maintains two contributory defined benefit pension plans covering substantially all United Kingdom employees. Benefits are based on final salary and years of credited service, reduced by social security benefits according to a plan formula. Normal retirement age is 65, but provisions are made for early retirement. The Company's funding policy is to contribute amounts to the plans to cover service costs to date as recommended by the Company's actuary. The plans' assets are invested by two investment management companies in funds holding U.K. and overseas equities, U.K. and overseas fixed interest securities, index linked securities, property unit trusts and cash or cash equivalents. A summary of the components of net periodic pension cost for U.S. and U.K. pension plans is as follows:
(in thousands) YEAR ENDED DECEMBER 31 1993 1992 1991 - ------------------------------------------------------------------------------------------ Service cost................... $ 14,160 $ 14,694 $ 13,474 Interest cost on projected benefit obligation........... 34,590 37,246 33,626 Actual return on plan asset.... (119,219) (10,204) (89,493) Net amortization and deferral.. 79,522 (33,709) 48,791 -------- -------- -------- Net pension cost............... $ 9,053 $ 8,027 $ 6,398 -------- -------- -------- -------- -------- --------
The funded status and accrued pension cost for the U.S. pension plans are as follows:
(in thousands) YEAR ENDED DECEMBER 31 1993 1992 1991 - ---------------------------------------------------------------------------- Actuarial present value of accumulated plan benefits: Vested....................... $ 37,447 $ 26,168 $ 18,681 Non-vested................... 2,345 3,378 2,945 -------- ------- -------- Total accumulated benefit obligation .................... 39,792 29,546 21,626 Additional amounts related to projected salary increases..... 18,549 14,781 13,722 -------- ------- -------- Total projected benefit obligation..................... 58,341 44,327 35,348 Plan assets at fair value....... 43,982 36,470 31,243 -------- ------- -------- Projected benefit obligation in excess of plan assets....... 14,359 7,857 4,105 Unrecognized net (loss) gain.... (5,605) (279) 2,220 Unrecognized prior service cost. (13) 29 33 Unrecognized obligation at January 1, 1987, net of amortization.......... (1,834) (2,025) (1,086) -------- ------- -------- Accrued pension cost............ $ 6,907 $ 5,582 $ 5,272 -------- ------- -------- -------- ------- --------
35 24 Notes to Consolidated Financial Statements The funded status and prepaid pension cost for the U.K. pension plans are as follows:
(in thousands) DECEMBER 31 1993 1992 1991 - ------------------------------------------------------------------------------------ Actuarial present value of accumulated plan benefits, all vested....................... $353,963 $322,989 $367,455 Additional amounts related to projected salary increases 34,997 25,519 28,237 -------- -------- -------- Total projected benefit obligation 388,960 348,508 395,692 Plan assets at fair value ........ 448,028 352,887 428,978 -------- -------- -------- Plan assets in excess of projected benefit obligation................ 59,068 4,379 33,286 Unrecognized net (gain) loss...... (32,487) 24,160 11,407 Unrecognized prior service cost... 10,928 12,080 16,082 -------- -------- -------- Prepaid pension cost.............. $ 37,509 $ 40,619 $ 60,775 -------- -------- -------- -------- -------- --------
Assumptions used in determining the actuarial present value of the projected benefit obligations are set forth below. In 1993, the weighted average discount rate and the rates of increase in compensation level assumptions were revised downward for all plans to be consistent with prevailing market conditions. The changes resulted in increasing the projected benefit obligation of the U.S. plans by approximately $5,000,000. Weighted average discount rates 7.5% to 9.0% Rates of increase in compensation levels 4.8% to 7.5% Expected long-term return on assets 9.0% to 10.25%
Supplemental deferred benefit pension plans covering certain officers and directors are also maintained. These plans are non-qualified and unfunded. The pension liability associated with these plans is accrued using the same actuarial methods and assumptions as those used in the qualified U.S. plans. The cost for these plans which is included in the net pension cost shown above amounted to $900,000 for 1993 and $200,000 for both 1992 and 1991. The unfunded projected benefit obligation, which is included in the accrued pension cost above, amounted to $4,930,000 in 1993 and approximately $1,500,000 for 1992 and 1991. Benefits under these plans will be paid from general Company funds. The Company provides no significant postretirement benefits other than pensions. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses were approximately $55,152,000, $46,579,000, and $39,019,000 in 1993, 1992 and 1991, respectively. INDUSTRY SEGMENTS AND FOREIGN OPERATIONS The Company's operations consist of one dominant industry segment-chemicals and allied products. Net sales, income before taxes and minority interest, and identifiable assets by geographic areas follow:
(in thousands) 1993 1992 1991 - ------------------------------------------------------------------------------------ Net sales to unaffiliated customers: United States...... $ 846,876 $ 763,002 $ 713,231 Foreign............ 945,166 733,476 594,376 ---------- ---------- ---------- Total.............. $1,792,042 $1,496,478 $1,307,607 ---------- ---------- ---------- ---------- ---------- ---------- Intercompany sales between geographic areas: United States...... $ 103,151 $ 98,408 $ 88,411 Foreign............ 4,581 905 583 ---------- ---------- ---------- Total.............. $ 107,732 $ 99,313 $ 88,994 ---------- ---------- ---------- ---------- ---------- ---------- Income before taxes and minority interest: United States...... $ 144,722 $ 126,827 $ 112,183 Foreign............ 270,337 232,286 207,046 Earnings of affiliates ..... 5,535 9,738 10,503 Corporate interest expense......... (5,571) (7,829) (9,411) ---------- ---------- ---------- Total.............. $ 415,023 $ 361,022 $ 320,321 ---------- ---------- ---------- ---------- ---------- ---------- Identifiable assets at year-end: United States...... $ 922,091 $ 765,758 $ 828,748 Foreign............ 792,984 780,161 621,332 Affiliates......... 185,789 186,070 199,052 ---------- ---------- ---------- Total.............. $1,900,864 $1,731,989 $1,649,132 ---------- ---------- ---------- ---------- ---------- ----------
Most of the Company's foreign operations are conducted by European subsidiaries or U.S. branch offices. Sales between the United States and its foreign operations are generally priced to recover cost plus an appropriate markup for profit and are eliminated in the consolidated financial statements. Identifiable assets include assets directly identified with operations, principally: accounts receivable, inventories, and plant and equipment, plus an allocation of cost in excess of net assets acquired. Export sales for 1993, 1992 and 1991 amounted to approximately $167,000,000, $172,000,000 and $162,000,000, respectively, of which 87 percent, 88 percent and 88 percent, respectively, were outside the Western Hemisphere. 36 25 Great Lakes Chemical Corporation and Subsidiaries INVESTMENTS IN UNCONSOLIDATED AFFILIATES Investments accounted for on the equity method as of December 31, 1993, include Huntsman Chemical Corporation, a 40 percent owned producer of polystyrene and compounded specialty plastics; KAO-Quaker, Co., Ltd., a 50 percent owned Japanese marketer of furfural derivatives; and Arkansas Chemicals, Inc., a 50 percent owned bromine producer. Effective August 1, 1992, Octel acquired a 100 percent interest in Octel Kuhlmann after which it was included on a consolidated basis. Prior to the date of acquisition, Octel's 50 percent interest in Octel Kuhlmann had been recorded on an equity basis. Summarized combined financial information for these unconsolidated affiliates is as follows:
(in thousands) 1993 1992 1991 - ------------------------------------------------------------------------- Current assets....... $318,243 $321,737 $417,418 Noncurrent assets.... 470,835 357,079 310,644 Current liabilities.. 147,430 113,106 135,137 Noncurrent liabilities 279,729 215,657 213,120 Net sales............ 820,342 759,402 798,167 Gross profit......... 123,243 120,136 127,179 Net income........... 24,468 27,139 36,270
The Company's equity in earnings of unconsolidated affiliates was $10,935,000, $15,138,000, and $15,903,000 for 1993, 1992 and 1991, respectively. Consolidated retained earnings represented by undistributed earnings of 50 percent or less owned companies that are accounted for using the equity method were approximately $144,000,000 at December 31, 1993. The Huntsman investment includes costs in excess of the book value of the net assets acquired amounting to approximately $46,000,000, less accumulated amortization of $19,818,000 and $14,418,000 at December 31, 1993 and 1992, respectively. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK The carrying amounts reported in the balance sheet of cash and cash equivalents, notes payable and long-term debt do not materially differ from their fair value at December 31, 1993. The fair value of the Company's debt was estimated using a discounted cash flow analysis based upon the Companys' current incremental borrowing rates for similar borrowing arrangements. The Company hedges certain portions of its exposure to foreign currency fluctuations in revenues and net foreign investments through the use of options and forward exchange contracts. Gains and losses arising from the use of such instruments are recorded in the income statement concurrently with gains and losses arising from the underlying hedged transactions. At December 31, 1993, the Company had forward exchange contracts and written currency options, generally having maturities of less than one year, to exchange foreign currencies for U.S. dollars in the amount of $76,000,000. Net unrealized gains/losses from hedging anticipated transactions were not material at December 31, 1993. 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. 37 26 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS Board of Directors Great Lakes Chemical Corporation We have audited the accompanying consolidated balance sheets of Great Lakes Chemical Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1993. 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 did not audit the financial statements of Huntsman Chemical Corporation and Arkansas Chemicals, Inc. The investment in and advances to these unconsolidated affiliated companies represent 9 percent and 10 percent of 1993 and 1992 consolidated assets, respectively, and the equity in their net income represents 1 percent, 4 percent and 6 percent of the consolidated net income for 1993, 1992 and 1991, respectively. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for Huntsman Chemical Corporation and Arkansas Chemicals, Inc., is based solely on reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. 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 and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, 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, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. ERNST & YOUNG Indianapolis, Indiana January 31, 1994 38 27 Quarterly Results of Operations Great Lakes Chemical Corporation and Subsidiaries (in thousands of dollars, except per share data, unaudited)
1993 Three Months Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31 Revenues Net Sales................... $430,176 $461,839 $469,656 $430,371 Equity in earnings of affiliates and other income.................... 6,406 8,924 6,586 13,838 -------- -------- -------- -------- 436,582 470,763 476,242 444,209 -------- -------- -------- -------- Costs and Expenses Cost of products sold....... 272,995 288,415 302,825 269,117 Selling, administrative and research expenses..... 59,570 62,196 58,175 53,968 Interest and other expenses.................. 7,295 14,410 9,870 13,937 -------- -------- -------- -------- 339,860 365,021 370,870 337,022 -------- -------- -------- -------- Income Before Taxes and Minority Interest......... 96,722 105,742 105,372 107,187 Minority Interest in Income of Subsidiaries........... 7,780 8,136 8,175 7,548 -------- -------- -------- -------- Income Before Taxes......... 88,942 97,606 97,197 99,639 Income Taxes................ 24,700 27,500 28,700 29,700 -------- -------- -------- -------- Net Income.................. $ 64,242 $ 70,106 $ 68,497 $ 69,939 -------- -------- -------- -------- -------- -------- -------- -------- Net Income per Share........ $ .90 $ .98 $ .96 $ .98 -------- -------- -------- -------- -------- -------- -------- -------- 1992 Three Months Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31 Revenues Net Sales................... $344,494 $381,649 $365,789 $404,546 Equity in earnings of affiliates and other income.................... 10,108 7,049 9,104 15,430 -------- -------- -------- -------- 354,602 388,698 374,893 419,976 -------- -------- -------- -------- Costs and Expenses Cost of Products sold............... 217,363 242,678 226,776 257,369 Selling, administrative and research expenses. 43,261 44,405 46,028 55,588 Interest and other expenses............. 10,885 8,997 8,974 14,823 -------- -------- -------- -------- 271,509 296,080 281,778 327,780 -------- -------- -------- -------- Income Before Taxes and Minority Interest........... 83,093 92,618 93,115 92,196 Minority Interest in Income of Subsidiaries.............. 6,058 7,441 7,513 7,275 -------- -------- -------- -------- Income Before Taxes............ 77,035 85,177 85,602 84,921 Income Taxes................... 24,000 26,400 25,600 24,000 -------- -------- -------- -------- Net Income..................... $ 53,035 $ 58,777 $ 60,002 $ 60,921 -------- -------- -------- -------- -------- -------- -------- -------- Net Income per Share........... $ .75 $ .83 $ .84 $ .85 -------- -------- -------- -------- -------- -------- -------- --------
39 28 DIFFERENCE LETTER The following graphic material cannot be transmitted pursuant to edgar: 1. TABLE OF CONTENTS IS DESCRIBED IN GRAPHIC FORM USING GRAPH AND B/G COLOR. 2. Below 1993 Financial Highlights shows 4 line graphics for stock price data, earnings per share, equity per share and cash dividends respectively. 3. Corporate profile spans over several pages showing different groups in column format and reversed block headings. 4. Markets served is graphically displayed in checkerboard fashion using screens, solids and reverse type to signify various market applications. 5. Letter to shareholders including graphs for ease in reading spans over 3 pages and is displayed in various graphic forms including typographical special design. 6. Annual report displays article in various graphic format describing financial performance, photos, graphics, reverse type are used for graphic presentation. 7. Several charts and graphs are presented throughout the management discussion and analysis for marketing presentations. 8. The graphic presentation of subsidiaries and affiliates shareholders information, directors and executive officers photos are presented in the Annual Report to stockholders and graphically are inappropriate for edgar presentation and format. EX-23 4 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23 Great Lakes Chemical Corporation and Subsidiaries CONSENT OF ERNST & YOUNG 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 January 31, 1994, included in the 1993 Annual Report to Shareholders 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 Post-Effective Amendment Number 5 to the Registration Statement Number 2-53909 on Form S-8, dated May 1, 1980, in Registration Statement Number 33-02069 on Form S-3 dated December 11, 1985, in Registration Statement Number 33-02074 on Form S-8 dated December 11, 1985, in Registration Statement Number 33-02075 on Form S-8 dated December 11, 1985 and in Registration Statement Number 33-42477 on Form S-3 dated August 28, 1991, of our report dated January 31, 1994, 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. ERNST & YOUNG Indianapolis, Indiana March 24, 1994 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Post-Effective Amendment No. 5 to Registration Statement No. 2-53909 on Form S-8, in Registration Statement No. 33-02069 on Form S-3, in Registration Statement Nos. 33-02074 and 33-02075 both on Form S-8, and in Registration Statement No. 33-42477 on Form S-3 of our report dated January 31, 1994 (relating to the financial statements of Arkansas Chemicals, Inc. not presented separately herein) appearing in the Annual Report on Form 10-K of Great Lakes Chemical Corporation for the year ended December 31, 1993. Deloitte & Touche Pittsburgh, Pennsylvania March 24, 1994 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post-Effective Amendment No. 5 to Registration Statement No. 2-53909 on Form S-8, in Registration Statement Nos. 33-02069 and 33-42477 both on Form S-3, and in Registration Statement Nos. 33-02074 and 33-02075 both on Form S-8 of Great Lakes Chemical Corporation of our report dated January 26, 1994 on the consolidated financial statements of Huntsman Chemical Corporation (not presented separately herein) appearing in this Annual Report on Form 10-K of Great Lakes Chemical Corporation for the year ended December 31, 1993. Deloitte & Touche Salt Lake City, Utah March 24, 1994 -----END PRIVACY-ENHANCED MESSAGE-----