-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EweRGMiqaKpRbK7sJ2Nt+9KQ8iuWLZkNp6J1k04ntcHxtiicxwEq3CeXEWZZeBZR fpRzkL5f9T2c9dgHibE3UA== 0000950137-01-000893.txt : 20010327 0000950137-01-000893.hdr.sgml : 20010327 ACCESSION NUMBER: 0000950137-01-000893 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT LAKES CHEMICAL CORP CENTRAL INDEX KEY: 0000043362 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 951765035 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06450 FILM NUMBER: 1579485 BUSINESS ADDRESS: STREET 1: 500 EAST 96TH STREET STREET 2: SUITE 500 CITY: INDIANAPOLIS STATE: IN ZIP: 46240 BUSINESS PHONE: 3177153000 MAIL ADDRESS: STREET 1: 500 EAST 96TH STREET STREET 2: SUITE 500 CITY: INDIANAPOLIS STATE: IN ZIP: 46240 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 c60953e10-k.txt ANNUAL REPORT 1 UNITED STATES 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, 2000 Commission file number 1-6450 GREAT LAKES CHEMICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-1765035 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 500 East 96th Street, Suite 500 Indianapolis, IN 46240 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 317-715-3000 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 Common Stock Purchase Rights 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 5, 2001, the aggregate market value of the voting stock held by non-affiliates of the registrant was $1,688,229,564. As of March 5, 2001, 50,274,853 shares of the registrant's stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE
Documents Incorporated by Reference Form 10-K Reference - ----------------------------------- ------------------- Portions of the 2000 Annual Report to Part I, Item 1; Part II; and Stockholders Part IV, Items 14(a)(1) and (2). Portions of Proxy Statement for 2001 Part III. Annual Meeting of Stockholders
2 PART I Item 1. BUSINESS GENERAL Great Lakes Chemical Corporation is a Delaware corporation incorporated in 1933 having its principal executive offices at 500 East 96th Street, Suite 500, Indianapolis, Indiana 46240. As used in this report, except where otherwise stated or indicated by the context, "Great Lakes" or "the Company" means Great Lakes Chemical Corporation and its consolidated subsidiaries. Great Lakes is a customer-focused supplier of innovative specialty chemical solutions. The Company serves customers and markets through a global network of integrated sales, production, research, technical service and distribution facilities. The Company is organized into four global business units: POLYMER ADDITIVES - The Polymer Additives business unit is a leading developer, producer and marketer of bromine-, phosphorus-, and antimony-based flame retardants and value-added antioxidants; UV light stabilizers; performance additives and fluids; and optical monomers. This business unit integrates these compounds into customer solutions that resist ignition and ensure the stability of products during processing or while in use. PERFORMANCE CHEMICALS - The Performance Chemicals business unit is a collection of individual businesses that apply their expertise in complex chemical synthesis, process development, manufacturing and toxicological testing to meet highly specific requirements for pharmaceutical, agrochemical and a wide range of industrial chemical applications. WATER TREATMENT - The Water Treatment business unit is the world's premier formulator of water treatment biocides and related specialty chemicals that make water better. This business unit extends innovative recreational water treatment products across the value chain to mass merchants, wholesale distributors, specialty store owners and retail customers. Its bromine-based biocides and proprietary polymer-based antiscalants and corrosion inhibitors target industrial customers in the global cooling process, wastewater, paper and desalination industries. ENERGY SERVICES AND PRODUCTS (OSCA) - OSCA provides specialized oil and gas well completion fluids, completion services and downhole completion tools to major oil companies and independent exploration and production companies, primarily in the Gulf of Mexico and in select international markets. Effective June 15, 2000, OSCA completed an initial public offering of its Class A common stock. Great Lakes sold approximately 40% of its ownership in OSCA's outstanding common stock. Great Lakes retained approximately 94% of the combined voting power of OSCA's outstanding voting stock through its ownership of all of the outstanding Class B shares, which have disproportionate voting rights.
Incorporated by Reference From: a) General Development of Business 2000 Annual Report to Stockholders, pages 12-13 and 28; Management's Discussion and Analysis on pages 19-27; and Notes 2, 3 and 4 to consolidated financial statements on pages 34-38. b) Financial Information about 2000 Annual Report to Stockholders pages Industry Segments 14-17 and pages 42-43.
3 c) Narrative Description of Business 2000 Annual Report to Stockholders, pages 14-17 and pages 19-27.
PRODUCTS AND SERVICES The following is a list of the principal products and services, markets and production facilities of the Company: POLYMER ADDITIVES
PRODUCTS & SERVICES PRINCIPAL MARKETS PRODUCTION FACILITIES - ------------------- ----------------- --------------------- FLAME RETARDANTS Bromine-, phosphorus- Computer and Business Equipment, El Dorado, AR; Newport, TN; and antimony-based flame Consumer Electronics, Textiles, Nitro, WV; Reynosa, Mexico; retardants Automotive and Construction Aycliffe, UK; Trafford Park, UK POLYMER STABILIZERS Antioxidants, UV absorbers, Computer and Business Equipment, Newport, TN; Catenoy, France; light stabilizers and Appliances, Packaging, Textiles, Persan, France; Waldkraiburg, optical monomers Construction, Automotive and Germany; Pedrengo, Italy; Optical Lenses Ravenna, Italy; Pyongtaek, Korea
PERFORMANCE CHEMICALS
PRODUCTS & SERVICES PRINCIPAL MARKETS PRODUCTION FACILITIES - ------------------- ----------------- --------------------- AGRICULTURAL PRODUCTS Methyl bromide Soil Crop and Structural Pest El Dorado, AR Control BROMINE INTERMEDIATES Bromine, bromine derivatives Electronics; Photographic Papers El Dorado, AR; Amlwch, UK and bromine-based specialty and Films; and Rubber Compounds chemicals FLUORINE CHEMISTRY Fire extinguishing agent Telecommunications, Information El Dorado, AR FM-200(R), Organo-fluorine Technology, Electronics and compounds, fluorinated Chemical Industries intermediates FINE CHEMICALS Specialty and fine chemical Pharmaceutical and Agrochemical Newport, TN; Konstanz, Germany; intermediates Industry Halebank, UK; Holywell, UK
4 PERFORMANCE CHEMICALS (CONTINUED)
PRODUCTS & SERVICES PRINCIPAL MARKETS PRODUCTION FACILITIES - ------------------- ----------------- --------------------- TOXICOLOGICAL SERVICES All phases of nonclinical Pharmaceutical, Chemical and Ashland, OH toxicological testing and Biotechnology Industries bioanalytical services; Design of specialized toxicological, metabolic and analytical chemistry programs
WATER TREATMENT
PRODUCTS & SERVICES PRINCIPAL MARKETS PRODUCTION FACILITIES - ------------------- ----------------- --------------------- RECREATIONAL Water sanitizers - Pool and Spa Dealers and Conyers, GA; Lake Charles, LA; BioGuard(R), OMNI(R), Distributors, Mass Market Adrian, MI; Melbourne, Australia; Guardex(R), Pool Time(R), Retailers, Pool Service and Toronto, Canada; Mundolsheim, France; Vantage(R), AquaBrom(R), Construction Companies Barbera Del Valles, Spain; Kyalami, Bayrol(R), Hydrotech(R), South Africa; Andoversford, UK AquaClear(R), Sun(R), Algicides, oxidizers, PH balancers, mineral balancers and specialty chemicals COMMERCIAL & SPECIALTIES Antiscalants, biocides, Industrial Cooling Water Adrian, MI; El Dorado, AR; corrosion inhibitors, Treatment, Industrial and Conyers, GA; Trafford Park, UK dispersants, antifoams, Municipal Wastewater Treatment, hydantoin derivatives, Municipal Desalination, Pulp and formulated oxidizers Paper Manufacturing, Food and biocide dispensing Preservative Intermediates and equipment Processing, Home Care
ENERGY SERVICES AND PRODUCTS
PRODUCTS & SERVICES PRINCIPAL MARKETS PRODUCTION FACILITIES - ------------------- ----------------- --------------------- Completion products and Worldwide Oil and Gas Industry Geismer, LA; Mansfield, TX services, including reservoir analysis, solids-free fluids, sand control, filtration, downhole tools, stimulation and marine well services
5 RAW MATERIALS The sources of essential raw materials for bromine are the brine from Company-owned wells in Arkansas and a sea water extraction plant in Europe. The Arkansas properties are located atop the Smackover lime deposits, which constitute a vast underground sea of bromine-rich brine. The area between El Dorado and Magnolia, Arkansas, (located about 35 miles west of El Dorado) provides the best known geological location for bromine production in the United States and both major domestic bromine manufacturers are located there. Based on projected production rates, the Company's brine reserves are estimated to be adequate for the foreseeable future. Other raw materials used in the business are obtained from outside suppliers through purchase agreements. The cost of raw materials is generally based on market prices, although risk management tools may be utilized, as appropriate, to mitigate short-term market price fluctuations. Other raw materials purchased include chlorine, caustic, hexafluoropropene, phenol bisphenol A and antimony oxide. The Company has multiple suppliers for most key raw materials and uses quality raw materials management principles, such as the establishment of long-term relationships with suppliers and ongoing performance assessment and benchmarking, as part of the total supplier selection process. In addition, the Company uses electricity and natural gas to meet its energy needs. INTERNATIONAL OPERATIONS Great Lakes has a significant presence in foreign markets, principally Western Europe and Asia. Approximately one-third of the Company's assets and sales are outside the United States. The geographic segment data contained in Note 15: "Segment Information" of the Notes to Consolidated Financial Statements on page 42 and 43 of the 2000 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% of Great Lakes' total consolidated sales. The Company has no material contracts or subcontracts with government agencies. A major portion of the Company's sales are sold to industrial or commercial users for use in the production of other products. Some products, such as recreational water treatment chemicals and supplies, are sold to a large number of retail pool stores, mass merchandisers and distributors. Some export sales are marketed through distributors and brokers. The Company's business does not normally reflect any material backlog of orders at year-end. COMPETITION Great Lakes is in competition with businesses producing the same or similar products as well as businesses producing products intended for similar use. There is one other major bromine producer in the United States which competes with the Company in varying degrees, depending on the product involved, with respect to the sale of bromine and bromine derivatives. There is also one major overseas manufacturer of bromine and brominated products which competes with the Company in the United States and elsewhere. There are several small producers in the United States and overseas which are competitors in several individual products. In addition, there are numerous manufacturers of alternatives to Great Lakes' products that compete with the Company's products. In Polymer Stabilizers, the Company competes with a significantly larger supplier across this entire product line and with a number of smaller companies in individual product areas. The Company competes with several manufacturers and distributors of swimming pool and spa chemicals. Principal methods of competition are price, product quality and purity, technical services and the ability to deliver promptly. The Company is able to move quickly in providing new products to meet identified 6 market demands, and believes its production costs are among the lowest in the world. Management believes these factors, combined with high technical skills, allow the Company to compete effectively. SEASONALITY AND WORKING CAPITAL The products which the Company sells to the agricultural and swimming pool industries exhibit some seasonality which is reflected in relatively higher sales and profits in the first half of each year. Seasonality results in the need to build inventories for rapid delivery at certain times of the year. The pool product season is strongest during the first six months, requiring a build-up of inventory at the beginning of the year. Except for certain arrangements with distributors and dealers of swimming pool and spa products, customers are not permitted to return unsold material at the end of a season. Extended credit terms are granted only in cases where the Company chooses to do so to meet competition. The effect of the above items on working capital requirements is not material. RESEARCH AND DEVELOPMENT AND PATENTS The Company holds various patents and trademarks covering a number of its products and processes. While the Company believes these patents and trademarks offer significant commercial benefits, the Company's management does not believe any individual patent or trademark is of material importance to the Company's business as a whole or that the success of the Company's business is dependent upon its portfolio of patents and trademarks. Research and development expenditures are described in Note 14, "Research and Development Expenses" of the Notes to Consolidated Financial Statements on page 42 of the 2000 Annual Report to Stockholders, which is incorporated herein by reference. ENVIRONMENTAL The Company's operations are subject to various laws and regulations relating to maintaining or protecting the quality of the environment. Information regarding environmental compliance and contingencies is set forth under the "Environmental" caption in "Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 26 and 27 of the 2000 Annual Report to Stockholders, and in Note 18 Commitments and Contingencies on page 44 of the 2000 Annual Report to Stockholders, which is incorporated herein by reference. EMPLOYEES The Company currently employs approximately 5,148 people, 40% of which are employed outside the United States. Approximately 370 employees in the United States are represented by collective bargaining agreements. In 2002, two of the Company's four collective bargaining agreements will expire, covering approximately 200 employees. The Company maintains good employee relations and has successfully concluded its most recent labor negotiations without a work stoppage. The Company, however, cannot predict the outcome of future contract negotiations. BUSINESS RISKS Great Lakes Chemical Corporation is including the following cautionary statement in this Annual Report on Form 10-K to make applicable and take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 with respect to any forward-looking statement made by, or on behalf of, the Company. Forward-looking statements generally may be identified by words such as "believes," "expects," "intends," "may," "will likely result," "estimates," "anticipates," "should," and other similar expressions, or the negative of such words or expressions. The factors identified in this cautionary statement are important factors (but do not necessarily constitute all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. 7 Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that, while it believes such assumptions or bases to be reasonable and makes them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, the Company, or its management, expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. Taking into account the foregoing, certain factors, including but not limited to, those listed below may cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. - Economic factors over which the Company has no control, including changes in inflation, tax rates, interest rates and foreign currency exchange rates. - Competitive factors such as pricing pressures on key products and the cost and availability of key raw materials. - Governmental factors including laws and regulations and judicial decisions related to the production or use of key products such as bromine and bromine derivatives. - The difficulties and uncertainties inherent in new product development. New product candidates that appear promising in development may fail to reach the market because of safety concerns, inability to obtain necessary regulatory approvals, difficulty or excessive costs to manufacture, or infringements of the patents or intellectual property rights of others. - Legal factors, including unanticipated litigation of product liability claims, antitrust litigation, environmental matters or patent disputes with competitors, which could preclude commercialization of products or negatively affect the profitability of existing products. - Inability to obtain existing levels of product liability insurance or denial of insurance coverage following a major product liability claim. - Changes in tax laws, including future changes in tax laws related to the remittance of foreign earnings or investments in foreign countries with favorable tax rates. - Changes in accounting standards promulgated by the Financial Accounting Standards Board; the Securities and Exchange Commission; or the American Institute of Certified Public Accountants, which are adverse to the Company. - Internal factors such as changes in business strategies and the impact of cost control efforts and business combinations. - Loss of brine leases or inability to produce the bromide ion in required quantities due to depletion of resources or other causes beyond the Company's control. Item 2. PROPERTIES The Company leases its principal executive offices in Indianapolis, Indiana, and owns its principal corporate facility in West Lafayette, Indiana. The Company operates 28 production facilities in 12 countries. The Company has distribution facilities at all of its plant sites. Listed under "Item 1. Business" above in the table captioned "Products and Services" are the production facilities by business unit. The Company's principal research facilities are in Mt. Prospect, IL; West Lafayette, IN; Decatur, GA; Lafayette, LA; and Trafford Park, UK. Most principal locations are owned. 8 In addition, the Company owns or leases warehouses, distribution centers and space for administrative and sales offices throughout the world. All of the Company's facilities are in good repair; suitable for the Company's businesses; and have sufficient capacity to meet present market demands at an efficient operating level. Item 3. LEGAL PROCEEDINGS The Company has been cooperating with the United States Department of Justice (DOJ) and the European Commission since the spring of 1998 in their respective investigations of the bromine and brominated products industry. Both investigations were initiated after the Company self-reported to those agencies certain business practices that raised questions under antitrust laws. As a result of the Company's cooperation, the Company and its current directors and employees have been accepted into the DOJ's amnesty program. As a result, the Company will be exempt from United States federal criminal prosecution and fines relating to the practices in question if the Company complies with certain conditions, including its full cooperation with the DOJ's investigation and policy regarding reasonable remedial efforts. Concurrently, the Company is seeking favorable treatment under a program in the European Union that also rewards self-reporting and cooperation. The Company believes it has fully complied with all applicable conditions to date and has continued to cooperate with the DOJ in connection with certain follow-up matters arising out of the investigation, all of which are covered by the Company's acceptance into the amnesty program. The Company intends to continue full compliance with the DOJ and European Union programs. Participation in the above programs does not provide the Company with immunity from civil liability, including restitution claims. To date, 10 federal purported class action lawsuits and five California purported class actions have been filed against the Company, each claiming treble damages. These suits claim, among other things, that the Company conspired with others in violation of antitrust laws regarding the pricing of bromine and brominated products. The federal lawsuits have been consolidated in the District Court for the Southern District of Indiana. The plaintiffs have filed a motion to certify a class of purchasers of three particular brominated products, and the Company has opposed the motion. A ruling on the class certification is expected later this year. The California cases have been stayed pending resolution of the federal cases. West Lafayette Corporation, a wholly-owned subsidiary of the Company, is a defendant in a judicial proceeding filed on August 30, 2000, by the State of Illinois in the Circuit Court of Illinois. The State is seeking penalties based on alleged failure to maintain air emission permits required by the State of Illinois and Federal law. The Company is currently investigating the issue and has neither agreed to nor denied the allegations. However, it is the opinion of the Company's management that the liability if any, associated with such allegations, will not have a material adverse effect on the Company. There are also various other lawsuits and claims, other than those mentioned above, pending against the Company and certain of its consolidated subsidiaries. While it is not possible to predict or determine the outcome of legal actions brought against the Company or the ultimate cost of these actions, the Company believes the costs associated with all such actions in the aggregate will not have a material adverse effect on its consolidated financial position, liquidity or results of operations. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31, 2000. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of March 5, 2001, there were approximately 2,501 stockholders of record of the Company's Common Stock. Additional information regarding the recent price and dividend history of the Company's Common Stock is set forth under the captions "Stock Price Data" and "Cash Dividends Paid Per Share" on page 45 of the 2000 Annual Report to Stockholders. This information is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The selected financial data for the Company for each of the last five years is set forth under the caption "Financial Review" on page 18 of the 2000 Annual Report to Stockholders and is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19 through 27 of the 2000 Annual Report to Stockholders is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk information is set forth under the "Market Risks" caption of "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 26 of the 2000 Annual Report to Stockholders, which is incorporated herein by reference. 9 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company and its subsidiaries, listed in Item 14(a)(1) and included in the Company's 2000 Annual Report to Stockholders on pages 29-32 (Consolidated Statements of Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows and Consolidated Statements of Stockholders' Equity), and pages 33-44 (Notes to Consolidated Financial Statements) and the Report of Independent Auditors set forth in the Company's 2000 Annual Report to Stockholders on page 28, are incorporated herein by reference. Information on quarterly results of operations, set forth in the Company's 2000 Annual Report to Stockholders under "Quarterly Results of Operations" (unaudited), at page 45, is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors of the Company is contained under the headings "Proposal One: Election of Directors" in the Proxy Statement for the Company's Annual Meeting of Stockholders to be held on May 3, 2001, which is to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934. This information is incorporated herein by reference. The executive officers of the Company are as follows:
Officer Name and Age Office Since - ------------ ------ ----- Mark P. Bulriss, 49 Chairman, President and CEO. Mr. Bulriss was 1998 named president and chief executive officer of the Company on April 1, 1998, and became chairman on May 4, 2000. He also serves as chairman of OSCA, Inc. Prior to joining Great Lakes Chemical Corporation, Mr. Bulriss served as president of AlliedSignal Polymers, a $2.1 billion business unit of AlliedSignal Inc. that manufactures polymers and markets nylon, technical fibers, plastics, film and chemical intermediates. Before being named president of its polymers unit, Mr. Bulriss served as president of AlliedSignal Inc.'s electronic materials business. His 24-year career in chemicals and plastics also includes 16 years with GE Plastics, a division of the General Electric Corporation. Mr. Bulriss currently serves as a director of the American Chemistry Council. Mr. Bulriss received a B.S. degree in Chemical Engineering from Clarkson University. Larry J. Bloom, 52 Executive Vice President and President of Water 2000 Treatment. Mr. Bloom assumed the position of Executive Vice President of the Company in 2000. Mr. Bloom joined Great Lakes in 1990 as a result of the acquisition by Great
10 Lakes of BioLab, Inc., where he has served as President since 1987. From 1970 to 1987, he held various sales, marketing and technical positions with BioLab, Inc. Mr. Bloom is a graduate of Georgia Institute of Technology, receiving a B.S. degree in Chemical Engineering. Louis M. Maresca, 49 Executive Vice President and President of 1998 Performance Chemicals. Dr. Maresca joined the Company in August 1998. From 1991 to 1998 he was with The Geon Company where he served as vice president and general manager of the resins business. Prior to 1991 he held technology and general management positions with Union Carbide Corporation and GE Plastics. Dr. Maresca holds a Ph. D. in organic chemistry from Columbia University and an M.B.A. from Case Western Reserve University. Richard T. Higgons, 58 Senior Vice President, Business Development. Mr. 2001 Higgons joined the Company in 2001. Prior to joining Great Lakes, Mr. Higgons was staff vice president for corporate development with Mallinckrodt,Inc., a position he held for five years. From 1991 to 1995, he was vice president for business development for Mallinckrodt's chemical business. From 1988 to 1991, Mr. Higgons held several senior management positions in finance, business development and strategic planning for Imcera Group, Inc. Mr. Higgons holds a B.S. degree in Accounting from Indiana Northern University. Richard J. Kinsley, 43 Senior Vice President, Human Resources & 1999 Communications. Mr. Kinsley joined the Company in April 1999 from AlliedSignal where he was vice president, human resources for the electronic materials division. Prior to his four years with AlliedSignal, Mr. Kinsley spent 10 years with The Pfaudler Companies where he held senior management positions in sales and marketing, business development and human resources. Mr. Kinsley holds dual B.S. degrees in Economics and Business Administration from LeMoyne College and an M.B.A. from the University of Rochester. Jeffrey M. Lipshaw, 46 Senior Vice President, General Counsel & 1999 Secretary. Mr. Lipshaw joined the Company in October 1999 from Dykema Gossett PLLC, a Detroit-based law firm, where he was Of Counsel from February 1998, and previously an associate and partner in the firm from 1979 until 1992. From 1993 through 1997, Mr. Lipshaw was vice president & general counsel of AlliedSignal Automotive in Southfield, Michigan. Mr. Lipshaw holds an A.B. from the University of Michigan and a J.D. from Stanford University. Angelo C. Brisimitzakis, 42 Vice President, Global Supply Chain Management 2000 and Vice President, Flame Retardants. Dr. Brisimitzakis joined the Company in 1998 as Vice President, Global Supply Chain, following 14 years at General Electric Corporation, where he held leadership positions in sales, technology, business development, supply chain, and business management
11 functions. He was named an officer in 2000 and he was named Vice President for Flame Retardants in 2001. He earned a Ph.D. in Chemistry from New York University and an M.B.A. in Marketing from NYU/Pace University. Kevin J. Mulcrone, 49 Vice President and Controller. Mr. Mulcrone 1999 joined the Company in 1991 as director of audit. In 1993, he transferred to BioLab, Inc., a Great Lakes subsidiary, as vice president, finance. In September 1999, Mr. Mulcrone assumed his present position. He is a Certified Public Accountant and holds a B.S. in Accountancy from the University of Illinois (Urbana) and an M.B.A. from Emory University.
Item 11. EXECUTIVE COMPENSATION This information is set forth under the heading "Executive Compensation and Other Information" in the Company's Proxy Statement for the Company's Annual Meeting of Stockholders to be held on May 3, 2001, and is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is set forth under the heading "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the Company's Annual Meeting of Stockholders to be held on May 3, 2001, and is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is set forth under the heading "Compensation Committee Interlocks and Insider Participation" in the Company's Proxy Statement for the Company's Annual Meeting of Stockholders to be held on May 3, 2001, and is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements The following consolidated financial statements of Great Lakes Chemical Corporation and Subsidiaries and related notes thereto, together with the report thereon of Ernst & Young LLP dated, February 9, 2001, appearing on pages 28 through 44 of the 2000 Annual Report to Stockholders, are incorporated herein by reference: Consolidated Statements of Income --Years ended December 31, 2000, 1999 and 1998 Consolidated Balance Sheets -- December 31, 2000 and 1999 Consolidated Statements of Cash Flows -- Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements -- December 31, 2000. 12 (a)(2) Financial Statement Schedules The following Consolidated Financial Statement Schedule of Great Lakes Chemical Corporation and subsidiaries is filed as part of Item 14(d) of this report and should be read in conjunction with the Consolidated Financial Statements. Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted. (a)(3) Exhibits:
Exhibit No. Description ----------- ----------- (3)(i) Restated Certificate of Incorporation (incorporated by reference to Exhibit (3)(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (3)(ii) By-Laws, as amended through January 21, 2000 (4)(i) Rights Agreement dated as of February 15, 1999, between the Company and Harris Trust Company of New York as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed March 23, 1999) Indenture dated as of July 16, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to the Company's Registration Statement on Form S-3 No. 333-78515) (10)(i) Supplemental Retirement Plan, as amended (incorporated by reference to Exhibit (10)(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (10)(ii)(a) Deferred Compensation Plan, as amended and restated effective January 1, 1997 (incorporated by reference to Exhibit (10)(ii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (10)(ii)(b) Amendment to Deferred Compensation Plan, dated November 20, 1997 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) (10)(iii)(a) Supplemental Savings Plan effective January 1, 1995 (incorporated by reference to Exhibit (10)(iii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (10)(iii)(b) Amendment to Supplemental Savings Plan effective January 1, 2000, (incorporated by reference to Exhibit (10)(iii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) (10)(iv) Standard Form of Severance Agreements (incorporated by reference to Exhibit (10)(iv) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (10)(v)(a) Non Employee Directors' Deferred and Long Term Compensation Plan (incorporated by reference to Exhibit (10)(vi) the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (10)(v)(b) Amendment No. 1 to Non Employee Directors' Deferred and Long Term Compensation Plan, effective May 6, 1998 (incorporated by reference to Exhibit (10)(v) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) (10)(vi) Split-Dollar Life Insurance (incorporated by reference to Exhibit (10)(vii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (10)(vii) Standard Form of Change in Control Agreement (incorporated by reference to Exhibit (10)(viii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (10)(viii) Directors Retirement Plan, effective January 1, 1993 (incorporated by reference to Exhibit (10)(ix) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (10)(ix)(a) 1998 Stock Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 filed August 17, 1998) (10)(ix)(b) Amendment to 1998 Employee Stock Compensation Plan dated February 15, 1999 (incorporated by reference to Exhibit (10)(ix) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) (10)(x) 1993 Employee Stock Compensation Plan as amended on November 21, 1997 (incorporated by reference to Exhibit (10)(x) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997)
13 (10)(xi) 1984 Employee Stock Option Plan as amended February 10, 1997 (incorporated by reference to Exhibit (10)(xi) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997) (10)(xii) Employment Agreement with Mark P. Bulriss effective April 1, 1998 (incorporated by reference to Exhibit (10)(b) to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1998) (10)(xiii) Stock Option and Restricted Stock Agreements with Mark P. Bulriss effective April 1, 1998 (incorporated by reference Exhibit (10)(a) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998) (10)(xiv) Employment Agreement with L. Donald Simpson dated December 14, 1999 (incorporated by reference to Exhibit (10)(vii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) (13) 2000 Annual Report to Stockholders (21) Subsidiaries (23) Consent of Independent Auditors
(b) Reports on Form 8-K No Reports on Form 8-K were filed during the quarter ended December 31, 2000. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GREAT LAKES CHEMICAL CORPORATION - -------------------------------- (Registrant) Date March 21, 2001 /s/ Mark P. Bulriss --------------- ---------------------------------------------------- Mark P. Bulriss, Chairman , President and CEO 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 21, 2001 /s/ Kevin J. Mulcrone ----------------- ------------------------------------------------ Kevin J. Mulcrone, Vice President and Controller (Principal Accounting Officer) Date March 21, 2001 /s/ Nigel D. T. Andrews ----------------- ------------------------------------------------ Nigel D. T. Andrews, Director Date March 21, 2001 /s/ James W. Crownover ----------------- ------------------------------------------------ James W. Crownover, Director Date March 21, 2001 /s/ Thomas M. Fulton ----------------- ------------------------------------------------ Thomas M. Fulton, Director Date March 21, 2001 /s/ Martin M. Hale ----------------- ------------------------------------------------ Martin M. Hale, Director Date March 21, 2001 /s/ Louis E. Lataif ----------------- ------------------------------------------------ Louis E. Lataif, Director Date March 21, 2001 /s/ John C. Lechleiter ----------------- ------------------------------------------------ John C. Lechleiter, Director Date March 21, 2001 /s/ Mack G. Nichols ----------------- ------------------------------------------------ Mack G. Nichols, Director Date March 21, 2001 /s/ Jay D. Proops ----------------- ------------------------------------------------ Jay D. Proops, Director
15 SCHEDULE II GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 2000
Additions Balance at --------------------------------- Balance Beginning Charges to Costs Charged to at End Description of Period and Expenses Other Accounts Deductions of Period - ----------- ----------- ----------- --------- ----------- ----------- 2000: Reserve deducted from asset: Allowance for doubtful accounts receivable $ 4,730,000 $ 226,000 $ -- $ 145,000(A) $ 4,811,000 ----------- ----------- ----------- ----------- ----------- Accumulated amortization of goodwill $22,468,000 $ 8,828,000 $ -- $ 345,000(B) $30,951,000 ----------- ----------- ----------- ----------- ----------- 1999: Reserve deducted from asset: Allowance for doubtful accounts receivable $ 4,134,000 $ 744,000 $ 1,243,000 $ 1,391,000(A) $ 4,730,000 ----------- ----------- ----------- ----------- ----------- Accumulated amortization of goodwill $16,804,000 $ 6,845,000 $ -- $ 1,181,000(B) $22,468,000 ----------- ----------- ----------- ----------- ----------- 1998: Reserve deducted from asset: Allowance for doubtful accounts receivable $ 5,803,000 $ 94,000 $ -- $ 1,763,000(A) $ 4,134,000 ----------- ----------- ----------- ----------- ----------- Accumulated amortization of goodwill $12,645,000 $ 4,288,000 $ -- $ 129,000(B) $16,804,000 ----------- ----------- ----------- ----------- -----------
(A) Uncollectible accounts receivable written off, net of recoveries and foreign currency translation. (B) Foreign currency translation. EX-3.(II) 2 c60953ex3-ii.txt BY-LAWS, AS AMENDED THROUGH 1/21/00 1 EXHIBIT (3)(ii) BY-LAWS OF GREAT LAKES CHEMICAL CORPORATION ADOPTED BY ACTION OF THE BOARD OF DIRECTORS (ADOPTED MARCH 14, 1975, AS AMENDED THROUGH JANUARY 21, 2000) ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of the Corporation shall be held at the registered office of the Corporation in the State of Delaware or at such other place within or without the State of Delaware, as may be determined by the Board of Directors and as may be stated in the notice of the meeting. The annual meeting shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. The business to be transacted at such meeting shall be the election of directors and such other business as shall properly be brought before the meeting. No business may be transacted at an annual meeting of stockholders, other than business that is (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of 2 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 1 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 1. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public announcement of the date of the annual 2 3 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures 3 4 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 set forth in this Section 1; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 1 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. The term "public announcement" shall mean an announcement in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be called by the Board of Directors, by the Chairman, or by the President. At any time, upon the written request of any person or persons entitled to call a special meeting, it shall be the duty of the Secretary to send out notices of such meeting, to be held within or without the State of Delaware and at such time, but not less than 4 5 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 fifteen days nor more than thirty days after receipt of the request, as may be fixed by the Board of Directors. If the Board of Directors shall fail to fix a time or place, the meeting shall be held at the registered office of the Corporation in the State of Delaware at such time as shall be fixed by the Secretary within the above limits. SECTION 3. NOTICE OF MEETINGS AND ADJOURNED MEETINGS. (a) A written or printed notice of each meeting of stockholders shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The written or printed notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meetings. If mailed, notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. No publication of the notice of meetings shall be required. An affidavit of the Secretary or an Assistant Secretary or of the Transfer Agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. Any previously scheduled meeting of the stockholders may be postponed, and (unless the 5 6 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 Certificate of Incorporation provides otherwise) any special meeting of the stockholders may be canceled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. (b) Whether or not a quorum is present, any annual, regular or special meeting of the stockholders may be adjourned to another date by the Chairman of the meeting or by a majority vote by the shares represented at such meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (c) Whenever a notice of a meeting is required to be given to stockholders, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. 6 7 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 Attendance of a person at a meeting, either in person or by proxy, shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of a meeting, to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. SECTION 4. QUORUM. Except as otherwise provided by law, a quorum at all meetings of stockholders shall consist of the holders of record of a majority of the shares entitled to vote thereat. SECTION 5. CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by the Chairman, or if he is not present, by the President, or if he is not present, by a Vice President or other person chosen at the meeting. The Secretary or an Assistant Secretary of the Corporation, or in their absence, a person chosen at the meeting, shall act as Secretary of the meeting. SECTION 6. INSPECTORS OF ELECTION. Whenever any stockholder present at a meeting of the stockholders shall request the appointment of inspectors, the Chairman of the meeting shall appoint inspectors who need not be stockholders. 7 8 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 If the right of any person to vote at such meeting shall be challenged, the inspectors of election shall determine such right. The inspectors shall receive and count the votes either upon an election or for the decision of any question, and shall determine the result. Their certificate of any vote shall, in the absence of fraud, be prima facie evidence of the facts stated therein. SECTION 7. VOTING. All elections of directors shall be by written ballot. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Restated Certificate of Incorporation of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 7 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 7. In addition to any other applicable requirements, for a nomination to 8 9 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred and twenty (120) days nor more than one hundred fifty (150) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public announcement (as defined in Section 1) of the date of the annual meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the 9 10 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and 10 11 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 7. If the Chairman of the annual meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. At every meeting of the stockholders, each stockholder entitled to vote at such meeting shall have, as to each matter submitted to a vote, one vote for each share of stock having voting rights registered in his name on the stock books of the Corporation. At all meetings of stockholders, a stockholder may vote by proxy appointed by a written instrument signed by the stockholder or his duly authorized attorney in fact and delivered to the Secretary of the meeting, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provided for a 11 12 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 longer period. A quorum being present, directors shall be elected by a plurality of the votes of the shares present and in person or represented by proxy at the meeting and entitled to vote. In all matters, other than the election of directors, the affirmative vote of the majority of shares present or in person or represented by proxy at the meeting and entitled to vote on the subject matter, a quorum being present, shall be the act of the shareholders. SECTION 8. LIST OF STOCKHOLDERS. The Secretary or other officer of the Corporation having charge of the stock ledger shall prepare and make or cause to be prepared and made, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said election, arranged in alphabetical order, and showing the address of each such stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified 12 13 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder or his proxy who may be present. Upon the willful neglect or refusal of the directors then in office to produce or cause to be produced such a list at any meeting for the election of directors, they shall be ineligible to any office at such meeting. The original or duplicate stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section, or to vote in person or by proxy at such meeting. SECTION 9. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less 13 14 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 than ten days before the date of such meeting, nor more than sixty days prior to any other action. (b) If no record date is fixed: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of the stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholder for any other purpose shall be at the close of business on the date on which the Board of Directors adopts the resolution relating thereto. (c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 14 15 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 ARTICLE II DIRECTORS SECTION 1. NUMBER, QUALIFICATIONS, CLASSES, TERMS AND QUORUM. The business and affairs of the Corporation shall be managed under the direction of a Board of Directors which shall consist of nine members, none of whom need be a stockholder. The directors shall be classified with respect to the time for which they shall hold office by dividing them into three classes. The first class shall consist of three directors whose terms of office shall expire in 2000 and in every third year thereafter. The second class shall consist of three directors whose terms of office shall expire in 2001 and in every third year thereafter. The third class shall consist of three directors whose term of office shall expire in 2002 and in every third year thereafter. At each annual meeting of the stockholders of the Corporation, or any adjournment thereof, the successors to the directors whose terms shall expire in that year shall be elected to hold office for a term of three years. In any event, each director shall hold office until his successor is duly elected and qualified or until his earlier resignation or removal. Any director may resign at any time upon written 15 16 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 notice to the Corporation. A majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. The Board of Directors may elect a Chairman of the Board of Directors who shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall have such other powers and perform such other duties as are delegated to him by the Board of Directors or as are incidental to his office. SECTION 2. VACANCIES. Any vacancy and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. SECTION 3. MEETINGS. The Board of Directors shall meet each year immediately after the annual meeting of the shareholders, at the place where the annual meeting of the shareholders is held, for the purpose of electing officers and for the conduct of any other business that may be brought before the meetings. Such meeting shall be held without notice. If such meeting is not held as herein provided, 16 17 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 the election of officers may be had at any subsequent meeting of the Board of Directors. Regular meetings of the Board of Directors may be held at such time and place within or without the State of Delaware, as the Board of Directors may from time to time designate. Special meetings of the Board of Directors may be held upon the call of the Chairman of the Board, or two or more members of the Board of Directors, at any place, within or without the State of Delaware, upon not less than 48 hours notice, specifying the time, place and general purposes of the meeting, given to each director either personally, or by telephone, telegram, or by mail. At any meeting at which all of the directors are present, notice of the time, place and purposes thereof shall be deemed waived. Notice of any meeting may be waived in writing, either before, during, or after any meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of the directors, need be specified in any written waiver of notice. A majority of the directors present at any meeting, whether or not a quorum is present, may adjourn the meeting and no notice of such adjourned meeting need be given. SECTION 4. COMMITTEES. The Board of Directors may, by resolution 17 18 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise the authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a 18 19 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 dissolution of the Corporation or a revocation of a dissolution or amending the By-Laws of the Corporation; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or authorize the issuance of stock. An Executive Committee shall be formed, comprising at least three directors, which shall have the authority and power to act on behalf of the Board of Directors, except as restricted above, with the additional authority to declare dividends on behalf of the Corporation. SECTION 5. ACTION BY CONSENT WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 6. MEETINGS BY CONFERENCE TELEPHONE. Members of the Board of Directors or of any committee designated by the Board may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the 19 20 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 meeting can hear each other, and participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE III OFFICERS SECTION 1. OFFICERS. The officers shall consist of a Chief Executive Officer, a President, one or more Vice Presidents and/or Senior or Executive Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, and one or more Assistant Treasurers. Such officers shall be elected by the Board of Directors and each officer shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Any number of offices may be held by the same person, but no officer shall execute, act or verify any instrument in more than one capacity. The Corporation may have such other officers and agents as the Board of Directors may determine, who shall be elected or appointed by the Board of Directors and hold office for such terms as are prescribed by the Board of Directors. Any vacancy occurring in any office of the Corporation by death, resignation, removal or 20 21 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 otherwise, shall be filled by the Board of Directors. The Board of Directors may remove any officer with or without cause. SECTION 2. CHIEF EXECUTIVE OFFICER. Subject to the authority of the Board of Directors, the Chief Executive Officer shall administer the affairs of the Corporation and shall have such other powers and perform such other duties as are delegated to him by the Board of Directors, or by an authorized committee thereof, or are incidental to his office. During the time when the office of the Chairman of the Board is vacant, the Chief Executive Officer shall perform the duties of that office. SECTION 3. PRESIDENT. Subject to the authority of the Board of Directors, the President shall, during the absence or disability of the Chief Executive Officer, administer the affairs of the Corporation and shall have such other powers and perform such other duties as are incidental to his office or are delegated to him by the Board of Directors, or an authorized committee thereof, or by the Chief Executive Officer. SECTION 4. VICE PRESIDENTS. Subject to the authority of the Board of Directors, the Vice Presidents, in the order designated by the Board of Directors, 21 22 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 shall exercise the functions of the Chief Executive Officer and President during the absence or disability of the Chief Executive Officer and the President. Each Vice President shall have such other duties as are assigned to him from time to time by the Board of Directors or the Chief Executive Officer. SECTION 5. OTHER OFFICERS. The Secretary and the Treasurer shall perform such duties as are incidental to their offices, or are properly required of them by the Board of Directors or the Chief Executive Officer. The Assistant Secretaries shall, in the absence of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as may be assigned by the Board of Directors or the Chief Executive Officer. Other subordinate officers elected or appointed by the Board of Directors shall exercise such powers and perform such duties as may be delegated to them. SECTION 6. DELEGATION OF AUTHORITY. In the case of the absence or incapacity of any officer, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors or, in the absence of any action by the Board of Directors, the Chief Executive Officer may delegate any or all of the duties or powers of such officer to any other officer or to any other director or to any other 22 23 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 person. ARTICLE IV CERTIFICATES OF STOCK SECTION 1. FORM. Every holder of stock in the Corporation shall be entitled to have a certificate signed by the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares owned by him in such Corporation. If such certificate is countersigned (1) by a Transfer Agent other than the Corporation or its employee, or, (2) by a Registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, Transfer Agent or Registrar who has signed or whose facsimile signature has been placed upon a certificate who has ceased to be such officer, Transfer Agent or Registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, Transfer Agent or Registrar at the date of issue. SECTION 2. TRANSFERS. Transfers of shares of stock of the Corporation 23 24 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 shall be made only on the books of the Corporation by the registered owner thereof, or his duly authorized attorney, with a Transfer Clerk or Transfer Agent appointed as specified in these By-Laws, and on surrender of the certificate or certificates for such shares of stock properly endorsed and with all taxes thereon paid. The person in whose name the shares of stock stand on the books of the Corporation shall be deemed by the Corporation to be the holder thereof for all purposes. SECTION 3. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint one or more Transfer Agents or Transfer Clerks and one or more Registrars, and may require all certificates for shares of stock to bear the signature or signatures of any of them. SECTION 4. LOSS OR DESTRUCTION. In case of loss or destruction of a certificate for shares, another certificate may be issued in lieu thereof in such manner and upon such terms as the Board of Directors shall authorize, either by general resolution or by special resolution in each particular case. 24 25 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 ARTICLE V FISCAL YEAR SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall begin on the first day of January of each year and shall end on the 31st day of December following. ARTICLE VI SEAL SECTION 1. CORPORATION SEAL. The Board of Directors shall provide a suitable corporate seal for use by the Corporation. ARTICLE VII INDEMNIFICATION SECTION 1. INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom (hereinafter, collectively a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is, was or had agreed to become a director of the Corporation or is, 25 26 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 was or had agreed to become an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted under the General Corporation Law of the State of Delaware (the "DGCL"), as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the DGCL permitted the Corporation to provide prior to such amendment), against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes or penalties pursuant to the Employee Retirement Income Security Act of 1974, as amended, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, that except as explicitly provided herein, prior to a Change in Control of the Corporation, as defined herein, a person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person against the Corporation or any director, officer, employee or agent of the Corporation shall not be entitled thereto unless the Corporation has joined in or 26 27 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 consented to such proceeding (or part thereof). For purposes of this Article, a "Change in Control of the Corporation" shall be deemed to have occurred if the conditions set forth in any one of the following clauses shall have been satisfied: (a) any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (as in effect as of December 7, 1995 (the "Exchange Act")) other than (i) the Corporation, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of shares of the Corporation (any such person is hereinafter referred to as a "Person"), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing more than 50% of the combined voting power of the Corporation's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation); (b) there is consummated a merger or consolidation of the Corporation with or into any other corporation, other than a merger or consolidation which would result in the holders of the voting securi- 27 28 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 ties of the Corporation outstanding immediately prior thereto holding securities which represent, in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation, immediately after such merger or consolidation, more than 70% of the combined voting power of the voting securities of either the Corporation or the other entity which survives such merger or consolidation or the parent of the entity which survives such merger or consolidation; (c) the stockholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets; or (d) during any period of two consecutive years (not including any period prior to December 7, 1995), individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a Person who has entered into an agreement with the Corporation to effect a transaction described in clause (a), (b) or (c) of this paragraph) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was 28 29 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 previously so approved, cease for any reason to constitute a majority thereof. For purposes of this Article VII, where a Change in Control of the Corporation results from a series of related transactions, the Change in Control of the Corporation shall be deemed to have occurred on the date of the consummation of the first such transaction. For purposes of clause (a) of this paragraph, the stockholders of another corporation (other than the Corporation or a corporation described in clause (iv)), in the aggregate, shall be deemed to constitute a Person. Prior to a Change in Control of the Corporation, any indemnification under Section 1 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel (who may be the regular counsel of the Corporation) in a written opinion or (3) by the stockholders. 29 30 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 Following a Change in Control of the Corporation, any indemnification under this Section 1 (unless ordered by a court) shall be paid by the Corporation unless within 60 days of such request for indemnification a determination is made, in a written opinion, by special independent counsel selected by the person requesting indemnification and approved by the Corporation (which approval shall not be unreasonably withheld), which counsel has not otherwise performed services (other than in connection with similar matters) within the five years preceding its engagement to render such opinion for such person or for the Corporation or any affiliates (as such term is defined in Rule 405 under the Securities Act of 1933, as amended) of the Corporation (whether or not they were affiliates when services were so performed) ("Independent Counsel"), that indemnification of such person is not proper under the circumstances because such person has not met the necessary standard of conduct under the DGCL. Unless such person has theretofore selected Independent Counsel pursuant to this Section 1 and such Independent Counsel has been approved by the Corporation, legal counsel approved by a resolution or resolutions of the Board of Directors prior to a Change in Control of the Corporation shall be deemed to have been approved by the Corporation as required. Such Independent 30 31 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 Counsel shall determine as promptly as practicable whether and to what extent such person would be permitted to be indemnified under applicable law and shall render its written opinion to the Corporation and such person to such effect. The Corporation agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such Independent Counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Article or its engagement pursuant hereto. In making a determination under this Section 1, the Independent Counsel referred to above shall determine that indemnification is permissible unless clearly precluded by this Article VII or the applicable provisions of the DGCL. SECTION 2. PAYMENT OF EXPENSES IN ADVANCE. Expenses, including attorneys' fees, incurred by a person referred to in Section 1 of this Article in defending a proceeding shall be paid by the Corporation in advance of the final disposition of such proceeding, including any appeal therefrom, upon receipt of an undertaking (the "Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation. 31 32 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 SECTION 3. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 1 hereof is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation or if expenses pursuant to Section 2 hereof have not been advanced within 10 days after a written request for such advancement, accompanied by the Undertaking, has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. (If the claimant is successful, in whole or in part, in such suit or any other suit to enforce a right for expenses or indemnification against the Corporation or any other party under any other agreement, such claimant shall also be entitled to be paid the reasonable expense of prosecuting such claim.) It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required Undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed. After a Change in Control of the Corporation, the burden of proving such defense shall be on the Corporation, and any 32 33 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant had not met the applicable standard of conduct required under the DGCL shall not be a defense to the action nor create a presumption that claimant had not met such applicable standard of conduct. SECTION 4. INDEMNITY NOT EXCLUSIVE. The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. The Board of Directors shall have the authority, by resolution, to provide for such other indemnification of directors, officers, employees or agents as it shall deem appropriate. SECTION 5. INSURANCE INDEMNIFICATION. The Corporation shall have power to purchase and maintain insurance to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise, against any expenses, liabilities or losses, whether 33 34 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 or not the Corporation would have the power to indemnify such person against such expenses, liabilities or losses under the provisions of this Article VII or the DGCL. SECTION 6. CONTINUATION OF INDEMNIFICATION; ENFORCEABILITY. The provisions of this Article shall be applicable to all proceedings commenced after its adoption, whether such arise out of events, acts, omissions or circumstances which occurred or existed prior or subsequent to such adoption, and shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. This Article shall be deemed to grant each person who, at any time that this Article is in effect, serves or agrees to serve in any capacity which entitles him to indemnification hereunder rights against the Corporation to enforce the provisions of this Article, and any repeal or other modification of this Article or any repeal or modification of the DGCL or any other applicable law shall not limit any rights of indemnification then existing or arising out of events, acts, omissions or circumstances occurring or existing prior to such repeal or modification, including, without limitation, the right to indemnification for proceedings commenced after such repeal or modification to enforce this Article with 34 35 GREAT LAKES CHEMICAL CORPORATION BY-LAWS AS AMENDED THROUGH JANUARY 21, 2000 regard to acts, omissions, events or circumstances occurring or existing prior to such repeal or modification. SECTION 7. SEVERABILITY. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director and officer of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE VIII AMENDMENTS SECTION 1. AMENDMENTS. The Board of Directors shall have the power to make, alter or repeal the By-Laws of the Corporation at the annual or any regular meeting of the Board of Directors or by unanimous written consent without a meeting, or at any special meeting called for such purposes. 35 EX-13 3 c60953ex13.txt 2000 ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13 GREAT LAKES CHEMICAL CORPORATION 2000 ANNUAL REPORT 2000 FINANCIAL HIGHLIGHTS
(millions, except per share data) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Results of Operations, Including Special Charges: Net sales(1) $1,670.5 $1,500.3 $1,435.7 Gross profit 459.7 423.1 382.8 Operating income 140.2 162.1 73.9 Net income from continuing operations 127.0 139.6 56.4 Net income 127.0 139.6 89.0 Diluted earnings per share from continuing operations 2.42 2.41 0.95 Diluted earnings per share 2.42 2.41 1.50 - --------------------------------------------------------------------------------------------------------------------------------- Results of Continuing Operations, Excluding Special Charges: Net sales(1) $1,670.5 $1,500.3 $1,435.7 Gross profit 459.7 423.1 382.8 Operating income 203.6 180.3 190.4 Net income 174.5 151.4 131.2 Diluted earnings per share 3.32 2.61 2.21 - ---------------------------------------------------------------------------------------------------------------------------------
(1) Net sales amounts have been restated for all periods presented to reflect the application of Emerging Issues Task Force consensus EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," effective in the fourth quarter of 2000. See notes to consolidated financial statements. 1 IMAGINE 12 MESSAGE TO SHAREHOLDERS 14 REVIEW OF OPERATIONS 18 FINANCIAL REVIEW 46 CORPORATE OFFICERS AND DIRECTORS 2 IMAGINE... ...a safer world where fire poses less of a threat to property and endangers fewer lives. A healthier world where new drugs attack viruses and fight diseases. A cleaner world where sparkling water flows abundantly into clear pools--and thirsty mouths. A better-fed world where stored food sources are protected--and crops yield higher volumes. A greener world where manufacturers reduce waste and support the environment. Great Lakes. For The World We All Want.(TM) 1 3 SAFER (PHOTO) 2 4 Each year, accidental fires end or severely alter the lives of thousands of people around the world. Tragically, flame retardant technology could have either prevented many of these fires or given victims extra minutes to escape. But as societal concerns lead to stringent new regulations, these fatalities are falling dramatically. In the United Kingdom, for example, legislation focused on upholstered furniture has saved an estimated 1,800 lives over a 12-year period. And in the United States, the number of residential fires caused by television sets declined by 73% after legislation required all TV backings to contain flame retardant compounds. Great Lakes is saving lives by developing bromine- and phosphorus-based compounds that help manufacturers in the electronics, textiles and furniture, and transportation industries comply with these stricter regulations. And we're using our patented Fyrebloc(R) technology to create custom blends that are cleaner, easier and safer to handle. (PHOTO) Around the world, organizations are selecting FM-200(R), an effective clean fire suppression agent, to protect high-value assets. Here, a professional fire suppression systems dealer completes installation of an FM-200(R) system in an Internet Service Provider (ISP) center. 3 5 HEALTHIER (PHOTO) 4 6 Great Lakes is involved in a number of different prescription products that promote better health and enhanced quality of life. At the most basic level, we supply intermediates for low-cost first- and second-generation antibiotics that still work effectively in developing countries. Additionally, we leveraged our expertise in chiral synthesis to develop a key material for a patient-friendly protease inhibitor that has helped tens of thousands of patients successfully combat the HIV virus. We also produce a key intermediate for an ACE inhibitor used to control hypertension and prolong the lives of patients with congestive heart failure. And before new drugs reach the marketplace, WIL Research, our toxicological testing subsidiary, subjects them to a variety of toxicological, metabolic and analytical chemistry programs. WIL Research has tested drugs designed to treat HIV, herpes, Alzheimer's disease and glaucoma; novel cancer chemotherapies; and a fluorine-based propellant developed by Great Lakes for applications in metered dose inhalers. (PHOTO) Raymond Ho, Pilot Plant Lead, operates a thermosiphon in the company's new Fine Chemicals facility. Here, this vacuum distillation column is being used to isolate and concentrate bioconversion molecules. 5 7 CLEANER (PHOTO) 6 8 Clean, safe, sparkling water provides hours of recreational fun for families and communities. BioLab, our water treatment subsidiary, has built strong pool chemical brands that stand for cleanliness, clarity, comfort, convenience and safety. Chlorinated Granules Plus,TM for example, makes pool maintenance easy by building in powerful clarifying and algae-protecting agents. But clean water is also critical to many manufacturing processes--and to the survival of people and animals in drier regions of the world. As global demand for clean, sparkling water grows, Great Lakes biocides, antiscalants and corrosion inhibitors are making water better. They're contributing to environmentally responsible manufacturing processes, and they're helping supply high-quality, potable drinking water around the world by improving the operation of desalination plants. (PHOTO) Great Lakes biocides and scale and deposit-control agents help control biofilm and mineral deposits on equipment used in many industries today. Frank O'Brien, Applications Specialist, examines effects of industrial water additives using a process simulation unit. 7 9 BETTER-FED (PHOTO) 8 10 It's easy to take for granted agricultural products such as grapes, strawberries and tomatoes. But there's a reason why these crops have been so abundant and affordable. Farmers have relied on Great Lakes fumigants to improve crop yields, protect grain and other stored food sources from contamination, and eliminate non-native pests from imported crops. In California, for example, soil fumigants have helped turn sandy loams into highly productive farmland, increasing the yields of strawberry crops from 5 tons per acre to 40 tons in some locations. Though phase-out legislation will virtually eliminate methyl bromide's soil applications, methyl bromide will continue its important fumigation work in cargo ports around the world. By controlling a wide variety of food-destroying pests, these fumigants enable developing nations to prosper by exporting their grapes, certain fruits and other high-value agricultural products to world markets. (PHOTO) Mary Howland, Agricultural Products Technical Service Manager, works closely with methyl bromide distributors like ProSource One to ensure that they--and their customers--understand how to handle and use this product safely. 9 11 GREENER (PHOTO) 10 12 Though waste is an unavoidable part of the manufacturing process, Great Lakes is working on many fronts to create a greener world. New tools such as Six Sigma and new processes are helping us reduce raw material and energy consumption, improve yields and reduce waste. In El Dorado, Arkansas, for example, we collaborated with Lion Oil to build a one-mile pipeline that preserves two million gallons of local ground water per day. The pipeline carries non-contaminated cooling water and condensed steam to Lion Oil for reuse in its refinery operations. On the product development side, we're introducing a new line of phosphate-based flame retardants. Our HFA-227ea(TM) technology is also providing an ozone-friendly alternative to the CFCs used in fire extinguishants, refrigerants and metered dose inhalers. And to support the chemical industry's Responsible Care(R) program, we are benchmarking certain bulk manufacturing activities for inclusion in a new Guidelines Manual that will set uniform targets for clean, productive manufacturing. (PHOTO) Great Lakes' Environmental, Health and Safety Department routinely audits facilities to meet the company's high standards as part of its commitment to Responsible Care(R). Here, Donna Majewski, Safety Manager, inspects a mass spectrometry lab in West Lafayette, Indiana. 11 13 MESSAGE TO SHAREHOLDERS Chairman, President and CEO Mark P. Bulriss Dear Fellow Shareholder: I was convinced Great Lakes was back on track when we finished the 4th quarter of 1999 on a high note, with revenues up 16% and underlying earnings per share up 26%. In addition, our strong cash flow over the course of the year allowed us to return value to shareholders in the form of stock buybacks totaling $159 million. Further, new productivity tools such as Six Sigma were boosting operating profits. New products were fueling organic growth. Two 1999 acquisitions strengthened three of our key businesses. And the announced partial initial public offering of OSCA, Inc., our energy services and products subsidiary, would make us more focused going forward, add to our already strong cash flow and potentially unlock $300 million of value for shareholders. This belief was well founded in that these factors all made strong contributions in 2000. But combined, they could not help us overcome three factors that proved more difficult to control. Costs of a key raw material, chlorine, more than doubled while rising costs of natural gas and petroleum-based materials such as phenol and phenol derivatives further boosted our operating costs. In Polymer Additives, new global capacity and customer consolidation drove selling prices for non-differentiated bromine-based flame retardants down 25%. Finally, our Fine Chemicals business did not perform as expected due in part to a dramatic increase in mergers in the pharmaceuticals industry and their resulting impact on redundant capacities. Hitting on 3 Out of 4 Cylinders In 2000, we set out to achieve 10% sales growth and 15% growth in operating income. Despite the strong performance of three out of four Great Lakes businesses, our results were mixed. Revenues for the year improved 11% to $1.7 billion. Operating income grew 13% before special charges, just short of our target. 12 14 (PHOTO) Cash flows remained strong. In addition to cash from operations increasing $20 million in 2000, our successful initial public offering of approximately 40% of OSCA netted $90 million in cash. We used our free cash to fund the expansion of WIL Research, support productivity initiatives, commercialize some exciting new products (twice the number of 1999) and repurchase over $135 million in Great Lakes stock. We also acquired Aqua Clear Industries, LLC, to fortify the market leadership position of our Water Treatment business. Our individual businesses produced some impressive results as well. - - Three out of four businesses met their 2000 Economic Value Added (EVA(R)) targets. - - The Fluorine business generated strong volume growth across all product groups, resulting in record sales and earnings. - - After a tumultuous 1998 and 1999, OSCA stayed focused and rebounded with a 39% jump in sales. It also turned operating income from a $9 million loss in 1999 into a $12.5 million gain. - - BioLab achieved operating margins of 18%--a new high point--and continued to create excitement in the marketplace by introducing new products such as Chlorinated Granules Plus.(TM) BioLab also made important progress on the safety front, lowering its OSHA incident rate by 48%. - - Polymer Additives completed a restructuring that will save approximately $20 million in operating costs. In addition, sales of "blended solutions" continued to grow for the third consecutive year at a 40% rate and now account for 20% of total polymer stabilizers sales. 2001 Outlook Many of the same opportunities and challenges Great Lakes faced in 2000 will persist in 2001. We will apply the lessons we learned to soften the impact of variables such as the economy that lie largely outside of our control--and manage even more effectively those we do control. Entering 2001, we have many exciting opportunities to extend our strong sales momentum. Each Great Lakes business will leverage new products and technologies to meet specific customer needs. In Water Treatment, BioLab has targeted two new markets--above-ground and commercial pools. It also introduced through its BioGuard(R) division the Insignia Dealer program, which offers an array of e-business, point of sale, inventory and training programs to solidify relationships with specialty store owners. In Polymer Additives, we introduced Fyrebloc(R) custom-blended formulations, which bring flame retardant customers the same solutions-based approach that has revolutionized the way our polymer stabilizers are specified and used. A new line of phosphorus-based compounds also allows Great Lakes to bring flame retardancy to an even broader range of resins. In Performance Chemicals, we expect sales of FM-200(R) to continue growing. Sales of fine chemicals should improve as we commercialize products such as new high-value chiral intermediates in the form of second-generation protease inhibitors used to combat HIV. With continued margin pressure and an uncertain economic outlook ahead, cost control, process improvement and cash management will remain the watchwords of 2001. New energy-efficient manufacturing technology will help us reduce the costs of bromine extraction by nearly 10%. A new joint venture in Saudi Arabia will extend our global presence in polymer stabilizers while giving us a valuable foothold in the world's fastest growing polyolefin market. Lean manufacturing practices will produce measurable savings in high-touch time manufacturing operations. And by fully utilizing proven practices such as Sales, Operations and Inventory Planning (SOIP), we could unlock as much as $200 million in additional cash. Challenging years like fiscal 2000 provide an important barometer of where we are and where we need to be. We have come a long way in reducing costs, raising efficiencies, eliminating waste and delivering solutions our customers value. At the same time, our inability to meet our 15% growth in operating income target means we need to go farther, faster and with a greater sense of urgency than ever before. Though we could not overcome adverse pricing for brominated flame retardants, our ability to deliver solid results and strong cash flows underscores our inherent strengths as a specialty chemical company that serves a broad spectrum of markets and customers. In 2001 additional challenges will surface. As economic growth slows, and as our customer base continues to consolidate, we will need to execute better in everything we do. But I believe we are better equipped than ever to do so, thanks to a focused business portfolio and our commitment to employ new tools and processes with increased energy. The Great Lakes team clearly understands our obligation to our shareholders. We thank those of you who have stuck with us during the tough times. And with your continued support, we remain committed to doing everything possible to make this a company we can all be proud of. Our vision for Great Lakes extends far beyond profitable growth. Our vision challenges us to help create the world we all want--a world that is safer, healthier, cleaner, better-fed and greener. Together with our customers, our suppliers, our families and our communities, we are creating this world through innovative products, responsible practices and a strong commitment to education. Respectfully, Mark P. Bulriss Chairman, President and CEO March 27, 2001 13 15 (PHOTO) POLYMER ADDITIVES Business Profile Great Lakes is a leading worldwide developer and producer of bromine-, phosphorus- and antimony-based flame retardants and value-added antioxidants; UV light stabilizers; performance additives and fluids; and optical monomers. The Polymer Additives group integrates these compounds into custom solutions that resist ignition and ensure the stability of products during processing or while in use. These custom formulations deliver value to customers in the plastics, consumer electronics, fiber, telecommunications, construction and other industries by simplifying processing, improving product quality and reducing health and safety risks. Market Overview Globalization and consolidation are transforming the polymer additives industry. Today's customers are large manufacturers who require a broad product basket and new performance solutions capable of serving growing markets such as Asia and the Middle East. The steady growth of the consumer electronics market, and new electronics products such as Flat Panel Displays and DVDs, are also creating strong demand for high-performance flame retardants and polymer stabilizers. As manufacturers balance the risks and rewards of tougher regulatory requirements and stricter flammability standards, and expand the performance characteristics of plastics as a suitable substitute for other materials, global demand for polymer additives will continue to grow. Performance Highlights In fiscal 2000, Polymer Additives achieved sales growth of 9% to $690 million. Sales of patented No Dust Blends (NDB(R)) formulations grew by 40% and now account for 20% of all polymer stabilizers sales. Similar formulations now include Fyrebloc(R), which combines bromine- and antimony-based flame retardants in convenient, no-dust blends. To combat higher energy and raw materials costs and industry-wide pricing pressures on brominated flame retardants and antimony synergists, Great Lakes consolidated three antimony production sites into one in Reynosa, Mexico, and implemented a restructuring plan that promises to produce savings of approximately $20 million. Through a joint venture, the group also began construction of a new manufacturing site in Saudi Arabia, the first of its type in the Middle East, that will begin serving the world's fastest growing polyolefin market by the end of 2001. Growth Opportunities The group will carefully manage the balance between growing its sales volume and revenue and achieving its cash flow and profitability targets. To this end, it will work to improve working capital turns by aggressively implementing a Sales, Operations and Inventory Planning (SOIP) process. In Polymer Stabilizers, it will broaden its technology platform in high-performance antioxidants, expand its capabilities in optical monomers and leverage its position as the leading supplier of polymer additives to polyolefin producers in the Middle East. In Flame Retardants, it will concentrate capital spending on productivity improvements and on a few key new products such as Fyrebloc(R) blends and non-halogen flame retardants. To take advantage of market opportunities, it will achieve SOIP "Class A" and take advantage of more stringent fire safety standards for global TV manufacturers and U.S. furniture and mattress manufacturers. 14 16 (PHOTO) PERFORMANCE CHEMICALS Business Profile Great Lakes applies its expertise in complex chemical synthesis, process development, manufacturing and toxicological testing to meet highly specific requirements for pharmaceutical, agrochemical and a wide range of industrial chemical applications. From its patented position in fire extinguishants, the company is rapidly expanding its base in fluorine technologies to new markets and applications where customers require environmentally suitable alternatives to traditional products. Its Fine Chemicals business operates at every link of the value chain--from discovery to commercial production of chemical intermediates--to deliver single-sourced solutions used by customers in life sciences industries. The Performance Chemicals group also advances Great Lakes' leadership position in bromine technology and, through WIL Research, offers customers world-class toxicological testing capabilities. Market Overview A heightened emphasis on safety, asset protection and environmental responsibility is creating strong demand for an effective fire extinguishant such as Great Lakes' patented FM-200(R). New fluorine-based technology is also the platform for other environmentally friendly products that include a critical component of the refrigerant used in residential HVAC systems, and a medical propellant used in metered dose inhalers for dispensing asthma and other medications. The Performance Chemicals group is meeting the requirements of drug manufacturers by combining a broad product portfolio with the technical strength and depth to engineer difficult-to-produce intermediates. In toxicological testing, WIL Research stands to benefit from new regulations and other initiatives driving the need for more toxicology data on existing high-volume chemicals as well as new products. 2000 Performance Highlights In 2000, revenues from the Fluorine business grew by 50%, driven by a wide range of established and emerging applications for FM-200(R). The company expanded its Fluorine business, launching a series of initiatives to defend its patent positions, increase manufacturing capacity and offer new solutions for end users. The Performance Chemicals group also made several investments to improve its competitive position in fine chemicals. These include upgrades of its cGMP capabilities and implementing a disciplined product development system that will accelerate time to commercialization by more effectively qualifying, managing and monitoring progress on all new product development opportunities. In bromine derivatives, productivity improvements at the Amlwch, United Kingdom, facility resulted in improved bromine economics. And with the expansion of its facility now complete, WIL Research has the scale and capabilities to meet growing demand for toxicology testing. Growth Opportunities The Fluorine business will capitalize on new manufacturing capacity for its full range of specialty fluorine derivatives. The Fine Chemicals business will continue to fill its new product pipeline with products at every phase of the pharmaceutical new product delivery cycle. Bromine Performance Products will implement new technologies to drive continued reduction in bromine production costs, leverage niche products such as anhydrous bromine and alkyl bromide and lead product stewardship initiatives for methyl bromide customers. WIL Research will diversify its activities to include juvenile toxicology, safety pharmacology and neurotoxicology. 15 17 (PHOTO) WATER TREATMENT Business Profile BioLab is the world's premier formulator of water treatment biocides and related specialty chemicals that make water better. It features innovative recreational water treatment products and outstanding service across the value chain to mass merchants, wholesale distributors, specialty store owners, commercial pool and water park operators and retail customers. Great Lakes is also strengthening its position in the industrial water treatment arena. Its bromine-based biocides and proprietary polymer-based antiscalants and corrosion inhibitors target industrial customers in the global cooling, process, wastewater, paper and desalination markets. Market Overview Water Treatment is a recession-resistant business that is capable of generating strong cash flows even as economic cycles fluctuate. Though regional economic conditions can limit new pool installations, and adverse weather conditions can reduce sales volume, pools and spas require a consistent supply of chemicals to keep water clean and clear. The recreational water treatment market presents multiple sales channels and can support multiple brands. The industrial water treatment market offers significant growth opportunities. Shortages of potable water are increasing demand for chemicals used in the desalination process, while stricter environmental regulations are creating new applications for industrial water treatment chemicals. 2000 Performance Highlights BioLab made impressive gains in every key area of its business. Lean manufacturing techniques helped generate an 18% operating margin in the water treatment business--a new high point. Improved manufacturing processes also helped reduce total waste by 28%. The acquisition of Aqua Clear Industries, LLC, and the launch of the Insignia program for BioGuard(R) dealers contributed to a 13.5% increase in revenues--four times the growth of the recreational water treatment industry. On the strength of Chlorinating Granules Plus(TM) and other innovations, new products accounted for 18% of total sales. In the industrial market, BioLab introduced a new brominated delivery system for industrial water treatment--Aquate(TM), an innovative gel form of bromine--as well as a new biocide for reverse osmosis, Flocide(TM) 380. Growth Opportunities In 2001, BioLab will focus on improving working capital management to grow free cash flow. It will also expand its Trichlor manufacturing capabilities, fully integrate Aqua Clear into its existing operations and leverage products and brands around the world to expand its basket of value for customers. It will also target customers in the commercial pool segment and introduce new treatment solutions that include new "dosage" devices for pools that make water treatment chemicals more cost effective to use. To meet its growth targets, BioLab will also look for regional acquisition opportunities to expand its leadership position in recreational markets and grow its industrial product portfolio to include a wider range of biocides, antiscalants and corrosion inhibitors. 16 18 (PHOTO) ENERGY SERVICES AND PRODUCTS Business Profile OSCA, Inc. specializes in high-demand well completion and stimulation treatments that enhance production. It serves major oil and gas companies in the United States and selected international markets by supplying bromine-based oil and gas well completion fluids, marine-based and modular pumping and well intervention services and downhole completion tools. Its fleet of dynamically positioned, deepwater-capable vessels serves challenging deepwater environments, while its customized completion tools provide unique methods of sand control, zonal isolation and flow management. OSCA offers ISO 9001- certified services that provide a competitive advantage in markets where quality of execution is a key component of value. Market Overview Today's energy services market is expanding its horizons and becoming more fragmented. Large multinational companies are shifting their focus from oil to natural gas to meet growing demand for this cleaner form of energy. They are also disposing of smaller field operations and are moving offshore to new markets such as Brazil and West Africa where they are focusing on cash-intensive, high-volume, deepwater applications. As a result, a number of smaller entities are emerging that require specialized services. These much leaner organizations also require a higher level of support with logistics, operations management, engineering and troubleshooting. This trend gives OSCA a competitive advantage based on the highly skilled professionals who staff its consultative technical sales support applications engineering and operations team. 2000 Performance Highlights OSCA recovered from a challenging 1999 fiscal year by generating a 39% increase in revenues for 2000. Equally important, it improved its Economic Value Added (EVA(R)) performance by $10 million by accelerating inventory turns and lowering days sales outstanding. OSCA also implemented a Sales Excellence Program that increased revenues per account manager by 13%. In Completion Fluids, improved pricing helped push revenues up 9% while a better product mix helped drive operating income, excluding the effects of special items, up 128% over 1999. The Services business expanded to Brazil as OSCA won a contract to place one of three deepwater stimulation boats there for most of the year. In the Completion Tools business, OSCA leveraged its industry-leading technology position to grow its market share. In 2000, OSCA participated in the completion of all "intelligent wells" in the Gulf of Mexico. Growth Opportunities In 2001, OSCA will continue to build its capabilities to serve the fast-growing natural gas market, both through organic growth and through external acquisitions. It will also leverage customer relationships to enter new markets such as West Africa. OSCA will also complete phase two of its Research and Technology Center campus in Houston. This facility has been the key to the successful development of several new products, which made up over 30% of OSCA's downhole tool revenues in 2000. 17 19 FINANCIAL REVIEW (millions, except per share data)
2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- Summary of Earnings Net sales $1,670.5 $1,500.3 $1,435.7 $1,350.4 $1,393.6 Operating income before special charges 203.6 180.3 190.4 191.6 183.9 Operating income(1) 140.2 162.1 73.9 141.8 183.9 Income from continuing operations before income taxes 164.9 175.4 66.2 117.2 184.0 Income taxes 37.9 35.8 9.8 45.4 63.4 Effective income tax rate 23.0% 20.4% 14.8% 38.7% 34.5% Net income from continuing operations $ 127.0 $ 139.6 $ 56.4 $ 71.8 $ 120.6 Net income (loss) from discontinued operations -- -- 32.6 (14.9) 129.7 - ----------------------------------------------------------------------------------------------------------- Total net income $ 127.0 $ 139.6 $ 89.0 $ 56.9 $ 250.3 Percent of average stockholders' equity 13.1% 13.6% 7.5% 4.1% 17.2% Financial Position at Year-End Working capital (excluding cash and cash equivalents) $ 400.3 $ 378.0 $ 237.4 $ 290.5 $ 282.7 Current ratio 2.6 3.8 2.9 2.2 2.5 Capital expenditures $ 157.0 $ 119.0 $ 160.6 $ 133.0 $ 168.7 Total assets 2,134.4 2,261.0 2,004.6 2,270.4 2,352.7 Debt (net of cash and cash equivalents) 471.5 411.1 108.3 492.9 360.8 Debt 694.2 889.4 519.9 566.6 502.2 Percent of total capitalization 42.2% 46.2% 31.9% 29.1% 24.4% Stockholders' equity $ 949.7 $ 994.1 $1,054.3 $1,307.4 $1,486.9 Per share 18.92 18.24 18.05 22.18 24.13 Share Data Basic earnings (loss) per share Continuing operations $ 2.42 $ 2.42 $ 0.96 $ 1.20 $ 1.90 Discontinued operations -- -- 0.55 (0.25) 2.04 - ----------------------------------------------------------------------------------------------------------- Total $ 2.42 $ 2.42 $ 1.51 $ 0.95 $ 3.94 Diluted earnings (loss) per share Continuing operations $ 2.42 $ 2.41 $ 0.95 $ 1.19 $ 1.89 Discontinued operations -- -- 0.55 (0.25) 2.02 - ----------------------------------------------------------------------------------------------------------- Total $ 2.42 $ 2.41 $ 1.50 $ 0.94 $ 3.91 Cash dividends per share Declared during year $ 0.32 $ 0.32 $ 0.40 $ 0.63 $ 0.57 Paid during year 0.32 0.32 0.48 0.62 0.54 Payout as a percent of net income 13.2% 13.2% 26.5% 66.3% 14.5% Shares outstanding (basic) Average during year 52.4 57.8 59.0 60.0 63.5 At year-end 50.2 54.5 58.4 59.0 61.7 Stock price(2) High $ 40.44 $ 50.00 $ 54.19 $ 54.88 $ 78.63 Low 26.50 33.19 36.69 41.50 44.25 At year-end 37.19 38.19 40.00 44.88 46.75 - -----------------------------------------------------------------------------------------------------------
(1) After special charges of $63.4 million, $18.2 million, $116.5 million and $49.8 million in 2000, 1999, 1998 and 1997, respectively. (2) Stock prices prior to May 22, 1999, do not reflect the Octel spin-off. 18 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This annual report, including Management's Discussion and Analysis, contains both historical information and forward-looking statements. Whenever possible, the Company has identified these forward-looking statements by such forward-looking terminology as "believes," "expects," "may," "will likely result," "estimates," "anticipates," "should" or the negative thereof, or other variations in comparable terminology. Such forward-looking statements are based on management's current views and assumptions regarding future events, future business conditions and the outlook for the Company based on currently available information. These forward-looking statements involve risks and uncertainties that could affect the Company's operations, markets, products, services, prices and other factors as discussed in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, governmental and technological factors. Accordingly, there can be no assurance that the Company's expectations will be realized. CONTINUING OPERATIONS The following table sets forth the percentage relationship to net sales of certain income statement items for the Company's continuing operations: - ---------------------------------------------------------------- Years Ended December 31 2000 1999 1998 - ---------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% Cost of products sold 72.5 71.8 73.3 - ---------------------------------------------------------------- Gross profit 27.5 28.2 26.7 Selling, general and administrative expenses 15.3 16.2 13.4 - ---------------------------------------------------------------- Operating contribution 12.2 12.0 13.3 Special charges 3.8 1.2 8.1 - ---------------------------------------------------------------- Operating income 8.4 10.8 5.2 Gain on sale of subsidiary stock 3.6 -- -- Interest and other income 2.2 3.0 2.5 Interest and other expenses 4.4 2.1 3.1 - ---------------------------------------------------------------- Income from continuing operations before income taxes 9.8 11.7 4.6 Income taxes 2.2 2.4 0.7 Net income from continuing operations 7.6% 9.3% 3.9% - ---------------------------------------------------------------- RESULTS OF CONTINUING OPERATIONS -- 2000 COMPARED WITH 1999 Sales increased 11.3% to $1,670.5 million from $1,500.3 million in 1999. This growth was attributable to strong sales volume gains in all business units, including double-digit sales growth in the Water Treatment and Energy Services and Products business units. This volume growth, which includes the effects of acquisitions, was partially offset by lower selling prices in the Polymer Additives business unit and an unfavorable foreign exchange impact on all business units. Gross profit increased 8.7% to $459.7 million from $423.1 million in the prior year, while gross margin decreased 0.7% from 28.2% to 27.5%. Volume growth and improved pricing and product mix in the Performance Chemicals, Water Treatment and Energy Services and Products business units were offset by lower selling prices in Polymer Additives and higher energy and raw material costs. Selling, general and administrative expenses increased $13.3 million to $256.1 million from $242.8 million in the prior year. This increase was a result of higher selling expenses related to the increased sales volumes and the effect of acquisitions. As a percent of sales, selling, general and administrative expenses decreased from 16.2% to 15.3% reflecting several cost containment efforts undertaken by the Company, including the 1999 and 2000 cost reduction initiatives. Special charges of $63.4 million reflect the impact of a second quarter special charge totaling $66.4 million, adjusted downward by a $1.2 million change in estimate in the fourth quarter of 2000 to $65.2 million, related to a series of cost reduction initiatives undertaken in June 2000. Offsetting the 2000 special charge were certain reversals of the special charges taken in 1998 and 1999 totaling $1.8 million as explained more fully below. The net of the 2000 special charges and the reversals of prior year charges are reflected in the consolidated statement of income as a separate component of operating income. Operating income, excluding the effects of special charges, increased $23.3 million or 12.9% over the prior year. Operating income margins improved slightly, increasing from 12.0% to 12.2% for the year. Higher sales volumes and an improved product mix, coupled with the cost containment efforts more than offset the effects of increased energy and raw material costs and lower selling prices in Polymer Additives. Interest and other income decreased $7.2 million to $37.1 million in 2000. This decrease reflects a reduction in interest income of $1.6 million resulting from lower levels of invested cash and cash equivalents and a reduction from the prior year of approximately $10 million in the amount of gains recognized from the disposition of certain equity investments. These reductions were in part offset by an increase in earnings from unconsolidated affiliates over the prior year of $4.6 million. Interest and other expenses increased by $41.8 million to $72.8 million from $31.0 million in the prior year. Higher average debt levels and higher interest rates coupled with increased amortization expense due to acquisitions and an increase in minority interest expense resulting from the sale of subsidiary stock contributed to the increase. Income taxes were $37.9 million or 23.0% compared to $35.8 million or 20.4% in the prior year. The 2000 effective tax rate is lower than the Company's expected ongoing effective tax rate of 31% due primarily to the nontaxable gain on the sale of subsidiary stock recorded in the second and third quarters of 2000. The lower effective tax rate in 1999 resulted from adjustments for previously provided taxes and structural changes made in the Company's foreign operations that resulted in generating a substantially higher percentage of income in lower tax rate jurisdictions. Net income for 2000 was $127.0 million or $2.42 per share. This compares to net income of $139.6 million or $2.41 per share for 1999. Excluding the after-tax effects of the gain on sale of subsidiary stock in 2000 and the effects of special charges on both 2000 and 1999, net income was $114.4 million or $2.18 per share and $151.4 million or $2.61 per share for 2000 and 1999, respectively. 19 21 SEGMENT INFORMATION Set forth below is a discussion of the operations of the Company's business segments: Polymer Additives, Performance Chemicals, Water Treatment and Energy Services and Products. Operating income, which is the income measure the Company uses to evaluate business segment performance, represents net sales less costs of products sold and selling, general and administrative expenses. The operating income data presented below is before the special charges recorded in 2000 and 1999. Each of the Company's segments uses bromine as a raw material in their production process. Bromine is transferred at cost to all business segments, except Energy Services and Products. Their cost is based upon a bromine supply agreement. In addition, assets used in the production of bromine are allocated to each business unit based on the percentage of production consumed, except for Energy Services and Products, which does not receive an allocation. Polymer Additives The Polymer Additives business unit is a leading provider of plastic additive solution and service packages. Polymer Additives brings the most comprehensive product basket of flame retardants, polymer stabilizers and antimony-based derivatives to the global marketplace. In 1999, the product platform expanded to include non-halogenated flame retardants with the acquisition of FMC Corporation's Process Additives Division (PAD). With the acquisition, Polymer Additives provides its customers an array of integrated polymer additive solutions, unsurpassed in the market and that meet specific, well-defined customer needs in a variety of products including computer and business equipment, consumer appliances, packaging, textile, building and construction, furniture and transportation. - ------------------------------------------- Polymer Additives 2000 1999 - ------------------------------------------- Net sales $690.1 $632.1 Operating income 52.4 78.0 - ------------------------------------------- Net sales increased $58.0 million or 9.2% in 2000. Continued recognition and acceptance of the Company's proprietary blends such as the No Dust Blends (NDB(R)) products, higher flame retardant volumes resulting from increased market penetration in Asia and the addition of sales related to the PAD acquisition drove the increase. The volume gains were partially offset by lower selling prices and unfavorable foreign exchange. Operating income decreased $25.6 million or 32.8%. This decrease was attributable to increased raw material costs and significantly higher energy costs coupled with lower selling prices associated with high-volume brominated flame retardants. These items more than offset the benefits of the higher sales volumes and cost savings resulting from productivity initiatives. Performance Chemicals The Performance Chemicals business unit is a global supplier of value-added products and services to broad and diverse markets that include life sciences, agrochemicals, electronics and telecommunications. Through its expertise in a wide range of chemical synthesis, process development, manufacturing and toxicological testing activities, the businesses within Performance Chemicals have become the leading choice for many companies to outsource their complex chemical production and service needs. The Performance Chemicals business unit is a collection of individual businesses providing products and services that meet highly specific requirements for pharmaceutical, agrochemical and industrial chemical applications. - -------------------------------------------------- Performance Chemicals 2000 1999 - -------------------------------------------------- Net sales $369.3 $354.9 Operating income 90.8 78.7 - -------------------------------------------------- Net sales for the year increased $14.4 million or 4.1%. Strong volume gains across all product lines in the Fluorine group led to a record sales level for this business unit. WIL Research Laboratories' (WIL Research) expanded role in reproductive toxicological studies contributed to its 12.4% sales gain during the year. The gains reported by these businesses were partially offset by lower sales for Fine Chemicals and Brominated Performance Products. Operating income increased $12.1 million or 15.4% for the year. In addition, operating margin for 2000 was 24.6% compared to 22.2% in the prior year. These record levels reflect the significant volume growth in Fluorine, increased sales and service mix improvements at WIL Research, improved pricing for methyl bromide and productivity initiatives throughout the businesses comprising Performance Chemicals. Water Treatment The Company's Water Treatment business unit, through its BioLab subsidiary, is the world's leading provider of recreational water care products to the consumer. By deploying a brand/channel segmentation strategy, BioLab is able to maximize its market share and leverage its resources. During 1999, Water Treatment more than doubled its Industrial Water Division (renamed BioLab Water Additives) with the acquisition of FMC's water additives business. Through its proprietary position in polymaleate chemistry, and as the world's foremost provider of bromine-based biocides, BioLab Water Additives is a leading supplier of corrosion inhibitors, scale control and desalination solutions. Water Treatment 2000 1999 - -------------------------------------------------------- Net sales $474.5 $418.1 Operating income 85.0 73.1 - -------------------------------------------------------- The Water Treatment business unit completed another record year with net sales and operating income and margins all reaching record levels. Net sales increased $56.4 million, or 13.5%, reflecting consumer acceptance of important new technologies, continued market penetration, the acquisition of Aqua Clear Industries, LLC (Aqua Clear) in July 2000 and the addition of the BioLab Water Additives business acquired in August 1999. Operating income increased $11.9 million to $85.0 million from $73.1 million, a 16.3% increase. Operating margins improved from 17.5% to 17.9%. These improvements reflect the strength of the product portfolio, focused productivity efforts and the accretive effects of the BioLab Water Additives acquisition. Energy Services and Products The Energy Services and Products business unit (OSCA) is a leading provider of oil and gas well completion products and services. A pioneer in completion fluids, OSCA today offers a comprehensive array of products and services including sand control, well stimulation, coiled tubing and custom downhole tool packages. These products and services are available separately or as integrated systems. OSCA's products and services are focused on value enhancing well completion activities that allow 20 22 its customers to optimize the recovery of oil and gas. OSCA's singular focus and technological expertise enables it to compete successfully against its larger peers. - ------------------------------------------------------------- Energy Services and Products 2000 1999 - ------------------------------------------------------------- Net sales $131.9 $95.2 Operating (loss) income 12.5 (8.5) - ------------------------------------------------------------- Net sales increased in 2000 by $36.7 million or 38.6% to $131.9 million, a record year. This performance demonstrates OSCA's ability to grow by leveraging the investment it has made in capacity, coupled with its increased market penetration in Brazil and Venezuela and higher levels of exploration and development activities driven by higher commodity pricing for crude oil and natural gas. Operating income improved to $12.5 million compared to an operating loss of $(8.5) million in the prior year. Volume increases, improved pricing and a better product mix resulting from OSCA's pull through leverage were the primary factors driving the significant improvement in operating income. RESULTS OF CONTINUING OPERATIONS -- 1999 COMPARED WITH 1998 Sales for 1999 increased 4.5% to $1,500.3 million. Volume grew 8% led by Fluorine, Agricultural Products, and Polymer Additives and the acquisitions of NSC Technologies and PAD. This growth was partially offset by the effects of competitive pricing pressure in brominated flame retardants and significantly lower oil exploration activity in Energy Services and Products. Gross profit increased 10.5% to $423.1 million in 1999 while gross profit margin improved to 28.2% in 1999 from 26.7% in 1998. Productivity initiatives, a better mix of products in Polymer Additives and Water Treatment, selected price increases in certain businesses and lower raw material costs more than offset the previously mentioned competitive pricing pressures in flame retardants. Although gross profit margin increased to its highest level in four years, operating margin, excluding special charges, declined to 12.0% in 1999 from 13.3% in 1998. This decrease was driven by increased information systems expense as the Company implemented its new Enterprise Resource Planning (ERP) information systems and became Y2K compliant. Also, contributing to the decrease was a one-time charge of approximately $10 million to exit an environmental remediation business in Mexico and to settle land use litigation. In 1999, the Company recorded approximately $29 million in information systems expenses as compared to approximately $4 million in 1998. Excluding special charges and the aforementioned expenses and charges, operating margin would have been 14.6% in 1999 as compared to 13.5% in 1998. Operating income margin, including special charges, was 10.8% in 1999 as compared to 5.1% in 1998. The Company recognized a special charge of $25.4 million during 1999 related primarily to actions to further streamline the Polymer Additives business unit by providing a more flexible data processing solution for the Company's manufacturing operations. Offsetting this charge were certain reversals of the special charges taken in 1998 totaling $7.2 million as explained more fully below. The net of the 1999 special charges and the reversals of the prior year charges is reflected in the consolidated statement of income as a separate component of operating income. Interest and other income increased approximately $7.3 million to $44.3 million in 1999 from 1998 due primarily to a gain from the partial disposition of an equity investment. Interest and other expense decreased by $13.7 million to $31.0 million for the year primarily as higher interest expense associated with increased borrowings to fund the acquisitions of NSC Technologies and PAD was more than offset by foreign exchange gains and a favorable adjustment to reserves to reflect revised environmental remediation estimates at certain non-operating sites. Income taxes for the year were $35.8 million or 20.4% as compared to the 1998 effective tax rate of 14.8%. The lower effective tax rate is due primarily to a favorable $10 million tax credit in 1998 related to foreign taxes and the magnitude of the special charges in 1998. The 1999 rate reflects a reduction in income tax expense in 1999 due to adjustments for previously provided taxes and structural changes made in the Company's foreign operations that resulted in generating a substantially higher percentage of income in lower tax rate jurisdictions. The Company expects its ongoing effective tax rate will be approximately 31%. Net income for 1999, excluding the special charges, was $151.4 million, or $2.61 per share. This compares to net income from continuing operations of $131.1 million, or $2.21 per share, excluding special charges, for 1998. Net income from continuing operations including the special charges was $139.6 million, or $2.41 per share, for 1999 as compared to $56.4 million, or $0.95 per share, for 1998. SEGMENT INFORMATION A review of results of operations by business segment for 1999 compared with 1998 is as follows. The operating income data presented below is before the special charges recorded in 1999 and 1998. Polymer Additives During 1999, the Company completed the acquisition of PAD, a world leader in the production of phosphate ester flame retardants, flame retardant fluids and lubricant additives. By extending the product platform, the Company is able to provide a comprehensive basket of integrated polymer solutions that meet specific, well-defined customer needs in a variety of products including computer and business equipment, consumer appliances, packaging, textile, building and construction, furniture and transportation. - ----------------------------------------------- Polymer Additives 1999 1998 - ----------------------------------------------- Net sales $632.1 $599.1 Operating income 78.0 78.9 - ----------------------------------------------- Polymer Additives' sales increased 5.5% to $632.1 million in 1999. Sales volumes grew 14%, including 8% from the PAD acquisition. Continued recognition and acceptance of the Company's proprietary blends and physical forms for Polymer Stabilizers, such as No Dust Blends (NDB(R)), and the recovery under way in Asia drove the organic growth. The increase was offset in part by an 8% decline in selling prices due to competitive price pressure, primarily in brominated flame retardants, and the effects of unfavorable currency fluctuations. 21 23 Operating income in 1999 was essentially flat compared to 1998. Savings from productivity initiatives and restructuring activities, lower raw material costs and earnings generated by the PAD acquisitions were offset by the aforementioned competitive price pressure in brominated flame retardants and an approximately $8 million increase in expense associated with the implementation of the Company's ERP information systems. Excluding the higher information systems expense, operating income would have been approximately $86 million and operating margin would have increased to 13.6% in 1999 from 13.2% in 1998. Performance Chemicals The acquisition of NSC Technologies in 1999 was a key element in the Performance Chemicals group's long-term strategy of increased involvement in the pharmaceuticals industry. NSC Technologies develops, manufactures and sells chiral pharmaceutical intermediates and select bulk actives to pharmaceutical companies. Its competency in natural and unnatural amino acids provides a broad molecular platform from which it develops novel, high value-added intermediates and bulk actives for antiviral, cardiovascular and oncology therapeutic drugs. NSC Technologies is part of the Fine Chemicals group. - ---------------------------------------------------- Performance Chemicals 1999 1998 - ---------------------------------------------------- Net sales $354.9 $323.7 Operating income 78.7 70.2 - ---------------------------------------------------- Sales in Performance Chemicals grew 9.6% to $354.9 million in 1999. Led by strong demand for FM-200(R), the Company's halon replacement fire extinguishant, and its hydrofluorocarbon refrigerant HFC-32, the Fluorine group continued its pattern of impressive sales growth with an increase of 35% over 1998. Fine Chemicals' sales increased 4% in 1999 as volume growth from the new product pipeline acquired with NSC Technologies was partially offset by a shortfall in demand resulting from customer actions to delay or modify product introduction schedules. WIL Research's sales increased 21% driven by improved facility utilization and a richer mix of toxicological services. Brominated Performance Products' sales were essentially flat year over year. Higher sales of HyperSolve,(TM) Great Lakes' bromine-based solvent, and increased pricing of methyl bromide, an agricultural fumigant, were offset by lower demand for some lower margin bromine and bromine derivative products and regulatory reductions in the level of methyl bromide sales volumes. Operating income for Performance Chemicals increased 12.1% to a record level of $78.7 million for the year. Significant volume growth, product and service mix improvements in Fluorine and WIL Research, and improved pricing for methyl bromide more than offset higher systems expense associated with the implementation of the Company's ERP information systems. - -------------------------------------------------------------------------------- Water Treatment - -------------------------------------------------------------------------------- During 1999, Water Treatment more than doubled its Industrial Water Division (renamed BioLab Water Additives) with the acquisition of FMC's water additives business. - ------------------------------------------------- Water Treatment 1999 1998 - ------------------------------------------------- Net sales $418.1 $396.3 Operating income 73.1 54.5 - ------------------------------------------------- The Water Treatment business experienced another outstanding year. Operating earnings and margins for this business unit were again at record levels. Sales of new products such as Shock Plus,(R) introduced in 1998, and Banish,(R) introduced in 1999, continue to improve product mix, provide a sustainable competitive advantage and fuel growth. New products, better mix, increased productivity, improved profitability in Europe and lower raw material costs drove the 34.1% increase in operating earnings. The 5.5% increase in sales was in part due to the PAD acquisition, which significantly expanded the depth and breadth of the Company's BioLab Water Additives business. Volume increases in the U.S. recreational water market, driven by the aforementioned emphasis on new products, were significantly offset by the Company's decision to exit certain low-margin business in Europe. Energy Services and Products Sales decreased 17.7% in 1999 to $95.2 million primarily as a result of a sharp decline in oil prices that began in the second half of 1998 and carried into the first half of 1999. This price softness led to a significant downturn in drilling activities particularly in the Gulf of Mexico. - ----------------------------------------------------------------- Energy Services and Products 1999 1998 - ----------------------------------------------------------------- Net sales $95.2 $115.7 Operating income (loss) (8.5) 11.0 - ----------------------------------------------------------------- The curtailment of exploration and development activities resulted in increased pricing pressure. The preceding, coupled with $6.1 million of charges in connection with exiting an environmental remediation project in Mexico, led to the operating loss in 1999. Oil prices substantially recovered in the second half of 1999 and continued their trend in early 2000. The energy sector shows signs of recovery as rig count in the Gulf of Mexico is at its highest level in 18 months. OSCA is well positioned to respond to the increase in exploration and development investment expected in 2000. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Total assets decreased to $2,134.4 million at December 31, 2000 from $2,261.0 million in the prior year. This decrease was due primarily to decreases in cash and cash equivalents of $255.6 million and a decrease in investments in and advances to unconsolidated affiliates of $17.3 million resulting from the sale of certain equity investments in 2000. These declines were offset by increases in accounts receivable, inventories, goodwill and other assets of $51.1 million, $47.6 million, $30.0 million and $21.3 million, respectively. Increased sales volumes combined with an increase of three days in days sales outstanding drove the increase in accounts receivable. Increases in inventories resulted from higher inventory levels in the Water Treatment business unit, which includes the effect of the Aqua Clear acquisition and increases in the Polymer Additives and Energy Services and Products business units due to their need to meet current and anticipated sales commitments. Goodwill increased due to the acquisition of Aqua Clear by the Water Treatment business unit and the increase in other assets resulted from increases in other intangible assets. Current liabilities increased $73.6 million to $384.8 million from $311.2 million at prior year-end. This increase is due primarily to increases in accounts payable, accrued expenses and income taxes payable of $31.2 million, $8.5 million and $34.4 million, respectively. These increases were due primarily to the timing of payments, and also contributing to the accounts payable increase were the higher ending inventory levels. 22 24 Long-term debt, less current portion decreased $195.2 million from prior year-end to $688.2 million. This decrease is due to the repayments of debt made from the net proceeds from the sale of subsidiary stock and was funded by cash and cash equivalents. The increase in the minority interest from prior year is due primarily to the sale of 43.4% of the Company's ownership in OSCA, Inc., a subsidiary (Energy Services and Products business unit), through an initial public offering. (See Dispositions.) Cash provided by operating activities of $205.8 million for the year ended December 31, 2000 increased from $186.3 million in 1999 primarily as a result of the changes in the operating assets and liabilities from 1999 to 2000. These changes primarily include increases in accounts payable and accrued expenses and income taxes payable and other current liabilities. Cash used for investing activities amounted to $107.2 million for the year ended December 31, 2000. This use of cash reflects the increased capital spending over the prior year, the acquisition of Aqua Clear, offset by the proceeds from the sale of a portion of the Company's Energy Services and Products subsidiary. Cash used for financing activities was $344.8 million for the year ended December 31, 2000 compared to cash of $202.0 million being provided by financing activities in the prior year. The 2000 financing activities reflect a net decrease in long-term borrowings of $198.0 million coupled with common stock repurchase activity which amounted to $135.1 million for 2000. Capital spending (excluding acquisitions) through December 31, 2000 was $157.0 million compared to $119.0 million in the prior year. This reflects increases in capital spending by all business units with over one-half of the total 2000 spending related to new or expanded facilities. The Company has traditionally utilized commercial paper borrowings as its primary source of external financing. During 1999, however the Company moved to lock in historically low long-term interest rates by selling $400 million of 7% notes due July 15, 2009. Proceeds from the sale of the notes were used to replace a portion of the commercial paper borrowings and to fund acquisitions. The notes were sold under a shelf registration process. Under this process, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission and may sell various debt securities, common stock or rights or warrants to purchase common stock individually or in combination up to $750 million. The amount remaining on the registration statement is $350 million. The registration provides the Company with increased flexibility to finance its growth. The Company's net debt (debt, net of cash and cash equivalents) was $471.5 million at December 31, 2000 and was comprised of $694.2 million of debt offset by $222.7 million of cash and cash equivalents. The Company maintains a high cash and cash equivalents balance to offset its commercial paper borrowings, meet working capital needs and for capital expansion, including potential acquisitions. The Company's investment in marketable securities is comprised of a mix of highly liquid investment grade securities. At December 31, 2000, the Company's senior debt rating is A/A2 and its commercial paper rating is A1/P1. Debt to total capitalization at December 31, 2000 was 42.2% as compared to 46.2% at December 31, 1999. Total stockholders' equity was $949.7 million, or $18.92 per share, at December 31, 2000, as compared to $18.24 per share at the end of 1999. These changes reflect the increase in retained earnings from current year operations being offset by the activity under the common stock share repurchase authorizations from the Board of Directors. Pursuant to these authorizations, the Company purchased approximately 4.5 million shares of common stock during 2000 at an average price of $30 per share and approximately 4.2 million shares of common stock during 1999 at an average price of $38 per share. The effect of these stock purchases on earnings per share was $0.03 and $0.00 per share for 2000 and 1999, respectively. At December 31, 2000 a total of 2.9 million shares remain available for repurchase under existing Board authorizations. Management continues to analyze share repurchases as cash flow, market conditions and investment opportunities warrant. Dividends declared totaled $16.6 million and $18.3 million for 2000 and 1999, respectively. This decrease reflects the decrease in outstanding shares as dividends totaled $0.32 per share for both years. The cumulative translation adjustment component of stockholders' equity represents the translation of foreign currency-denominated financial statements into U.S. dollars. The 2000 change in the cumulative translation adjustment decreased stockholders' equity by $26.4 million. Approximately 60% of the Company's net assets reside outside of the United States. OTHER MATTERS Special Charges During the second quarter of 2000 the Company announced cost reduction initiatives to further streamline operations, strengthen the Company's competitive position and continue to provide a strong platform for future growth. To accomplish these actions, the Company prepared a formal repositioning plan, which was approved by the Board of Directors on June 23, 2000. The major components of this repositioning plan included the consolidation of the Company's three antimony manufacturing operations, elimination of approximately 375 manufacturing and research and development positions, primarily in the Polymer Additives business unit, and impairment or disposal of certain underperforming and nonstrategic assets. The asset impairments related to four Polymer Additives manufacturing locations, including sites in Europe and the United States, and six Performance Chemicals locations, including sites in the United States, United Kingdom and Germany. The special charges related to this repositioning plan totaled $66.4 million, $49.5 million after income taxes or $0.95 per share for 2000, and was recorded in the second quarter of 2000. The $66.4 million special charge consisted of $43.8 million for asset impairments, $16.4 million for severance costs and $6.2 million for plant closure and environmental costs. The Company expects to realize approximately $20 million in annual pre-tax savings as a result of this repositioning. Additional information regarding the 2000 special charges is provided in Note 2 to the consolidated financial statements. Net special charges for the year ended December 31, 2000 totaled $63.4 million. This reflects the $66.4 million charge recorded in the second quarter of 2000 offset by a reversal of $1.2 million related to a change in estimate in the 2000 special charge and certain reversals of the special charges taken in 1999 and 1998 totaling $1.8 million, as explained below. The net effect of the special charge reversals after income taxes was $2.0 million or $0.04 per share. The net of the 2000 special charges and reversals are reflected in the 2000 consolidated statement of income as a separate component of operating income. 23 25 In the first quarter of 1998, the Board of Directors appointed a new chief executive officer, and over the following months a new senior management team was assembled. Beginning in the third quarter of 1998, the Company began work on a plan to fundamentally alter how the Company conducts business around the world and to improve operating income by repositioning the business to enhance competitiveness and productivity and increase responsiveness to customer needs. A formal repositioning plan to accomplish these goals was approved by the Board of Directors in 1998. In addition, in the fourth quarter of 1999, the Board of Directors took certain additional actions to further streamline the Polymer Additives business unit, to provide a more flexible data processing solution for the Company's manufacturing operations, and to write down certain assets formerly used in the Energy Services and Products' Mexico environmental business. The plan was developed to increase the Company's focus on its core specialty chemicals businesses and to position these operations to achieve higher growth and profitability. Accordingly, the Company recognized a special charge of $25.4 million, $16.5 million after income taxes or $0.29 per share, during 1999. Offsetting this charge were certain reversals of the special charges taken in 1998 totaling $7.2 million, $4.7 million after income taxes or $0.08 per share, as explained below. The net of the 1999 special charges and reversals are reflected in the 1999 consolidated statement of income as a separate component of operating income. Additional information regarding the 1999 special charges is provided in Note 2 to the consolidated financial statements. The 1999 special charge consisted of asset impairments in Polymer Additives of $10.8 million; asset impairments in Corporate and Other of $10.7 million; asset impairments in Energy Services and Products of $1.8 million; and severance costs of $2.1 million. Asset impairment losses in Polymer Additives related to the shutdown of certain unprofitable operating units and the replacement of certain lines with new technology primarily in the El Dorado, Arkansas, facility. Asset impairment losses in Corporate and Other related to the write-off of certain components of the Company's data processing software that have no future use as a result of the Company's decision to provide a more flexible solution for its manufacturing operations. The asset impairment charge in Energy Services and Products related to a write-down of certain fixed assets formerly used in the Mexico environmental business. Severance costs included the cost of separation payments to certain Polymer Additives and Corporate employees who were terminated. As of December 31, 2000, the 1999 component of the repositioning plan has been substantially completed with only $0.4 million of the original 1999 special charge remaining to be spent. The remaining reserve is expected to be fully utilized in 2001. The 2000 activity related to the 1999 special charges includes a reversal of $0.7 million due to changes in estimate of the 1999 charge and was recorded in the fourth quarter of 2000. The 1998 portion of the repositioning plan affected the Polymer Additives, Performance Chemicals and Energy Services and Products business units and included both domestic and international operations primarily in France, Italy and the United Kingdom. The plan provided for improving manufacturing productivity; the closing of production units at four sites; and the consolidation of the U.S. flame retardant production. Additionally, the charge also included the consolidation of certain sales offices and research and development facilities. As a result of these actions, approximately 500 positions were eliminated. In connection with the 1998 portion of the repositioning plan, the Company recognized a special charge of $116.5 million, $74.7 million after income taxes, or $1.26 per share during 1998. This special charge is reflected in the 1998 consolidated statement of income as a separate component of operating income. The principal components of the 1998 charge were asset impairments of $56.5 million; severance of $17.6 million; plant closure costs of $10.1 million; senior management transition costs of $20.5 million; and other related costs of $11.8 million. Additional information regarding the 1998 special charges is provided in Note 2 to the consolidated financial statements. The repositioning plan has now been substantially completed with only $5.3 million of the original $116.5 million remaining to be spent. The primary component of this remaining reserve, or $3.1 million, relates to the senior management transition portion of the 1998 charge that provided for certain executive's severance and transition costs. The majority of these costs are to be paid out by the end of 2001. The plan was designed to achieve $35 million to $40 million in cost savings on an annual basis. These cost savings result primarily from improved utilization of the manufacturing base, elimination of underperforming or unprofitable operations, reduced personnel-related costs and a reduction in the carrying costs of plant and equipment. The repositioning plan affected all segments of the Company's operations. Outlined below is an overview of the conditions each of the units encountered and the actions taken to achieve the expected improvements. The Polymer Additives business unit was formed in mid-1998 through the combination of the Flame Retardants business, a historical core business, and the Polymer Stabilizers business that had been built through acquisitions over the 1993-1996 period. The Polymer Stabilizers business focused on expansion and did not effectively integrate the acquisitions, develop internal synergy or consolidate its manufacturing base. These factors provided a significant opportunity to improve manufacturing efficiency, reduce cost and increase the focus on the customer. As a result, the repositioning plan provided for the downsizing of two operating facilities in France; consolidation of brominated flame retardant manufacturing in El Dorado, Arkansas; elimination of excess production capacity; and reduction of the number of sales offices and research and development facilities. In connection with these activities the workforce was reduced by approximately 115 employees. At December 31, 2000 substantially all of the severance activity was complete and the reserves remaining related to Polymer Additives severance totaled $1.6 million, primarily as a result of timing of negotiations with the workers' councils in France. These negotiations are now complete, and the associated severance payments will be completed in 2001. All restructuring activity related to the Polymer Additives plant closures was completed in 2000, and there were no reserves remaining at December 31, 2000. 24 26 In the Performance Chemicals business unit, the Company eliminated certain nonperforming product lines and underutilized assets. As a result, selected nonstrategic products were discontinued and the workforce was reduced by approximately 60 employees. Due in part to increased volume requirements resulting from the NSC Technologies acquisition in 1999, the Company did not close one of the plants included in the repositioning plan in 1998. As a result, $4.4 million and $0.4 million of reserves were reversed in 1999 and 2000, respectively, leaving a total reserve balance of $0.3 million at December 31, 2000, all of which is to be utilized in the first quarter of 2001. The decline in the world oil market had significantly reduced requirements for oil well completion fluids and services. As a result, the Company's Energy Services and Products business unit abandoned a lease on a deepwater service vessel, decommissioned the related service equipment, planned to close a calcium chloride production facility and reduced its workforce by approximately 160 employees. In the fourth quarter of 1999, due to changing market conditions and a recognition of the need to ensure a reliable source of calcium chloride, the Company made the decision to continue operating the facility for the foreseeable future and therefore reversed $2.6 million of the related reserves. In the fourth quarter of 2000, the estimate of remaining costs related to the abandoned lease on the deepwater service vessel was revised providing for the reversal of $0.7 million of the remaining reserves. At December 31, 2000 the amount of reserve remaining to be spent was $0.3 million, all of which is expected to be utilized in the first quarter of 2001. The 1997 consolidated statement of income includes pre-tax charges of $50 million related to restructuring the Company's European Water Treatment business; closing a BCDMH manufacturing facility in Louisiana and a pharmaceutical intermediates production plant in Arkansas; and withdrawing from a bromine production joint venture in Europe. The components of the pretax charges were composed of $2 million for employee severance costs, $2 million for facility closure costs, $5 million for joint venture withdrawal expenses and $41 million for asset write-offs. The remaining reserve at December 31, 2000, was $0.9 million, which is expected to be fully utilized in 2001. Cash outlays for all remaining special charge reserves are expected to be substantially complete by the end of 2001. Operating cash flows are expected to be sufficient to finance the remaining repositioning activities. Acquisitions On July 14, 2000 the Company finalized its acquisition of Aqua Clear for approximately $40.7 million. Aqua Clear is a manufacturer and distributor of specialty pool chemical products and operates a manufacturing site in Watervliet, New York, and distribution sites in St. Louis, Missouri, and Waterford, New York, as well as sales and support networks throughout the United States and Canada. On August 2, 1999, the Company completed the acquisition of PAD for $162 million in cash. PAD is a world leader in the production of phosphate ester flame retardants, flame retardant fluids and lubricant additives, as well as a leading supplier of specialty water treatment chemicals used in industrial applications and desalination. The transaction broadens the Polymer Additives business unit and more than doubles the industrial segment of the Water Treatment business unit. PAD employs 500 and has manufacturing operations in Nitro, West Virginia, and Trafford Park (Manchester, England). On May 3, 1999, the Company completed the acquisition of NSC Technologies from Monsanto Company for approximately $125 million in cash. NSC Technologies develops, manufactures and sells chiral pharmaceutical intermediates and select bulk actives to pharmaceutical companies. The business' core chiral expertise in unnatural amino acids provides a broad molecular platform from which it develops novel, high value-added intermediates and bulk actives for antiviral, cardiovascular and oncology therapeutic drugs. NSC Technologies is part of the Fine Chemicals group of the Performance Chemicals business unit. The acquisitions were funded with available cash and borrowing capacity. Spin-Off of Octel The Board of Directors declared a stock dividend pursuant to which each Great Lakes stockholder received one share of Octel common stock for every four shares of Great Lakes common stock owned on the record date of May 15, 1998. Octel stock began trading on the New York Stock Exchange on May 22, 1998. In connection with the spin-off, Great Lakes received a special cash dividend, net of taxes and transaction costs, of approximately $300 million in 1998. The dividend was funded by cash reserves and debt retained by Octel. Dispositions Effective June 15, 2000, the Company sold 40% of its ownership in OSCA, Inc. (OSCA), a wholly owned subsidiary (Energy Services and Products business unit) through an initial public offering. Net proceeds of approximately $79 million from the initial sale were paid to the Company by OSCA to satisfy indebtedness. The initial sale resulted in a $51.9 million non-taxable gain to the Company, which was recognized in the second quarter of 2000. Subsequently, on July 13, 2000 the over-allotment option granted to the underwriters was exercised and resulted in an additional $12 million of net proceeds. The over-allotment exercise resulted in an additional non-taxable gain of $8.5 million, which was recorded in the third quarter of 2000. The initial sale and the over-allotment option exercise resulted in the Company selling a total of 43.4% of its ownership interest in this subsidiary. OSCA continues to be included in consolidated financial position and results of operations due to the Company's ability to exert significant influence over OSCA as a result of its continuing majority ownership and voting interest. In December 1997, the Board of Directors approved a restructuring plan including exiting the furfural and derivatives, Chemol and environmental services businesses. A pre-tax charge of $145 million, $96 million after income taxes, was recorded in connection with these actions. A portion of the Chemol business was sold during 1998, and essentially all remaining operations have been wound down. The Company completed the sale of the environmental services business in January 1999, and the sale of the furfural and derivatives business was completed in June 1999. 25 27 MARKET RISKS The Company's operations are exposed to market risk from changes in foreign currency exchange rates and interest rates that could impact its results of operations and financial condition. The Company manages its exposure to these market risks through its regular operations and financing activities and, when deemed appropriate by, using derivative financial instruments in accordance with established policies and procedures. The derivative financial instruments generally used include swaps, forward contracts and options. The derivative financial instruments utilized by the Company in its hedging activities are considered risk management tools and are not used for trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to monitor the exposure to nonperformance on such instruments. International operations, including United States export sales, constitute a significant portion of revenues and identifiable assets. These operations result in a large volume of foreign currency commitment and transaction exposures and foreign currency net asset exposures. At December 31, 2000 and 1999, the Company's primary net foreign currency market exposures were dispersed through various countries and primarily included the euro and its legacy currencies, the British pound and the Japanese yen. Exposure to variability in currency exchange rates is mitigated, when possible, through the use of natural hedges, whereby purchases and sales in the same foreign currency and with similar maturity dates offset one another. The amount of hedging activity and management of commitment and transaction exposures is coordinated at the corporate level. Hedges are set to mature concurrently with the estimated timing of settlement of the underlying transactions. Considering the Company's operating profile, at December 31, 2000, the result of a uniform 10% change in the value of the dollar relative to the currencies in which the Company's sales are denominated would result in a change in operating income of approximately $0.2 million. A similar change in 1999 would have had approximately a $1.0 million effect on operating income. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar, and does not factor in any potential changes in sales levels or local currency prices that may result from changes in exchange rates. The Company uses commercial paper as a source of financing, which exposes the Company to changes in short-term interest rates. The Company manages its ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this mix in a cost effective manner, the Company, from time to time, enters into interest rate swap agreements in which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed-upon notional amounts that are supported by the Company's current debt position. At December 31, 2000, the Company had no interest swap agreements in effect. Based on the Company's debt position at December 31, 2000, a hypothetical 1 percentage point change in interest rates for a one-year period would change income before income taxes by $2.9 million. This analysis does not consider any effect that a change in interest rates would have on overall economic activity nor management actions to mitigate interest rate changes. As of December 31, 2000, the Company had short-term time deposits of $151.6 million representing investment securities with maturities of three months or less. A hypothetical 1 percentage point change in interest rates earned on these deposits for a one-year period would change income before income taxes by $1.5 million. Environmental The Company's operations, like those of most companies that use or make chemicals, are subject to various laws and regulations relating to maintaining or protecting the quality of the environment. Such laws and regulations, along with the Company's own internal compliance efforts, have required and will continue to require capital expenditures and associated operating costs. Spending for environmental compliance, including expenditures associated with waste minimization and pollution prevention programs, amounted to approximately $36 million in 2000, $27 million in 1999 and $34 million in 1998. These amounts include approximately $4 million, $2 million and $2 million for capital equipment in 2000, 1999 and 1998, respectively. Spending for environmental compliance is anticipated to be approximately $34 million in 2001. The Company is a party to several proceedings and lawsuits involving environmental matters, including being named as defendant, respondent or a potentially responsible party, together with other companies, under CERCLA, and similar state laws, in which recovery is sought for the cost of cleanup of contaminated manufacturing and waste disposal sites. Due to the prevailing practices of manufacturing facilities, waste haulers and disposal facilities prior to adoption and implementation of various environmental laws and regulations, it is difficult to accurately determine the Company's liability with respect to these sites. In each such matter, the Company anticipates, although there can be no assurance, that liability, if any, will eventually be equitably apportioned among the companies found to be responsible. In most of these matters, the Company believes that its responsibility is small relative to other parties and that it may have meritorious defenses to liability to, or claims against, these other parties. Based upon current regulation and the information available, management believes that adequate provisions have been made in the financial statements and future costs will not have a material adverse impact on the Company's consolidated financial position, liquidity or results of operations. Other Litigation Matters The Company has been cooperating with the United States Department of Justice (DOJ) and the European Commission since the spring of 1998 in their respective investigations of the bromine and brominated products industry. Both investigations were initiated after the Company self-reported to those agencies certain business practices that raised questions under antitrust laws. As a result of the Company's cooperation, the Company and its current directors and employees have been accepted into the DOJ's amnesty program. As a result, the Company will be exempt from United States federal criminal prosecution and fines relating to the practices in question if the Company complies with certain conditions, including its full cooperation with the DOJ's investigation and policy regarding reasonable remedial efforts. Concurrently, the Company is seeking favorable treatment under a program in the European Union that also rewards self-reporting and cooperation. 26 28 The Company believes it has fully complied with all applicable conditions to date and has continued to cooperate with the DOJ in connection with certain follow-up matters arising out of the investigation, all of which are covered by the Company's acceptance into the amnesty program. The Company intends to continue full compliance with the DOJ and European Union programs. Participation in the above programs does not provide the Company with immunity from civil liability, including restitution claims. To date, 10 federal purported class action lawsuits and five California purported class actions have been filed against the Company, each claiming treble damages. These suits claim, among other things, that the Company conspired with others in violation of the antitrust laws regarding the pricing of bromine and brominated products. The federal lawsuits have been consolidated in the District Court for the Southern District of Indiana. The plaintiffs have filed a motion to certify a class of purchasers of three particular brominated products, and the Company has opposed the motion. A ruling on the class certification is expected later this year. The California cases have been stayed pending resolution of the federal cases. In April 1999, the Company reached agreement with the National Labor Relations Board to settle a 1986 lawsuit alleging unfair labor practices at the Company's Newport, Tennessee, facility following its acquisition of the site from Syntex Corporation. The $9 million settlement covers backpay and interest for certain former Syntex employees. The settlement amount is consistent with previously established reserves. The Company is subject to various lawsuits and claims with respect to matters such as governmental regulations, income taxes and other actions arising out of the normal course of business. While it is not possible to predict or determine the outcome of legal actions brought against the Company, management believes the costs associated with all such matters will not have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. Inflation Inflation has not been a significant factor for the Company over the last several years. Management believes that the effect of inflation on Company operations will continue to be moderate over the next several years. The Euro Effective January 1, 1999, member states of the European Economic and Monetary Union converted to a common currency known as the euro. From that date until January 1, 2002 (the transition period), either the euro or a participating country's present currency will be accepted as legal tender, with the existing currency being completely removed from circulation on July 1, 2002. The Company has been preparing for the introduction of the euro since 1999. The timing of phasing out all uses of the existing currencies will comply with the legal requirements and also be scheduled to facilitate optimal coordination with the plans of the Company's vendors, distributors and customers. The work related to the introduction of the euro and the phasing out of the other currencies includes converting information technology systems; recalculating currency risk; recalibrating derivatives and other financial instruments; evaluating and taking action, if needed, regarding the continuity of contracts; and modifying processes for preparing tax, accounting, payroll and customer records. Implementation is expected to occur in September 2001. Based on the work completed to date, the Company believes the euro conversion effort will not have a material impact on the Company's consolidated financial position, liquidity or results of operations. Accounting Changes In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which is required to be adopted in years beginning after June 15, 2000. The Company is required to adopt the new Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Based on the Company's derivative positions at December 31, 2000, the effect of the adoption of the Statement will be immaterial on the results of operations and other comprehensive income. Because the Statement allows certain foreign currency transactions to be accounted for as hedges for financial reporting purposes that were not previously treated as hedges, the Company may change its policies toward the management of certain foreign currency exposures. Any changes that may occur would be to further reduce the Company's exposure to foreign currency risks. In the fourth quarter of 2000, the Company applied the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) consensus EITF 00-10, "Accounting for Shipping and Handling Fees and Costs." As prescribed in EITF 00-10, the Company has reclassified its shipping and handling costs from a component of net sales to cost of products sold. The effect of these reclassifications increased net sales and cost of products sold by equal amounts. The reclassifications had no effect on operating income or net income. This change required a restatement of net sales and cost of product sold amounts for all periods presented In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101) and amended it in March and June 2000 with respect to the effective dates. The Company evaluated the provisions of SAB 101 and determined it did not have a material effect on the Company's financial position or results of operations. Effective January 1, 1999, the Company adopted the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This accounting standard specifically defines the criteria under which costs incurred in connection with internal-use computer software projects are to be treated as a current period expense or to be capitalized. Adoption of SOP 98-1 increased 1999 operating costs by approximately $10 million. 27 29 MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Great Lakes Chemical Corporation is responsible for the preparation and presentation of the accompanying consolidated financial statements and all other information in this Annual Report. The financial statements are prepared in accordance with accounting principles generally accepted in the United States and include amounts that are based on management's informed judgments and estimates. The Company maintains accounting systems and internal accounting controls that management believes provide reasonable assurance that the Company's financial reporting is reliable, that assets are safeguarded and that transactions are executed in accordance with proper authorization. This internal control structure is supported by the selection and training of qualified personnel and an organizational structure that permits the delegation of authority and responsibility. The systems are monitored worldwide by an internal audit function that reports its findings to management. The Company's financial statements have been audited by Ernst & Young LLP, independent auditors, in accordance with auditing standards generally accepted in the United States. These standards provide for the review of internal accounting control systems to plan the audit and determine auditing procedures and tests of transactions to the extent they deem appropriate. The Audit Committee of the Board of Directors, which consists solely of non-employee directors, is responsible for overseeing the functioning of the accounting systems and related internal controls and the preparation of the Company's financial statements. The Audit Committee periodically meets with management and the independent auditors to review and evaluate their accounting, auditing and financial reporting activities and responsibilities. The independent auditors and internal auditors have full and free access to the Audit Committee without management's presence to discuss internal accounting controls, results of their audits and financial reporting matters. Mark P. Bulriss Chairman, President and CEO Kevin J. Mulcrone Vice President and Controller REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We have audited the accompanying consolidated balance sheets of Great Lakes Chemical Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Great Lakes Chemical Corporation and subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Indianapolis, Indiana February 9, 2001 28 30 CONSOLIDATED STATEMENTS OF INCOME (millions, except per share data)
Year Ended December 31 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- Net Sales $ 1,670.5 $ 1,500.3 $ 1,435.7 Operating Expenses Cost of products sold 1,210.8 1,077.2 1,052.9 Selling, general and administrative expenses 256.1 242.8 192.4 Special charges 63.4 18.2 116.5 1,530.3 1,338.2 1,361.8 - ------------------------------------------------------------------------------------------------------------------------------- Operating Income 140.2 162.1 73.9 Gain on Sale of Subsidiary Stock 60.4 -- -- Interest and Other Income 37.1 44.3 37.0 Interest and Other Expenses 72.8 31.0 44.7 - ------------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations before Income Taxes 164.9 175.4 66.2 Income Taxes 37.9 35.8 9.8 - ------------------------------------------------------------------------------------------------------------------------------- Net Income from Continuing Operations 127.0 139.6 56.4 Net Income from Discontinued Operations -- -- 32.6 - ------------------------------------------------------------------------------------------------------------------------------- Net Income $ 127.0 $ 139.6 $ 89.0 - ------------------------------------------------------------------------------------------------------------------------------- Earnings per Share: Basic Continuing operations $ 2.42 $ 2.42 $ 0.96 Discontinued operations -- -- 0.55 $ 2.42 $ 2.42 $ 1.51 - ------------------------------------------------------------------------------------------------------------------------------- Diluted Continuing operations $ 2.42 $ 2.41 $ 0.95 Discontinued operations -- -- 0.55 $ 2.42 $ 2.41 $ 1.50 - ------------------------------------------------------------------------------------------------------------------------------- Cash Dividends Declared Per Share $ 0.32 $ 0.32 $ 0.40 - -------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 29 31 CONSOLIDATED BALANCE SHEETS
(millions) December 31 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 222.7 $ 478.3 Accounts and notes receivable, less allowances of $4.8 and $4.7, respectively 390.7 339.6 Inventories 364.4 316.8 Prepaid expenses 30.0 32.8 Total current assets 1,007.8 1,167.5 - -------------------------------------------------------------------------------------------------------------------------------- Plant and Equipment, Net 750.9 751.8 Goodwill 276.5 246.5 Investments in and Advances to Unconsolidated Affiliates 38.2 55.5 Other Assets 61.0 39.7 Total Assets $ 2,134.4 $ 2,261.0 - -------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 167.7 $ 136.5 Accrued expenses 132.2 123.7 Income taxes payable 74.9 40.5 Dividends payable 4.0 4.5 Notes payable and current portion of long-term debt 6.0 6.0 Total current liabilities 384.8 311.2 - -------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt, less Current Portion 688.2 883.4 Other Noncurrent Liabilities 29.3 30.0 Deferred Income Taxes 47.8 37.9 Minority Interest 34.6 4.4 Stockholders' Equity Common Stock, $1 par value, authorized 200.0 shares; issued 73.0 shares in 2000 and 72.9 shares in 1999 73.0 72.9 Additional paid-in capital 132.5 132.0 Retained earnings 1,879.6 1,769.2 Accumulated other comprehensive loss (83.1) (56.5) Less treasury stock, at cost; 22.7 shares in 2000 and 18.4 shares in 1999 (1,052.3) (923.5) Total stockholders' equity 949.7 994.1 Total Liabilities and Stockholders' Equity $ 2,134.4 $ 2,261.0 - --------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 30 32 CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions) Year Ended December 31 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Activities Net income from continuing operations $ 127.0 $ 139.6 $ 56.4 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 87.9 80.8 78.6 Amortization of intangible assets 12.2 8.7 4.9 Deferred income taxes 15.3 19.1 (14.1) Net (unremitted) earnings of affiliates (5.6) (1.2) 1.7 (Gain) loss on disposition of assets (0.9) (8.3) 0.7 Special charges 63.4 18.2 116.5 Gain on sale of subsidiary stock (60.4) -- -- Other 6.8 6.2 (0.4) Change in operating assets and liabilities, net of effects from business combinations: Accounts receivable (42.5) (46.5) (3.3) Inventories (46.4) 19.1 9.8 Other current assets 4.1 (1.1) (2.6) Accounts payable and accrued expenses 34.7 (51.7) (32.7) Income taxes and other current liabilities 35.2 3.6 (76.8) Other noncurrent liabilities (25.0) (0.2) 1.6 - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities from Continuing Operations 205.8 186.3 140.3 Discontinued Operations (see note below): Net income -- -- 32.6 Change in net assets -- 75.9 433.6 - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 205.8 262.2 606.5 Investing Activities Plant and equipment additions (157.0) (119.0) (160.6) Business combinations, net of cash acquired (40.7) (286.8) 0.6 Proceeds from sale of assets 5.6 13.2 1.8 Proceeds from sale of subsidiary stock 90.2 -- -- Other (5.3) (4.3) (9.2) - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash Used for Investing Activities (107.2) (396.9) (167.4) Financing Activities Net borrowings (repayments) under short-term credit lines 2.9 1.5 (2.4) Net proceeds from long-term borrowings 28.2 393.9 6.7 Net decrease in commercial paper and other long-term obligations (226.2) (25.5) (53.0) Proceeds from stock options exercised 2.6 5.1 5.3 Cash dividends paid (16.9) (18.6) (28.4) Repurchase of common stock (135.1) (158.7) (28.5) Other (0.3) 4.3 (1.0) - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash (Used for) Provided by Financing Activities (344.8) 202.0 (101.3) Effect of Exchange Rate Changes on Cash and Cash Equivalents (9.4) (0.6) 0.1 - ---------------------------------------------------------------------------------------------------------------------------------- (Decrease) Increase in Cash and Cash Equivalents (255.6) 66.7 337.9 Cash and Cash Equivalents at Beginning of Year 478.3 411.6 73.7 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 222.7 $ 478.3 $ 411.6
Cash flow from discontinued operations in 1998 was $466.2 million of which $461.9 million was received from Octel. See notes to consolidated financial statements. 31 33 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(millions) 2000 1999 1998 Shares Amount Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock Balance at January 1 72.9 $72.9 72.7 $72.7 72.6 $72.6 Exercise of stock options net of shares exchanged 0.1 0.1 0.2 0.2 0.1 0.1 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31 73.0 73.0 72.9 72.9 72.7 72.7 Additional Paid-In Capital Balance at January 1 132.0 128.6 123.4 Exercise of stock options net of shares exchanged 1.6 3.0 1.1 Tax benefits of early disposition of stock by optionees 0.2 0.8 0.9 Restricted stock activity 1.0 1.3 3.2 Employee stock plan activity (2.3) (1.7) -- - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31 132.5 132.0 128.6 Retained Earnings Balance at January 1 1,769.2 1,657.1 1,912.5 Net income 127.0 139.6 89.0 Dividends (16.6) (18.3) (23.6) Spin-off of Octel -- -- (320.8) Other -- (9.2) -- Balance at December 31 1,879.6 1,769.2 1,657.1 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury Stock Balance at January 1 (18.4) (923.5) (14.3) (771.2) (13.6) (745.6) Shares repurchased (4.5) (135.1) (4.2) (158.7) (0.7) (28.5) Employee stock plan activity 0.2 6.3 0.1 6.4 -- 2.9 Balance at December 31 (22.7) (1,052.3) (18.4) (923.5) (14.3) (771.2) - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated Other Comprehensive Income (Loss) Cumulative Translation Adjustment Balance at January 1 (55.5) (30.1) (52.9) Translation adjustment (26.4) (34.6) (6.2) Other (0.1) 9.2 -- Spin-off of Octel -- -- 29.0 Balance at December 31 (82.0) (55.5) (30.1) - ----------------------------------------------------------------------------------------------------------------------------------- Minimum Pension Liability Balance at January 1 (1.0) (2.8) (2.6) Minimum pension liability adjustment (0.1) 1.8 (0.2) Balance at December 31 (1.1) (1.0) (2.8) Total Balance at December 31 (83.1) (56.5) (32.9) Total Stockholders' Equity 50.3 $949.7 54.5 $994.1 58.4 $1,054.3 - ----------------------------------------------------------------------------------------------------------------------------------- Comprehensive Income Net income $127.0 $139.6 $89.0 Translation adjustment (26.4) (34.6) (6.2) Minimum pension liability adjustment (0.1) 1.8 (0.2) Total Comprehensive Income $100.5 $106.8 $82.6 - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 32 34 Notes to Consolidated Financial Statements (in millions, except as indicated) Note 1: Summary of Significant Accounting Policies Basis of Financial Statement Presentation Continuing operations represent the specialty chemical operations of the Company. Reported as discontinued operations are the petroleum additives business (Octel), which was spun off to shareholders in May 1998; the Eastern European Trading business (Chemol), whose operations were concluded in 1998; the environmental services business, which was sold in January 1999; and the furfural and derivatives business, which was sold in June 1999. During 2000, the Company sold 43.4% of its ownership in OSCA, Inc. (OSCA), a wholly owned subsidiary (Energy Services and Products business unit) through an initial public offering. OSCA continues to be included in the consolidated financial position and results of operations due to the Company's ability to exert significant influence over OSCA as a result of its continuing ownership and voting interest. Nature of Operations The Company is a diversified specialty chemical company. Primary manufacturing operations are located in the United States and Europe. The Company manages its business and reports segmental information based on the nature of its products and services. The Company's segments are Polymer Additives, Performance Chemicals, Water Treatment and Energy Services and Products. The Company's products are sold globally. The principal markets include: computer and business equipment, consumer electronics, data processing, construction materials, telecommunications, pharmaceuticals and pool and spa dealers and distributors. Further information on the Company's segments is included in this annual report on pages 14 through 17 and in Note 15 to the consolidated financial statements. Principles of Consolidation The consolidated financial statements include all significant majority-owned subsidiaries of the Company. All material intercompany accounts and transactions are eliminated in consolidation. Investments 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 accounted for by the equity method, which is cost, plus equity in their undistributed earnings since acquisition. All other investments are carried at their fair values or at cost, as appropriate. Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain prior period amounts have been reclassified to conform with the current year's presentation. As prescribed in EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company began reclassifying shipping and handling costs from a component of net sales to cost of products sold in the fourth quarter of 2000. This change required a restatement of net sales and cost of products sold amounts for all periods presented. Revenue Recognition Revenue from sales of products, which includes amounts billed to customers for shipping and handling costs, is recognized at the time title passes to the customer, which is generally upon shipment. Revenue from services is recognized when the services are provided to the customer. Shipping and Handling Costs Shipping and handling costs, including certain warehousing costs, are included in cost of products sold. Cash Equivalents Investment securities with maturities of three months or less when purchased are considered to be cash equivalents. Inventories The Company values its inventories at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Plant and Equipment Plant and equipment are stated at cost. Depreciation of buildings and equipment is provided over the estimated useful lives of the assets using the straight-line method. The estimated useful lives for purposes of computing depreciation are: buildings, 10-40 years; manufacturing equipment, 7-20 years; and office equipment, 3-5 years. Goodwill Goodwill, the excess of investment over net assets of subsidiaries acquired, is amortized over periods of 8 to 40 years using the straight-line method. As of December 31, 2000 and 1999, accumulated amortization was $31.0 million and $22.5 million, respectively. Impairment of Long-Lived Assets and Intangible Assets When events or circumstances indicate that the carrying amount of long-lived assets to be held and used or intangible assets might not be recoverable, the expected future undiscounted cash flows from the assets is estimated and compared with the carrying amount of the assets. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recorded. The impairment loss is measured by comparing the fair value of the assets with their carrying amounts. Fair value is determined based on discounted cash flow or appraised values, as appropriate. Long-lived assets that are held for disposal are reported at the lower of the assets' carrying amount or fair value less costs related to the assets' disposition. Income Taxes Current income taxes are provided on income reported for financial statement purposes adjusted for transactions that do not enter into the computation of income taxes payable. Deferred income tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Income taxes are provided on the portion of the income of foreign affiliates that is expected to be remitted to the parent company and be taxable. Unremitted earnings of foreign affiliates where income taxes have not been provided are immaterial. Treasury Stock Shares of common stock repurchased under the Company's stock repurchase plans are recorded at cost as treasury stock. When the treasury shares are reissued, the Company uses a weighted-average method for determining cost. The difference between the cost of the shares and the reissuance price is included in additional paid-in capital. Stock-Based Compensation Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," established accounting and disclosure requirements using a fair-value-based 33 35 method of accounting for stock-based employee compensation plans. As provided for under SFAS No. 123, the Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation cost for restricted stock awards is recorded over the requisite vesting periods based on the market value on the date of grant. Foreign Currency Translation - -------------------------------------------------------------------------------- Assets and liabilities of most foreign operations are translated at exchange rates in effect at the balance sheet date, and the income statements are translated at the average monthly exchange rates for the period. Translation gains and losses are recorded as a component of accumulated other comprehensive income in stockholders' equity until the foreign entity is sold or liquidated. Derivative Financial Instruments The Company uses various derivative instruments including swaps, forward contracts and options to manage certain foreign currency and interest rate exposures. These instruments are entered into under the Company's corporate financial risk management policy to manage market risk exposures and are not used for trading purposes. Management routinely reviews the effectiveness of the use of derivative instruments. Derivatives used for hedging purposes must be designated as, and effective as, a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in the market value of the derivative contract must be highly correlated with changes in the market value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. Any derivative instrument designated but no longer effective as a hedge or initially not effective as a hedge would be reported at market value and the related gains and losses would be recognized in earnings. Derivatives that are designated as, and effective as, a hedge of firm foreign currency commitments are accounted for using the deferral method. Gains and losses from instruments that hedge firm commitments are deferred and recognized as part of the economic basis of the transactions underlying the commitments when the associated hedged transaction occurs. Gains and losses from instruments that hedge foreign-currency-denominated receivables, payables and debt instruments are reported in earnings and offset the effects of foreign exchange gains and losses from the associated hedged items. Gains or losses from early termination of derivative financial instruments are deferred and amortized over the remaining terms of the related item being hedged. If the underlying item being hedged is extinguished, any related gain or loss is included in earnings. The Company classifies its derivative financial instruments as held or issued for purposes other than trading. Prepaid option premiums are recorded in the balance sheet as other assets. Gains and losses on hedges of existing assets and liabilities are included in other income or other expenses. Gains and losses from hedges of anticipated transactions are classified in the income statement consistent with the accounting treatment of the items being hedged. New Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which is required to be adopted in years beginning after June 15, 2000. The Company adopted the new Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Based on the Company's derivative positions at January 1, 2001, the effect of the adoption of this Statement had an immaterial impact on the results of operations and other comprehensive income at January 1, 2001. Because the Statement allows certain foreign currency transactions to be accounted for as hedges for financial reporting purposes that were not previously treated as hedges, the Company may change its policies toward the management of certain foreign currency exposures. Any changes that may occur would be to further reduce the Company's exposure to foreign currency risks. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101) and amended it in March and June 2000 with respect to the effective dates. The Company has evaluated the provisions of SAB 101 and determined it did not have a material effect on the Company's financial position or results of operations. Effective January 1, 1999, the Company adopted the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This accounting standard specifically defines the criteria under which costs incurred in connection with internal-use computer software projects are to be treated as a current period expense or to be capitalized. Adoption of SOP 98-1 increased 1999 operating costs by approximately $10 million. Note 2: Special Charges During the second quarter of 2000, the Company announced cost reduction initiatives to further streamline operations, strengthen the Company's competitive position and continue to provide a strong platform for future growth. To accomplish these actions, the Company prepared a formal repositioning plan, which was approved by the Board of Directors on June 23, 2000. The major components of this repositioning plan included the consolidation of the Company's three antimony manufacturing operations, elimination of approximately 375 manufacturing and research and development positions, primarily in the Polymer Additives business unit, and impairment or disposal of certain underperforming and nonstrategic assets. The asset impairments related to four Polymer Additives manufacturing locations, including sites in Europe and the United States, and six Performance Chemicals locations, including sites in the United States, United Kingdom and Germany. The special charges related to this repositioning plan totaled $66.4 million, $49.5 million after income taxes or $0.95 per share for 2000, and was recorded in the second quarter of 2000. The $66.4 million special charge consisted of $43.8 million for asset impairments, $16.4 million for severance costs and $6.2 million for plant closure and environmental costs. The Company expects to realize approximately $20 million in annual pre-tax savings as a result of this repositioning. Net special charges for the year ended December 31, 2000 totaled $63.4 million. This reflects the $66.4 million charge recorded in the second quarter of 2000 offset by a reversal of $1.2 million related to a change in estimate in the 2000 special charge and certain reversals of the special charges taken in 1999 and 1998 totaling $1.8 million, as detailed below. The net effect 34 36 of the special charge reversals after income taxes was $2.0 million or $0.04 per share. The net of the 2000 special charges and reversals are reflected in the 2000 consolidated statement of income as a separate component of operating income. Details of the 2000 special charge by business unit and a reconciliation to the reserve balance at December 31, 2000 are as follows: - -------------------------------------------------------------------------------- Reserve Amount Balance at of Charge 2000 2000 December 31, Description in 2000 Activity Reversals 2000 - -------------------------------------------------------------------------------- Asset Impairment (non-cash): Polymer Additives $ 29.4 $ (29.4) $ -- $ -- Performance Chemicals 14.4 (14.4) -- -- - -------------------------------------------------------------------------------- 43.8 (43.8) -- -- Severance Costs: Polymer Additives 11.2 (4.0) -- 7.2 Performance Chemicals 4.2 (3.3) -- 0.9 Corporate 1.0 (1.0) -- -- 16.4 (8.3) -- 8.1 - -------------------------------------------------------------------------------- Plant Closure and Environmental: Polymer Additives 6.2 (0.1) (1.2) 4.9 $ 66.4 $ (52.2) $ (1.2) $ 13.0 - -------------------------------------------------------------------------------- Asset impairment losses in Polymer Additives relate to the consolidation of the Company's three antimony manufacturing operations and the impairment or disposal of certain underperforming and nonstrategic assets in Europe and the closure of a brine pond operation in Newell, Arkansas. The asset impairment charge in Performance Chemicals includes the impairment or disposal of underperforming assets at six sites, including three sites in the United Kingdom, two sites in the United States and one site in Germany. These impairment losses adjusted the carrying value of these assets to fair value. Fair value was determined using either discounted cash flow or appraised values, as appropriate. Any impaired assets held for disposal were written down to fair value less costs related to the assets' disposition. The adjusted carrying value of the assets is being depreciated over the remaining lives of the assets. Severance costs include the cost of separation payments to certain employees who have been or will be terminated. These costs have either been negotiated individually with the employee or are based upon the provisions of statutory or contractual severance plans. The Company will be eliminating approximately 375 positions as a result of the 2000 actions. As of December 31, 2000, substantially all personnel subject to the repositioning plan have been terminated or have been given specific notice of termination dates. Notification to European employees has been made through their unions and workers' councils. The Polymer Additives severance costs relate to approximately 300 positions in 13 various locations, including seven locations in the United States; two locations in Italy; and one location each in the United Kingdom, Germany and Switzerland. The Performance Chemicals severance costs include costs to eliminate approximately 60 positions of which approximately half are in the United Kingdom with the remaining positions being eliminated in Germany and the United States. The Corporate component of the severance costs provided for the elimination of approximately 15 various corporate middle management positions in the United Kingdom, the United States and Switzerland. The plant closure and environmental costs associated with the 2000 repositioning plan relate entirely to the Polymer Additives business unit. These charges include a $4.3 million charge for the closure of the brine pond in Newell, Arkansas, and $1.9 million related to dismantling costs incurred as part of the consolidation of the Company's three antimony manufacturing operations. In the first quarter of 1998, the Board of Directors appointed a new chief executive officer, and over the following months a new senior management team was assembled. Beginning in the third quarter of 1998, the Company began work on a plan to fundamentally alter how the Company conducts business around the world and to improve operating income by repositioning the business to enhance competitiveness and productivity and increase responsiveness to customer needs. A formal repositioning plan to accomplish these goals was approved by the Board of Directors in 1998. In addition, in the fourth quarter of 1999, the Board of Directors took certain additional actions to further streamline the Polymer Additives business unit, to provide a more flexible data processing solution for the Company's manufacturing operations and to write down certain assets formerly used in the Energy Services and Products' Mexico environmental business. The plan was developed to increase the Company's focus on its core specialty chemicals businesses and to position these operations to achieve higher growth and profitability. Accordingly, the Company recognized a special charge of $25.4 million, $16.5 million after income taxes or $0.29 per share, during 1999. Offsetting this charge were certain reversals of the special charges taken in 1998 totaling $7.2 million, $4.7 million after income taxes or $0.08 per share, as detailed below. The net of the 1999 special charges and reversals was reflected in the 1999 consolidated statement of income as a separate component of operating income. Details of the 1999 special charge by business unit and a reconciliation to the reserve balance at December 31, 2000 are as follows:
- ------------------------------------------------------------------------------------------------------------------ Reserve Reserve Amount Balance at Balance at of Charge December 31, 2000 2000 December 31, Description in 1999 1999 Activity Reversals 2000 - ------------------------------------------------------------------------------------------------------------------ Asset Impairment (non-cash): Polymer Additives $10.8 $ -- $ -- $ -- $ -- Energy Services and Products 1.8 -- -- -- -- Corporate 10.7 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------ 23.3 -- -- -- -- Severance Costs: Polymer Additives 1.2 1.0 (0.6) (0.3) 0.1 Corporate 0.9 0.9 (0.2) (0.4) 0.3 - ------------------------------------------------------------------------------------------------------------------ 2.1 1.9 (0.8) (0.7) 0.4 - ------------------------------------------------------------------------------------------------------------------ $25.4 $1.9 $(0.8) $(0.7) $0.4
35 37 Asset impairment losses in Polymer Additives related to the shutdown of certain unprofitable operating units and the replacement of certain lines with new technology primarily in the El Dorado, Arkansas, facility. The asset impairment charge in Energy Services and Products related to a write-down of certain fixed assets formerly used in the Mexico environmental business. Asset impairment losses in Corporate related to the write-off of certain components of the Company's data processing software that had no future use as a result of the Company's decision to provide for more flexibility in its manufacturing systems. The Company recorded an impairment loss to write down the carrying value of these assets to fair value. Fair value was determined using appraised values. The adjusted carrying value of the assets is being depreciated over the remaining lives of the assets. Severance costs included the cost of separation payments to approximately 65 employees who were terminated. As of December 31, 2000, substantially all personnel involved have been terminated or have been given specific notice of termination dates. Notification to European employees was made through their unions and workers' councils. The Polymer Additives terminations related to a decision to consolidate research activities in the United States and Europe into two Technology Centers, one located in West Lafayette, Indiana, and the other in Bolgiano, Italy. Researchers in West Lafayette are now focused primarily on halogen and non-halogen-based flame retardant and performance additives and fluids technology. Those in Bolgiano are concentrated on polymer stabilizers. All European Technical Service and Applications capabilities were consolidated into a new Customer Technical Service and Applications Center in Geel, Belgium. European Polymer Additives customers now receive all the technical service and analytical support they need from a single location, which is located near 80% of the Company's European customers. The Corporate severance costs related primarily to information systems personnel. The reversal of $0.7 million in 2000 reflects a change in estimate of the remaining amount of severance costs for the 1999 actions, all of which are expected to be spent in 2001. The 1998 portion of the repositioning plan affected the Polymer Additives, Performance Chemicals and Energy Services and Products business units and included both domestic and international operations primarily in France, Italy and the United Kingdom. The plan provided for improving manufacturing productivity; the closing of production units at four sites; and the consolidation of the U.S. flame retardant production. Additionally, there was consolidation of certain sales offices and research and development facilities. As a result of these actions, approximately 500 positions were eliminated. Accordingly, the Company recognized a special charge of $116.5 million, $74.7 million after income taxes or $1.26 per share, during 1998. This special charge was reflected in the 1998 consolidated statement of income as a separate component of operating income. Of the $116.5 million, $48.3 million was recorded for actions taken in the third quarter of 1998 and another $52.7 million was recorded in the fourth quarter of 1998. Additionally, $15.5 million related to costs associated with the transition of the chief executive officer was recorded in the first quarter of 1998 and was included in the special charge. Details of the 1998 special charge by business unit and a reconciliation to the reserve balance at December 31, 2000 are as follows:
- ---------------------------------------------------------------------------------------------------------------------------------- Reserve Reserve Amount Balance at Balance at of Charge December 31, 2000 2000 December 31, Description in 1998 1999 Activity Reversals 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Asset Impairment (non-cash): Polymer Additives $25.9 $ -- $ -- $ -- $ -- Performance Chemicals 12.7 -- -- -- -- Energy Services and Products 7.9 -- -- -- -- Corporate 10.0 -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- 56.5 -- Severance Costs: Polymer Additives 10.9 8.6 (7.0) -- 1.6 Performance Chemicals 3.3 0.9 (0.8) -- 0.1 Energy Services and Products 0.4 -- -- -- -- Corporate 3.0 1.0 (1.0) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- 17.6 10.5 (8.8) -- 1.7 Plant Closure and Environmental: Polymer Additives 3.2 2.9 (2.9) -- -- Performance Chemicals 6.9 2.2 (1.6) (0.4) 0.2 - ---------------------------------------------------------------------------------------------------------------------------------- 10.1 5.1 (4.5) (0.4) 0.2 Senior Management Transition (Corporate) 20.5 6.1 (3.0) -- 3.1 Lease Costs (Energy Services and Products) 4.4 1.8 (0.8) (0.7) 0.3 Other 7.4 -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- $116.5 $23.5 $(17.1) $(1.1) $5.3 - ----------------------------------------------------------------------------------------------------------------------------------
36 38 Asset impairment losses related to the consolidation of certain product lines, primarily in the Polymer Additives business unit, where the Company had sufficient capacity to meet anticipated requirements, and to shut down certain unprofitable operating units. Approximately $41.4 million of the asset impairment loss related to assets that were to be held and used until the facility closures were completed; these facilities have now been closed. The balance of the asset impairment loss related primarily to certain components of the Company's data processing software that had no future use. The Company recorded an impairment loss to write down the carrying value of these assets to fair value. Fair value was determined using appraised values. The adjusted carrying value of the assets is being depreciated over the remaining lives of the assets. The reversal of $2.6 million in 1999 related to an Energy Services and Products calcium chloride production facility that was held for sale. In the fourth quarter of 1999, due to changing market conditions and a recognition of the need to ensure a reliable source of calcium chloride, the Company made the decision to continue utilizing the facility for the foreseeable future. This decision resulted in a change to the 1998 repositioning plan such that the calcium chloride plant was not sold or abandoned. Severance costs included the cost of separation payments to certain employees who were terminated. These costs were negotiated individually with the employee, or were based upon the provisions of statutory or contractual severance plans. The Company eliminated approximately 500 positions as a result of the 1998 actions. While all areas of the Company were affected by the workforce reductions, the majority of the terminations occurred in manufacturing. The reversal of $0.6 million in 1999 occurred due to the costs associated with the termination of certain management positions being less than originally expected. The $1.7 million of remaining severance costs reserves relate primarily to Polymer Additives and are a result of timing of negotiations with the workers' councils in France. These negotiations are now complete, and the associated severance payments are expected to be completed in 2001. The decision to abandon facilities resulted in closure costs, such as dismantling, decontamination and remediation. Spending related to these costs began after the facilities were closed. Due in part to increased volumes resulting from the NSC Technologies acquisition in 1999, the Company decided not to close a plant that was included in the repositioning plan in 1998. As a result, $4.2 million and $0.4 million of plant closure and environmental reserves were reversed in 1999 and 2000, respectively, primarily in the Performance Chemicals business unit. Included in the senior management transition costs was $15.5 million for the change in chief executive officer. The reversal of $0.1 million in 1999 occurred due to the costs associated with the terminations of certain senior management positions being less than originally expected. The majority of the $3.1 million of remaining senior management transition costs relate to chief executive officer severance and transition costs, which will be substantially paid out by the end of 2001. The lease component of the repositioning plan represents the remaining lease payments, net of sublease income, on one of the Energy Services and Products business unit's deepwater oil well service vessels. Payments under the lease agreement extend through 2001. The reversal of $0.7 million in 2000 was recorded to reflect a revised amount of remaining lease payments, net of sublease income on the lease, which terminates in March 2001. In accordance with a plan approved by the Board of Directors in December 1997, the Company took a series of actions to restructure its Water Treatment business and eliminate under-performing assets. Details of the 1997 charge and a reconciliation to the reserve balance at December 31, 2000 are follows: - -------------------------------------------------------------------------------- Reserve Reserve Amount Balance at Balance at of Charge December 31, 2000 December 31, Description in 1997 1999 Activity 2000 - -------------------------------------------------------------------------------- Asset impairment (non-cash): $ 38.0 $ -- $ -- $ -- Severance costs 1.9 1.0 (0.7) 0.3 Other 9.9 0.7 (0.1) 0.6 - -------------------------------------------------------------------------------- $ 49.8 $ 1.7 $ (0.8) $ 0.9 - -------------------------------------------------------------------------------- The asset impairment related primarily to the abandonment of a BCDMH manufacturing facility in Louisiana, a pharmaceutical intermediates production plant in South Arkansas, a pool chemicals plant in Germany and certain mineral leases. Severance costs are for the involuntary termination of approximately 20 Water Treatment business unit employees. The original provision for Other included $5.0 million for the cost of exiting a European bromine joint venture and $2.5 million to terminate a facility lease. The remaining reserve of $0.9 million is expected to be fully utilized in 2001. Note 3: Discontinued Operations During 1997, the Board of Directors approved a plan to spin off Octel to the stockholders and to exit the furfural and derivatives business, Chemol and environmental services businesses. These operations are included in discontinued operations. The 1997 results include a special provision of $137 million net of income tax benefits of $49 million related to the estimated losses on divestitures and an income tax provision of $38 million related to the anticipated repatriation of Octel earnings. Reserves for the discontinued operations amounted to $2.2 million and $15.4 million at December 31, 2000 and 1999, respectively. The Octel spin-off was completed on May 22, 1998, through a tax-free distribution of one share of Octel common stock for every four shares of the Company's common stock outstanding. Prior to the spin-off, the Company received a distribution from Octel of approximately $462 million and assumed tax liabilities of approximately $108 million. Stockholders' equity (retained earnings and cumulative translation adjustment) was reduced by approximately $292 million in 1998 representing the net book value of the distribution to the stockholders. A portion of the Chemol business was sold during 1998, and essentially all remaining operations were concluded. The environmental services business was sold in January 1999. The furfural and derivatives business was sold in June 1999. 37 39 Summary statements of income and net assets for the discontinued operations are set forth below: Summary Statement of Income - -------------------------------------------------------------------------------- Year Ended December 31 1998 - -------------------------------------------------------------------------------- Net sales $351.7 Income before income taxes 48.6 Income taxes 16.0 Income from operations (net of taxes) 32.6 Net income from discontinued operations $ 32.6 - -------------------------------------------------------------------------------- Summary Statement of Net Assets - -------------------------------------------------------------------------------- December 31 1998 - -------------------------------------------------------------------------------- Current assets $147.5 Net plant and equipment 92.5 Goodwill and other assets 40.0 - -------------------------------------------------------------------------------- Total assets 280.0 Reserve for losses 145.4 Current liabilities 15.0 Other liabilities 17.1 Net assets $102.5 - -------------------------------------------------------------------------------- Net assets (liabilities) of discontinued operations amounting to $1.1 million and $(5.2) million have been included in other assets on the consolidated balance sheets at December 31, 2000 and 1999, respectively. Note 4: Acquisitions and Sale of Subsidiary Stock Acquisitions On July 14, 2000 the Company finalized its acquisition of Aqua Clear for approximately $40.7 million. Aqua Clear is a manufacturer and distributor of specialty pool chemical products and operates a manufacturing site in Watervliet, New York, and distribution sites in St. Louis, Missouri, and Waterford, New York, as well as sales and support networks throughout the United States and Canada. The acquisition of Aqua Clear was accounted for using the purchase method of accounting with its results of operations included since the date of acquisition. Goodwill resulting from the acquisition amounted to approximately $32.5 million which is being amortized over 20 years. The allocation of the purchase price to the acquired assets and assumed liabilities, including goodwill, is preliminary since discussions are ongoing with the seller regarding potential purchase price adjustments. On May 3, 1999, the Company completed the acquisition of NSC Technologies from Monsanto Company for approximately $125 million in cash. NSC Technologies develops, manufactures and sells chiral pharmaceutical intermediates and select bulk actives to pharmaceutical companies. The business' core chiral expertise in unnatural amino acids provides a broad molecular platform from which it develops novel, high value-added intermediates and bulk actives for antiviral, cardiovascular and oncology therapeutic drugs. NSC Technologies is part of the Fine Chemicals group of the Performance Chemicals business unit. The acquisition was accounted for using the purchase method of accounting with the results of NSC Technologies included since the date of acquisition. Goodwill resulting from the acquisition amounted to approximately $89 million, which is being amortized over 30 years. On August 2, 1999, the Company completed the acquisition of PAD for $162 million in cash. PAD is a world leader in the production of phosphate ester flame retardants, flame retardant fluids and lubricant additives, as well as a leading supplier of specialty water treatment chemicals used in industrial applications and desalination. The transaction broadens the Polymer Additives business unit and more than doubles the industrial segment of the Water Treatment business unit. The acquisition was accounted for using the purchase method of accounting with the results of PAD included since the date of acquisition. Goodwill resulting from the acquisition amounted to approximately $62 million, which is being amortized over 35 years. The allocation of the purchase price to the acquired assets and assumed liabilities, including goodwill, is preliminary since discussions are ongoing with the seller regarding potential purchase price adjustments. Sale of Subsidiary Stock Effective June 15, 2000, the Company sold 40% of its ownership in OSCA, Inc. (OSCA), a wholly owned subsidiary (Energy Services and Products business unit) through an initial public offering. Net proceeds of approximately $79 million from the initial sale were paid to the Company by OSCA to satisfy indebtedness. The initial sale resulted in a $51.9 million non-taxable gain to the Company, which was recognized in the second quarter. Subsequently, on July 13, 2000 the over-allotment option granted to the underwriters was exercised and resulted in an additional $12 million of net proceeds. The over-allotment exercise resulted in an additional non-taxable gain to the Company of $8.5 million, which was recorded in the third quarter. The initial sale and the over-allotment option exercise resulted in the Company selling a total of 43.4% of its ownership interest in this subsidiary. OSCA continues to be included in consolidated financial position and results of operations due to the Company's ability to exert significant influence over OSCA as a result of its continuing ownership and voting interest. Note 5: Cash and Cash Equivalents Cash and cash equivalents consist of the following: - -------------------------------------------------------------------------------- December 31 2000 1999 - -------------------------------------------------------------------------------- Cash $71.1 $85.4 Cash equivalents 151.6 392.9 - -------------------------------------------------------------------------------- $222.7 $478.3 - -------------------------------------------------------------------------------- Note 6: Inventories The major components of inventories are as follows: - -------------------------------------------------------------------------------- December 31 2000 1999 - -------------------------------------------------------------------------------- Finished products $ 281.7 $227.9 Raw materials 48.0 60.1 Supplies 34.7 28.8 - -------------------------------------------------------------------------------- $ 364.4 $316.8 - -------------------------------------------------------------------------------- Note 7: Plant and Equipment Plant and equipment consist of the following: - -------------------------------------------------------------------------------- December 31 2000 1999 - -------------------------------------------------------------------------------- Land $19.9 $18.2 Buildings 124.3 109.6 Equipment 1,253.3 1,150.3 Construction in progress 79.0 79.3 - -------------------------------------------------------------------------------- 1,476.5 1,357.4 Less allowances for depreciation, depletion and amortization (725.6) (605.6) - -------------------------------------------------------------------------------- $ 750.9 $751.8 - -------------------------------------------------------------------------------- 38 40 NOTE 8: DEBT Long-term debt is summarized as follows: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- December 31 2000 1999 - ------------------------------------------------------------------------------- Notes payable $400.0 $401.0 Commercial paper 229.7 455.8 Industrial development bonds 12.3 12.3 Other 52.2 20.3 - ------------------------------------------------------------------------------- 694.2 889.4 Less current portion (6.0) (6.0) $688.2 $883.4 - ------------------------------------------------------------------------------- On July 15, 1999, the Company sold $400 million of 7% notes due July 15, 2009. Proceeds from the sale of the notes were used to replace a portion of the commercial paper borrowings. The notes contain restrictive financial covenants, including an interest coverage ratio. The notes were sold under a shelf registration process. Under this process, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission and may sell various unsecured debt securities, common stock or rights or warrants to purchase common stock individually or in combination up to $750 million. The amount remaining on the registration statement is $350 million. The weighted average rate of interest on commercial paper borrowing was 6.1% at December 31, 2000. The interest rate on industrial development bonds was 4.3% at December 31, 2000. The bonds have maturities through 2025. The Company has a $600 million revolving credit agreement with 12 banks that serves as a backup for the Company's commercial paper program, which expires in 2001. The agreement provides various interest rate options, including the banks' prime interest rate, and contains restrictive financial covenants, including an interest coverage ratio. The Company's commercial paper is rated A-1 by Standard and Poor's and P-1 by Moody's. Commercial paper financing has been classified as a component of long-term debt since the Company intends to refinance these borrowings on a long-term basis either through continued commercial paper borrowings or utilization of available long-term credit facilities. Long-term debt matures as follows: 2001, $6.0 million; 2002, $233.7 million; 2003, $33.9 million; 2004, $2.6 million; 2005, $2.8 million; and thereafter, $415.2 million. During 2000, 1999 and 1998, interest costs were $53.8 million, $35.1 million and $31.2 million, respectively, which included interest capitalized as additional costs of plant and equipment of $1.7 million in 2000, $3.5 million in 1999 and $6.4 million in 1998. In these years, interest payments were $54.2 million, $22.2 million and $32.3 million, respectively. NOTE 9: INCOME TAXES The following is a summary of domestic and foreign income before income taxes, the components of the provisions for income taxes, a reconciliation of the United States federal income tax rate to the effective income tax rate and the components of deferred tax assets and liabilities. Income Before Income Taxes: - ------------------------------------------------------------------------------- Year Ended December 31 2000 1999 1998 - ------------------------------------------------------------------------------- Domestic $124.4 $112.7 $18.3 Foreign 40.5 62.7 47.9 $164.9 $175.4 $66.2 - ------------------------------------------------------------------------------- Provisions for Income Taxes: - ------------------------------------------------------------------------------- Year Ended December 31 2000 1999 1998 - ------------------------------------------------------------------------------- Current: Federal $ 9.1 $(5.2) $ 6.5 State 5.0 1.7 4.9 Foreign 8.5 20.2 12.5 - ------------------------------------------------------------------------------- 22.6 16.7 23.9 Deferred: Domestic 8.0 20.8 (20.5) Foreign 7.3 (1.7) 6.4 - ------------------------------------------------------------------------------- 15.3 19.1 (14.1) - ------------------------------------------------------------------------------- $37.9 $35.8 $ 9.8 - ------------------------------------------------------------------------------- Effective Income Tax Rate Reconciliation: - ------------------------------------------------------------------------------- Year Ended December 31 2000 1999 1998 - ------------------------------------------------------------------------------- U.S. federal income tax rate 35.0% 35.0% 35.0% Change resulting from: State income tax 2.0 0.6 4.8 Depletion (1.2) (0.9) (3.3) Foreign sales corporation (1.5) (1.8) (4.8) Tax exempt interest (0.5) (0.5) (1.7) Dividends received deduction (0.3) (1.3) (3.3) Low income housing credit (1.9) (1.6) (3.2) International operations (0.4) (2.4) (8.6) Gain on sale of subsidiary stock (12.6) -- -- Special charge rate differential -- -- 2.7 Stock redemption - Huntsman (0.5) (1.3) -- Release of previously provided tax provisions -- (7.2) -- Change in valuation allowance 2.9 1.3 3.1 Other 2.0 0.5 (5.9) Effective income tax rate 23.0% 20.4% 14.8% - ------------------------------------------------------------------------------- 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: - ------------------------------------------------------------------------------- December 31 2000 1999 - ------------------------------------------------------------------------------- Deferred tax assets Accrued expenses $7.7 $ 7.4 Special charges 5.7 9.1 Tax credit carryforwards 16.1 11.0 Net operating loss carryforwards 14.6 7.5 Other 24.3 16.9 - ------------------------------------------------------------------------------- Deferred tax assets 68.4 51.9 Valuation allowance (12.2) (7.5) - ------------------------------------------------------------------------------- Deferred tax assets, net of valuation allowance $56.2 $44.4 Deferred tax liabilities Depreciation $64.4 $47.9 Other 27.1 22.2 - ------------------------------------------------------------------------------- Deferred tax liabilities $91.5 $70.1 Net deferred tax liabilities $35.3 $25.7 - ------------------------------------------------------------------------------- 39 41 As of December 31, 2000, the Company had tax credit carryforwards of $16.1 million available. Of this amount, $2.2 million expire in 2003; $6.2 million expire in 2004; $3.2 million expire in 2005; and the remaining $4.5 million have no expiration dates. At December 31, 2000, certain foreign subsidiaries of the Company had net operating losses of $36.5 million. These carryforwards will be available for the reduction of future taxable income of these subsidiaries. A valuation allowance of $12.2 million has been recorded against the portion of these net operating loss carryforwards for which utilization is uncertain. Cash payments for income taxes were $11.2 million, $24.0 million and $109.0 million in 2000, 1999 and 1998, respectively. NOTE 10: STOCKHOLDERS' EQUITY The Board of Directors has authorized the Company to purchase shares of the Company's common stock in the open market or in privately negotiated transactions. Pursuant to these authorizations, the Company purchased approximately 4.5 million shares during 2000 at an average price of $30.00. A total of 2.9 million shares remain available under existing Board authorizations. On February 15, 1999, the Company's Board of Directors approved a new Stockholders Rights Plan, replacing a plan which was scheduled to expire in September 1999. The outstanding rights under the prior Stockholders Rights Plan were redeemed at a price of $0.0025 per right for stockholders of record on April 1, 1999. Under the new Stockholders Rights Plan, the stockholders received one right (the "Right") for each outstanding share of common stock of the Company that they owned on the record date. The new Rights have an exercise price of $170 per right, subject to adjustment. Until the Rights become exercisable, they are attached to, and will trade with, the common stock. The Rights become exercisable and transferable apart from the common stock if a person becomes the beneficial owner of, or offers to acquire, 15% or more of the Company's outstanding common stock or if the Board declares a 10%-or-more stockholder an "Adverse Person" based on certain criteria set forth in the Plan. After a person becomes the beneficial owner of 15% or more of the Company's outstanding common stock or is declared an Adverse Person (each such event is referred to as a "triggering event"), each Right would entitle the holder, except the acquiring person or Adverse Person, to purchase, at the Right's then-current exercise price, the number of Great Lakes common shares having a market value equal to twice the Right's exercise price. If after one of the triggering events described above, the Company is acquired in a merger or other business combination, and the Rights have not been previously redeemed, the holder of each Right is entitled to purchase, at the Right's then-current exercise price, that number of the acquiring company's common shares having a market value equal to twice the Right's exercise price. Under certain conditions, the Rights may be redeemed by the Company at a price of $0.01 per Right (subject to adjustment) prior to their expiration on February 15, 2009. NOTE 11: EARNINGS PER SHARE Basic earnings per share is based on the weighted-average number of common shares outstanding during the period, while diluted earnings per share includes the effect of options and restricted stock that were dilutive and outstanding during the period. The computation of basic and diluted earnings per share is determined using net income or loss as reported as the numerator, and the number of shares included in the denominator is calculated as follows: - ------------------------------------------------------------------------------- Year Ended December 31 2000 1999 1998 - ------------------------------------------------------------------------------- Denominator for basic earnings per share (weighted-average shares) 52.4 57.8 59.0 Effect of dilutive securities 0.1 0.2 0.2 Denominator for diluted earnings per share 52.5 58.0 59.2 - ------------------------------------------------------------------------------- Options to purchase shares of common stock of 3.1 million in 2000, 1.6 million in 1999 and 1.4 million in 1998 were outstanding, but were excluded from the computation of diluted earnings per share, because the exercise prices were greater than the average market price of the common shares during those years, and therefore the effect would have been antidilutive. NOTE 12: STOCK COMPENSATION PLANS The Company has three plans that provide for the granting of stock awards to officers and key employees. The 1998 and the 1993 Stock Compensation Plans have stock awards available for grant; the third plan has options exercisable as of December 31, 2000. The Company is authorized to grant options for up to 4.5 million shares under the plans, of which 2.6 million have been granted. Options under the plans have been granted at the market value at the date of grant, become exercisable over periods of one to five years and expire 10 years from the date of grant. In addition to the options awarded under the plans, the Company on April 6, 1998, granted the chief executive officer an option to acquire 0.7 million shares of the Company's stock. The options were granted at market value on the date of grant; 0.2 million of the shares became exercisable upon grant with the balances becoming exercisable ratably over four years. The options expire 10 years from the grant date. The status of the Company's stock options is summarized below: - ------------------------------------------------------------------------------- Weighted Shares Under Average Option Exercise Price - ------------------------------------------------------------------------------- Outstanding at January 1, 1998 1.9 $52.79 Granted 1.3 43.46 Exercised (0.2) 22.05 Terminated (0.6) 57.02 Adjustment for Octel spin-off 0.3 -- - ------------------------------------------------------------------------------- Outstanding at December 31, 1998 2.7 43.57 Granted 0.8 40.29 Exercised (0.2) 22.01 Terminated (0.2) 44.99 - ------------------------------------------------------------------------------- Outstanding at December 31, 1999 3.1 43.96 Granted 0.8 30.15 Exercised (0.1) 23.10 Terminated (0.5) 40.67 - ------------------------------------------------------------------------------- Outstanding at December 31, 2000 3.3 $41.72 Currently Exercisable 1.9 $46.30 - ------------------------------------------------------------------------------- 40 42 Concurrent with the May 1998 spin-off of Octel, the number of options outstanding was increased by 14% or 0.3 million shares and grant prices were reduced by approximately 14% to maintain the total value of the options at pre-spin-off levels. During 2000 and 1999 the Company awarded restricted stock totaling 0.014 million and 0.1 million shares, respectively, to directors and other key employees. These awards become exercisable over a period of 1 to 24 years. The Company recognizes compensation expense consistent with the vesting of each award. The compensation expense incurred in 2000 and 1999 related to these awards totaled $1.0 million and $1.3 million, respectively. The following table summarizes information concerning outstanding and exercisable options at December 31, 2000: - ------------------------------------------------------------------------------- Range of Exercise Prices $27.00-$35.99 $36.00-$50.99 $51.00-$68.99 - ------------------------------------------------------------------------------- Options outstanding: Weighted-average remaining contractual life 9.6 yrs. 7.3 yrs. 4.7 yrs. Weighted-average exercise price $31.97 $41.45 $61.85 Number 1.0 1.8 0.5 Options exercisable: Weighted-average exercise price $35.63 $40.52 $61.85 Number 0.2 1.1 0.6 - ------------------------------------------------------------------------------- The Company accounts for stock compensation costs in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, no compensation cost has been recognized for its fixed stock option plans. The following table sets forth pro forma information as if compensation cost had been determined based on the fair value at the grant date for awards under the Company's stock plans consistent with the requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." For the purposes of the pro forma disclosure, the estimated compensation costs are amortized to expense over the options' vesting period, principally three years. - ------------------------------------------------------------------------------- December 31 2000 1999 1998 - ------------------------------------------------------------------------------- Weighted-average fair value per share of options granted during the year(1) $11.67 $14.36 $13.96 Net income from continuing operations: As reported 127.0 139.6 56.4 Pro forma 123.2 132.8 47.6 Diluted earnings per share: As reported 2.42 2.41 0.95 Pro forma 2.35 2.30 0.81 Assumptions: Expected volatility 28.3% 27.7% 23.9% Expected life in years 6.5 6.5 6.5 Risk free interest rate 6.7% 4.9% 5.5% Dividend yield 1.1% 0.8% 0.9% - ------------------------------------------------------------------------------- (1) On date of grant using the Black-Scholes option pricing model. NOTE 13: RETIREMENT PLANS The Company sponsors various defined benefit pension plans. The following table provides a progression of the plans' benefit obligations and fair value of plan assets for 2000 and 1999, and reconciles the funded status to the amounts recognized in the balance sheets for those years. - ------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $148.0 $156.8 Service cost 8.2 9.2 Interest cost 11.0 10.2 Plan participants' contributions 1.2 0.7 Amendments and terminations -- 1.5 Net actuarial loss/(gain) (0.3) (22.4) FAS 88 gain -- (1.7) Benefits paid (5.6) (5.1) Acquisitions 37.2 -- Foreign currency translation loss/(gain) (2.9) (1.2) Benefit obligation at end of year $196.8 $148.0 - ------------------------------------------------------------------------------- Change in fair value of plan assets: Fair value of plan assets at beginning of year $155.5 $129.3 Actual return on plan assets 30.1 25.8 Employer contributions 3.5 6.2 Benefits and expenses paid (5.9) (5.6) Amendments -- -- Acquisitions 55.0 -- Foreign currency translation (loss)/gain (1.1) (0.2) Fair value of plan assets at end of year $237.1 $155.5 - ------------------------------------------------------------------------------- Reconciliation of funded status to amounts recognized in the balance sheets: Funded status $ 40.3 $ 7.5 Unrecognized prior service cost 0.2 2.1 Unrecognized transition obligation 0.5 0.7 Unrecognized net actuarial loss/(gain) (40.9) (24.6) Prepaid (accrued) benefit cost $ 0.1 $(14.3) - ------------------------------------------------------------------------------- Amounts recognized in the balance sheets consist of: Prepaid benefit costs $ 8.6 $ 1.8 Accrued benefit liability (11.0) (19.1) Intangible asset 0.9 1.5 Accumulated other comprehensive income 1.6 1.5 Prepaid (accrued) benefit cost $ 0.1 $(14.3) - ------------------------------------------------------------------------------- Weighted average assumptions at the end of 2000 and 1999: Discount rates 6.5% to 8.0% Expected return on plan assets 7.0% to 9.0% Rates of compensation increases 4.0% to 4.5% - ------------------------------------------------------------------------------- The components of net periodic benefit costs are as follows: - ------------------------------------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------- Service cost $ 8.2 $ 9.2 $ 6.7 Interest cost 11.0 10.2 9.1 Expected return on plan assets (13.3) (11.4) (11.6) Amortization of prior service cost 0.1 0.2 0.2 Amortization of transition obligation 0.2 0.2 0.2 Recognized net actuarial loss -- 1.3 0.1 Termination benefits -- 0.1 1.4 Net periodic benefit cost $ 6.2 $ 9.8 $ 6.1 - ------------------------------------------------------------------------------- 41 43 Amounts applicable to the Company's pension plans with accumulated benefit obligations in excess of plan assets are as follows: - ------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------- Projected benefit obligation $12.5 $11.5 Accumulated benefit obligation 11.1 10.3 Fair value of plan assets -- -- - ------------------------------------------------------------------------------- The Company provides no significant postretirement benefits other than pensions. NOTE 14: RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses were approximately $39.5 million, $45.7 million and $42.3 million in 2000, 1999 and 1998, respectively. NOTE 15: SEGMENT INFORMATION The Company is organized in the four global segments: Polymer Additives, Performance Chemicals, Water Treatment and Energy Services and Products. These segments are strategic business units that offer products and services that are intended to satisfy specific customer requirements. The units are organized and managed to deliver a distinct group of products, technology and services. The Polymer Additives segment produces brominated, non-halogen, intumescent and antimony-based flame retardants; UV and antioxidant stabilizers; and impact modifiers. The segment serves manufacturers in the following industries: electrical and electronic; construction; automotive; and furnishings. The Performance Chemicals segment produces chemicals to exact specifications or to meet specific applications requirements. The product offering is characterized by technology-based product solutions that benefit specific customers. The businesses included in the segment are: fine chemicals for pharmaceutical and life sciences companies; fluorine chemicals for use in fire suppression systems, refrigerants and medical and pharmaceutical products; brominated intermediates; and agricultural products and toxicological testing services for chemical, pharmaceutical and food additive producers. The Water Treatment segment is a producer of water treatment chemicals for the recreational swimming pool and spa water treatment industry. These products are sold to pool and spa dealers, distributors and mass market retailers. The Water Treatment segment also produces specialty biocides for use in cooling tower water treatment; wastewater treatment; pulp and paper production; and desalination products. The Energy Services and Products segment provides specialized oil and gas well completion fluids, completion services and downhole completion tools to major oil companies and independent exploration and production companies, primarily in the Gulf of Mexico and select international markets. The Company evaluates business unit performance and allocates resources based on operating income, which represents net sales less cost of products sold and selling, general and administrative expenses. Each of the Company's segments uses bromine as a raw material in their production processes. Bromine is transferred at cost to all business segments, except Energy Services and Products. Their cost is based upon a bromine supply agreement. In addition, assets used in the production of bromine are allocated to each business unit based on the percentage of production consumed, except for Energy Services and Products, which does not receive an allocation. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Corporate includes the corporate offices and the discontinued operations. Segment assets include primarily accounts receivable, inventory, net plant and equipment and other miscellaneous assets. Assets included in Corporate principally are cash and cash equivalents; insurance receivables; deferred income taxes; certain investments and other assets; and certain unallocated plant and equipment, including the Company's ERP software systems. Geographic sales information is reported based on the location that invoices the external customer. Geographic long-lived assets are grouped by the location of the reporting country. Inter-segment sales are insignificant and are eliminated in consolidation. - ------------------------------------------------------------------------------- Year Ended December 31 2000 1999 1998 - ------------------------------------------------------------------------------- Net Sales by Segment to External Customers: Polymer Additives $ 690.1 $ 632.1 $ 599.1 Performance Chemicals 369.3 354.9 323.7 Water Treatment 474.5 418.1 396.3 Energy Services and Products 131.9 95.2 115.7 - ------------------------------------------------------------------------------- Total sales of reportable segments 1,665.8 1,500.3 1,434.8 Corporate 4.7 -- 0.9 $1,670.5 $1,500.3 $1,435.7 - ------------------------------------------------------------------------------- Segment Profit: Polymer Additives $ 52.4 $ 78.0 $ 78.9 Performance Chemicals 90.8 78.7 70.2 Water Treatment 85.0 73.1 54.5 Energy Services and Products 12.5 (8.5) 11.0 - ------------------------------------------------------------------------------- Total profits of reportable segments 240.7 221.3 214.6 Corporate (37.1) (41.0) (24.2) Special charges (63.4) (18.2) (116.5) Operating income 140.2 162.1 73.9 - ------------------------------------------------------------------------------- Gain on sale of subsidiary stock 60.4 -- -- Interest and other income 37.1 44.3 37.0 Interest and other expenses 72.8 31.0 44.7 Income before income taxes $ 164.9 $ 175.4 $ 66.2 - ------------------------------------------------------------------------------- Depreciation Expense: Polymer Additives $ 35.5 $ 34.7 $ 37.9 Performance Chemicals 18.7 19.1 20.8 Water Treatment 13.3 10.5 9.1 Energy Services and Products 7.9 9.7 8.7 Corporate 12.5 6.8 2.1 $ 87.9 $ 80.8 $ 78.6 - ------------------------------------------------------------------------------- Segment Assets: Polymer Additives $ 813.3 $ 782.6 $ 664.3 Performance Chemicals 439.2 436.1 302.4 Water Treatment 396.1 303.3 227.7 Energy Services and Products 122.1 131.1 147.3 Corporate 362.6 613.1 560.4 Net assets of discontinued operations 1.1 (5.2) 102.5 - ------------------------------------------------------------------------------- $2,134.4 $2,261.0 $2,004.6 42 44 - ------------------------------------------------------------------------------- Year Ended December 31 2000 1999 1998 - ------------------------------------------------------------------------------- Investment in Equity Method Investees: Polymer Additives $ 19.9 $ 18.1 $ 10.7 Expenditures for Long-lived Assets: Polymer Additives $ 62.2 $ 40.7 $ 52.0 Performance Chemicals 41.7 29.0 29.4 Water Treatment 17.4 13.1 11.1 Energy Services and Products 6.2 13.1 28.7 Corporate 29.5 23.1 39.4 $ 157.0 $ 119.0 $ 160.6 - ------------------------------------------------------------------------------- Geographic Information Net Sales to External Customers: United States $1,037.4 $ 916.8 $ 907.0 United Kingdom 228.2 152.7 322.4 Switzerland 152.8 135.1 -- Other foreign 252.1 295.7 206.3 $1,670.5 $1,500.3 $1,435.7 - ------------------------------------------------------------------------------- Long-lived Assets: United States $ 774.4 $ 740.5 $ 644.9 United Kingdom 136.0 123.7 78.0 Other foreign 174.9 189.6 162.5 - ------------------------------------------------------------------------------- $1,085.3 $1,053.8 $ 885.4 - ------------------------------------------------------------------------------- NOTE 16: INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES As of December 31, 2000, the Company's investment in unconsolidated affiliates consists mainly of a 50% interest in Tetrabrom Technologies, Ltd., an Israeli manufacturer of tetrabromobisphenol-A. At December 31, 1999, the Company also had a preferred stock interest in Huntsman Chemical Corporation (HCC) consisting of 14,675 shares of series A cumulative preferred stock with an annual dividend rate of 14%. During 1999 the Company sold 44,025 shares of the HCC preferred stock and in 2000 sold its remaining interest. As a result of these sales, the Company recognized before-tax gains of approximately $3 million and $9 million in 2000 and 1999, respectively. Preferred stock dividends from HCC amounted to $0.3 million, $7 million and $8 million in 2000, 1999 and 1998, respectively. The Company is also a limited partner in certain low-income housing investments that generate benefits in the form of tax credits. The Company's equity in earnings (loss) of unconsolidated affiliates was $5.7 million, $1.0 million and $(0.2) million for 2000, 1999 and 1998, respectively. NOTE 17: FINANCIAL INSTRUMENTS Foreign Exchange Risk Management In the normal course of business, operations of the Company are subject to risks associated with changing financial exchange rates. These fluctuations can vary the costs of financing, investing and operating. Accordingly, the Company hedges certain portions of its exposure to foreign currency fluctuations through the use of options and forward exchange contracts to protect the value of its existing foreign currency asset and liability commitments and anticipated foreign currency revenues. It is the Company's policy to enter into foreign currency hedging transactions only to the extent considered necessary to achieve the objectives stated above. The Company does not enter into foreign currency transactions for trading purposes. The Company enters into currency option and forward contracts to hedge anticipated foreign currency transactions during the next 12 months. The principal currencies hedged are the Japanese yen, British pound and euro. The Company uses currency swap contracts to hedge a long-term intercompany loan. These contracts hedge the Italian lira against the British pound. The terms of the swap contracts match the loan principal repayment terms. Any gains or losses on these contracts would be offset by losses or gains on the underlying intercompany loan. Gains and losses arising from the use of such instruments, except those considered to be hedges of long-term investments, are recorded in the income statement concurrently with gains and losses arising from the underlying hedged transactions. The impact of currency forwards and options used for foreign exchange risk management on pretax income in 2000, 1999 and 1998 was a net (loss) gain of approximately $(1.6) million, $(0.7) million and $0.9 million, respectively. Interest Rate Risk Management The Company utilizes a number of methods to provide both long-term and short-term financing for its operations. The Company has historically relied on a floating rate commercial paper program for ongoing working capital and, more recently, issued $400 million of 7% fixed rate notes due July 15, 2009. The Company employs certain hedging instruments to minimize its exposure to changes in interest rates. The notional amount of interest swap agreements was $0 and $200 million at December 31, 2000 and 1999, respectively. In 2000, the Company terminated its swap arrangement and as a result recognized a $2.9 million gain, which is being amortized over the remaining term of the underlying 7% fixed rate notes that are due July 15, 2009. The Company has also utilized other interest rate derivative instruments to manage its exposure to interest rate changes; however, there were no positions outstanding at either December 31, 2000 or 1999 related to these activities. Gains and losses arising from the use of such interest rate hedging instruments are recorded in the income statement concurrently with gains and losses arising from the underlying transactions. The impact on pretax income of interest rate risk management activities was a net gain of approximately $0.4 million, $4.0 million and $0 for 2000, 1999 and 1998, respectively. Fair Value of Financial Instruments For certain of the Company's financial instruments, including cash and cash equivalents; accounts and notes receivable; accounts payable; and accrued expenses, the stated values approximate fair value due to their short-term nature. Consequently, such financial instruments are not included in the following table that provides information about the stated values and estimated fair values of other financial instruments, both on and off the balance sheets: 43 45
- ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 Notional Amount Carrying Amount Fair Value Notional Amount Carrying Amount Fair Value - ------------------------------------------------------------------------------------------------------------------------------------ Long-term debt including current portion $ -- $694.0 $691.0 $ -- $889.4 $870.9 Interest rate swap agreements -- -- -- 200.0 -- (8.4) Foreign currency options and forward contracts 92.0 0.4 0.4 23.2 (1.0) (1.0) Foreign currency swap contracts 38.9 7.7 7.7 46.8 6.7 6.7 - -----------------------------------------------------------------------------------------------------------------------------------
The estimated fair value of long-term debt is based primarily on quoted market prices for the same or similar issues. The fair values of option, forward exchange and swap contracts are based on quoted market prices of comparable instruments. Concentrations of Credit Risk The Company sells a broad range of products to a diverse group of customers operating throughout the world. These industries generally are not significantly affected by changes in economic or other factors. Credit limits, ongoing credit evaluation and account monitoring procedures are utilized to minimize the risk of loss. Collateral is generally not required. Counterparties to the currency and interest rate swap agreements are major financial institutions. Credit losses from counterparty nonperformance are not anticipated. NOTE 18: COMMITMENTS AND CONTINGENCIES The Company has various purchase commitments for raw materials, supplies and plant and equipment incident to the ordinary conduct of business. None of the raw material and supply commitments represents an unconditional purchase obligation. In the aggregate, such commitments are not at prices in excess of current market. At December 31, 2000, the Company had committed approximately $89.1 million to complete capital projects. The Company has various operating leases primarily for the use of office space, computer equipment and services and marine service vessels. Future minimum lease payments under these non-cancelable operating leases totaled $73.9 million at December 31, 2000, due as follows: 2001 - $16.2 million; 2002 - $13.0 million; 2003 - $11.0 million; 2004 - $6.5 million; 2005 - $5.5 million; and $21.7 million, thereafter. Rent expense for all operating leases amounted to $20.1 million, $19.8 million and $24.1 million for 2000, 1999 and 1998, respectively. The Company is subject to various lawsuits and claims with respect to matters such as governmental regulations, income taxes and other actions arising out of the normal course of business. The Company is also subject to contingencies pursuant to environmental laws and regulations that in the future may require the Company to take action to correct the effects on the environment of prior manufacturing and waste disposal practices. The Company has been cooperating with the United States Department of Justice (DOJ) and the European Commission since the spring of 1998 in their respective investigations of the bromine and brominated products industry. Both investigations were initiated after the Company self-reported to those agencies certain business practices that raised questions under antitrust laws. As a result of the Company's cooperation, the Company and its current directors and employees have been accepted into the DOJ's amnesty program. As a result, the Company will be exempt from United States federal criminal prosecution and fines relating to the practices in question if the Company complies with certain conditions, including its full cooperation with the DOJ's investigation and policy regarding reasonable remedial efforts. Concurrently, the Company is seeking favorable treatment under a program in the European Union that also rewards self-reporting and cooperation. The Company believes it has fully complied with all applicable conditions to date and has continued to cooperate with the DOJ in connection with certain follow-up matters arising out of the investigation, all of which are covered by the Company's acceptance into the amnesty program. The Company intends to continue full compliance with the DOJ and European Union programs. Participation in the above programs does not provide the Company with immunity from civil liability, including restitution claims. To date, 10 federal purported class action lawsuits and five California purported class actions have been filed against the Company, each claiming treble damages. These suits claim, among other things, that the Company conspired with others in violation of antitrust laws regarding the pricing of bromine and brominated products. The federal lawsuits have been consolidated in the District Court for the Southern District of Indiana. The plaintiffs have filed a motion to certify a class of purchasers of three particular brominated products, and the Company has opposed the motion. A ruling on the class certification is expected later this year. The California cases have been stayed pending resolution of the federal cases. In April 1999, the Company reached agreement with the National Labor Relations Board to settle a 1986 lawsuit alleging unfair labor practices at the Company's Newport, Tennessee, facility following its acquisition of the site from Syntex Corporation. The $9 million settlement covers backpay and interest for certain former Syntex employees. The settlement amount is consistent with previously established reserves. Environmental remediation costs that relate to current operations are expensed or capitalized as appropriate. Costs that relate to an existing condition caused by past operations, and that do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments are made or remedial efforts are probable and the costs can be reasonably estimated. Environmental liabilities and litigation accruals of approximately $9.3 million and $14.0 million have been reflected as accrued expenses in the Company's consolidated balance sheet at December 31, 2000 and 1999, respectively. While it is not possible to predict or determine the outcome of actions brought against the Company or the ultimate cost of environmental matters, the Company believes that the costs associated with all such matters will not have a material adverse effect on its consolidated financial position or consolidated results of operations. 44 46 QUARTERLY RESULTS OF OPERATIONS (unaudited)
(millions, except per share data) 2000 - Three Months Ended March 31 June 30 September 30 December 31 - --------------------------------------------------------------------------------------------------------------------------------- Net sales(1) $404.5 $442.6 $418.2 $405.2 Operating expenses Cost of products sold(1) 293.2 310.9 308.4 298.3 Selling, general and administrative expenses 64.2 66.1 60.6 65.2 Special charges -- 66.4 -- (3.0) - --------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 47.1 (0.8) 49.2 44.7 Gain on sale of subsidiary stock -- 51.9 8.5 -- Interest and other income 12.9 12.4 5.0 6.8 Interest and other expenses 18.9 15.5 18.0 20.4 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 41.1 48.0 44.7 31.1 Income taxes 12.7 7.8 10.2 7.2 - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 28.4 $ 40.2 $ 34.5 $ 23.9 Earnings per share: Basic $ 0.52 $ 0.75 $ 0.67 $ 0.48 Diluted $ 0.52 $ 0.75 $ 0.67 $ 0.48 Cash dividends paid per share $ 0.08 $ 0.08 $ 0.08 $ 0.08 - --------------------------------------------------------------------------------------------------------------------------------- Stock Price Data High $40.44 $35.81 $33.94 $39.19 Low 26.75 26.50 26.56 28.13 Year-end close 37.19 - ---------------------------------------------------------------------------------------------------------------------------------
1999 - Three Months Ended March 31 June 30 September 30 December 31 - --------------------------------------------------------------------------------------------------------------------------------- Net sales(1) $344.0 $388.4 $386.8 $381.1 Operating expenses Cost of products sold(1) 246.2 275.6 278.5 276.9 Selling, general and administrative expenses 51.5 55.7 62.7 72.9 Special charges -- -- -- 18.2 - --------------------------------------------------------------------------------------------------------------------------------- Operating income 46.3 57.1 45.6 13.1 Interest and other income 7.7 10.1 12.7 13.8 Interest and other expense 7.0 7.2 8.7 8.1 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 47.0 60.0 49.6 18.8 Income taxes (benefit)(2) 16.0 17.2 15.4 (12.8) - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 31.0 $ 42.8 $ 34.2 $ 31.6 Earnings per share: Basic $ 0.53 $ 0.73 $ 0.59 $ 0.56 Diluted $ 0.53 $ 0.73 $ 0.59 $ 0.56 Cash dividends paid per share $ 0.08 $ 0.08 $ 0.08 $ 0.08 - --------------------------------------------------------------------------------------------------------------------------------- Stock Price Data High $44.19 $50.00 $47.56 $38.56 Low 35.50 36.25 37.25 33.19 Year-end close 38.19 - ---------------------------------------------------------------------------------------------------------------------------------
(1) Net sales and cost of products sold amounts have been restated for all periods presented to reflect the application of Emerging Issues Task Force Consensus EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," effective in the fourth quarter of 2000. See notes to consolidated financial statements. (2) Income taxes (benefit) for 1999 reflects fourth quarter adjustments amounting to $18.5 million due primarily to the release of previously provided taxes. 45 47 CORPORATE OFFICERS Mark P. Bulriss Chairman, President and CEO Larry J. Bloom Executive Vice President and President of Water Treatment Louis M. Maresca Executive Vice President and President of Performance Chemicals Richard T. Higgons Senior Vice President, Business Development Richard J. Kinsley Senior Vice President, Human Resources and Communications Jeffrey M. Lipshaw Senior Vice President, General Counsel and Secretary Angelo C. Brisimitzakis Vice President, Global Supply Chain and Vice President, Flame Retardants Stephen D. Clark Vice President Gregory J. Heinlein Vice President, Treasurer and Assistant Secretary Kevin J. Mulcrone Vice President and Controller Henri Steinmetz Vice President and General Manager, Polymer Stabilizers Karen Witte Duros Assistant Secretary Mary P. McClanahan Assistant Secretary Stephen E. Brewer Assistant Treasurer BOARD OF DIRECTORS Nigel D. T. Andrews 2 Managing Director Internet Capital Group Director since 2000 Mark P. Bulriss 3, 4, 5 Chairman, President and CEO Great Lakes Chemical Corporation Director since 1998 James W. Crownover 2, 4 Former Director McKinsey & Company Director since 2000 Thomas M. Fulton 2, 3 Former President and Chief Executive Officer Landauer, Inc. Director since 1995 Martin M. Hale 2, 4, 5 Former Nonexecutive Chairman of the Board of Great Lakes Chemical Corporation Executive Vice President Hellman Jordan Management Co., Inc. Director since 1978 Louis E. Lataif 1 Dean of the School of Management Boston University Director since 1995 John C. Lechleiter 1, 3 Executive Vice President, Pharmaceutical Products and Corporate Development Eli Lilly and Company Director since 1999 Mack G. Nichols 1, 3, 4 Former President and Chief Operating Officer Mallinckrodt, Inc. Director since 1998 Jay D. Proops 1, 4, 5 Former Co-founder/Vice Chairman The Vigoro Corporation Director since 1996 1 Audit Committee 2 Compensation and Incentive Committee 3 Corporate Responsibility Committee 4 Executive Committee 5 Finance Committee 46 48 SHAREHOLDER INFORMATION Transfer Agent and Registrar The stock transfer agent and registrar for Great Lakes' stock is Computershare Investor Services. Stockholders who wish to transfer their stock, or change the name in which the shares are registered, should contact Computershare Investor Services: First Class Mail: Computershare Investor Services P.O. Box A3504 Chicago, Illinois 60690-3504 Overnight Deliveries: Shareholder Communications Department 2 North LaSalle Street, 3rd Floor Chicago, Illinois 60602 Telephone: (312) 360-5407 Fax: (312) 601-4332 www-us.computershare.com Independent Auditors Ernst & Young LLP Indianapolis, Indiana Listings New York Stock Exchange New York, New York Pacific Stock Exchange San Francisco, California Ticker Symbol: GLK Number of Stockholders As of December 31, 2000, there were 2,563 stockholders of record of the Company's common stock. Annual Meeting The Annual Meeting of the Stockholders will be held at 11:00 a.m., Thursday, May 3, 2001, at the Parkwood IV Conference Center, 500 E. 96th Street, Indianapolis, Indiana. Form 10-K and Other Information A complimentary copy of the Company's 2000 Annual Report to the Securities and Exchange Commission on Form 10-K is available upon request. For this, or for other information concerning the Company, please contact: Jeffrey Potrzebowski Director, Investor Relations or Gregory J. Griffith Director, Corporate Communications Great Lakes Chemical Corporation 500 E. 96th Street, Suite 500 Indianapolis, Indiana 46240 USA Phone: (317) 715-3000 www.greatlakes.com Economic Value Added (EVA(R)) is a registered trademark of Stern Stewart & Company. Responsible Care(R) is a registered trademark of the American Chemistry Council. 47 EX-21 4 c60953ex21.txt SUBSIDIARIES 1 EXHIBIT 21 GREAT LAKES CHEMICAL CORPORATION SUBSIDIARIES AS OF FEBRUARY 16, 2001 - -------------------------------------------------------------------------------- NAME OF CORPORATION JURISDICTION - -------------------------------------------------------------------------------- 1167201 Ontario Limited Canada Antimony Products (Pty) Ltd. (South Africa) South Africa Aqua Clear Industries, L.L.C. New York/US ASCK, Inc. Delaware/US ASEPSIS, Inc. (Canada) Canada ASEPSIS,Inc. Georgia/US ASIA Stabilizers Co., Ltd. Korea BAYROL Deutschland GmbH Germany BAYROL FRANCE S.A. France BAYROL Iberica S.A. Spain Bellaqua S.A.S. France Bio-Lab Canada, Inc. Canada Bio-Lab, Inc Delaware/US BioLab (Gulf) GmbH Switzerland BioLab Australia Pty. Ltd. Australia Biolab Services, Inc. Delaware/US BioLab U.K. Limited United Kingdom BLSA Industries (Pty) Ltd South Africa Chemol Reszvenytarsasag International Hungary Enzyme Technology Corporation Illinois/US Euraqua France S.A.S. France Euraqua GmbH Produkte Zur Wassetaufbereitung Germany G.L. Intermediates and Fine Chemicals - SARL France GHC Properties, Inc. Delaware/US GL Development, Ltd. British West Indies GLI, Inc. Delaware/US GLK Services, Inc. Delaware/US Great Lakes (UK) Limited United Kingdom Great Lakes Chemical (Barbados) Limited Barbados Great Lakes Chemical (Europe) GmbH Switzerland Great Lakes Chemical (Far East) Limited Hong Kong Great Lakes Chemical (Gulf) GmbH Switzerland Great Lakes Chemical (S) Pte Ltd Singapore Great Lakes Chemical Asia, Inc. Delaware/US Great Lakes Chemical Corporation de Mexico Mexico Great Lakes Chemical France SAS France Great Lakes Chemical Global, Inc. Delaware/US Great Lakes Chemical Japan Limited Japan Great Lakes Chemical Konstanz GmbH Germany Great Lakes Chemical Marketing S.r.l. Italy Page 1 of 3 2 EXHIBIT 21 GREAT LAKES CHEMICAL CORPORATION SUBSIDIARIES AS OF FEBRUARY 16, 2001 - -------------------------------------------------------------------------------- NAME OF CORPORATION JURISDICTION - -------------------------------------------------------------------------------- Great Lakes Europe Limited United Kingdom Great Lakes France S.A.S. France Great Lakes Holding (Europe) AG Switzerland Great Lakes Holding Deutschland GmbH Germany Great Lakes Holding S.A.S. France Great Lakes Manufacturing (Germany) GmbH Germany Great Lakes Manufacturing (UK) Limited United Kingdom Great Lakes Manufacturing Italy S.r.l. Italy Great Lakes Sales (Europe) GmbH Switzerland Great Lakes Sales (France) S.A.S. France Great Lakes Sales (Germany) GmbH Germany Great Lakes Sales (UK) Limited United Kingdom Great Lakes Sales Italy S.r.l. Italy Great Lakes Technology (Belgium) N.V. Belgium Great Lakes Technology Italy S.r.l. Italy Great Lakes Trading Company, Inc. Delaware/US Great Lakes Trading Company, KFT Hungary Hydrotech Chemical Corporation (US-GA) Georgia/US Hydrotech Chemical Corporation (Canada) Ontario, Canada Hydrotech Chemical Corporation Pty. Ltd Australia Inchemtrade Trading KFT Hungary INTERBAYROL, A.G. Switzerland Niagara Insurance Company, Ltd Bermuda Osca de Brasil Ltda. Brazil OSCA de Mexico, S.A. de C.V. Mexico OSCA de Venezuela S.A. Venezuela OSCA International, Inc Delaware/US OSCA Italia S.r.l. Italy OSCA Latin America, Inc. Delaware/US OSCA Norge A.S. Norway OSCA Products and Services (BVI), Inc British Virgin Islands OSCA UK Holdings Ltd. United Kingdom OSCA UK Limited Scotland OSCA, Inc. Delaware/US PABU Services, Inc. Delaware/US PCBU Services, Inc. Delaware/US Pool Bright (SA) Pty. Ltd South Africa QO Chemicals (Australia) Inc Delaware/US QO Chemicals GmbH Germany QO Chemicals Inc. Delaware/US Page 2 of 3 3 EXHIBIT 21 GREAT LAKES CHEMICAL CORPORATION SUBSIDIARIES AS OF FEBRUARY 16, 2001 - -------------------------------------------------------------------------------- NAME OF CORPORATION JURISDICTION - -------------------------------------------------------------------------------- Recreational Water Products Inc. Delaware/US Recreational Water Products Pty. Ltd. Australia Recreational Water Products, Inc. (Canada) Canada Servicios OyM S.A. de C.V. Mexico Ward Blenkinsop & Company Ltd United Kingdom West Lafayette Corporation Delaware/US WIL Research Laboratories, Inc. Indiana/US Page 3 of 3 EX-23 5 c60953ex23.txt CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Great Lakes Chemical Corporation of our report dated February 9, 2001, included in the 2000 Annual Report to Stockholders of Great Lakes Chemical Corporation. Our audits also included the financial statement schedule of Great Lakes Chemical Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Post-Effective Amendment Number 1 to the Registration Statement Number 33-02074 on Form S-8, dated February 3, 1995, in Registration Statement Number 33-02075 on Form S-8, dated December 11, 1985, in Registration Statement Number 33-42477 on Form S-3, dated August 28, 1991, in Registration Statement Number 33-57589 on Form S-8, dated February 3, 1995, in Registration Statement Number 33-300543 on Form S-8, dated January 30, 1996, in Registration Statement Number 333-49127 on Form S-8 dated April 1, 1998, and in Registration Statement Number 333-61609 on Form S-8, dated August 17, 1998, and in Registration Statement Number 333-78515 on Form S-3, dated May 14, 1999, of our report dated February 9, 2001, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Great Lakes Chemical Corporation for the year ended December 31, 2000. /s/ ERNST & YOUNG LLP Indianapolis, Indiana March 21, 2001 -----END PRIVACY-ENHANCED MESSAGE-----