-----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, EiZ58PIGucUVGbu0j7fpXGR6prWr5jiuqUAd9L0Kld+IVKsaApLLqW2hKeyA1OFU vnrGat8aJd2llJM/v4sF5w== 0000950137-97-002604.txt : 19970811 0000950137-97-002604.hdr.sgml : 19970811 ACCESSION NUMBER: 0000950137-97-002604 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970806 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT LAKES CHEMICAL CORP CENTRAL INDEX KEY: 0000043362 STANDARD INDUSTRIAL CLASSIFICATION: 2890 IRS NUMBER: 951765035 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06450 FILM NUMBER: 97652419 BUSINESS ADDRESS: STREET 1: ONE GREEAT LAKES BLVD CITY: WEST LAFAYETTE STATE: IN ZIP: 47906 BUSINESS PHONE: 3174976219 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-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 1997 Commission file number 1-6450 GREAT LAKES CHEMICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-1765035 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ONE GREAT LAKES BOULEVARD P. O. BOX 2200 WEST LAFAYETTE, INDIANA 47906 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 765-497-6100 -------------- Not Applicable ------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X --- No --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. One Class - 59,848,352 Shares as of June 30, 1997 2 Part 1 - Financial Statements - - ----------------------------- GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -------------------------------------------------
June 30 December 31 1997 1996 ---------- ----------- (thousands of dollars) Assets Current Assets Cash and cash equivalents $ 228,269 $ 202,255 Accounts receivable, less allowance of $8,626 (1996 - $10,219) 505,550 506,203 Inventories Finished products 295,603 298,682 Raw materials 77,415 87,687 Supplies 39,013 40,289 ---------- ---------- Total inventories 412,031 426,658 Prepaid Expenses 40,720 42,080 ---------- ---------- Total Current Assets 1,186,570 1,177,196 Plant and Equipment 1,463,040 1,424,596 Less allowance for depreciation (592,096) (566,113) ---------- ---------- Net plant and equipment 870,944 858,483 Goodwill 424,372 435,195 Investments in and Advances to Unconsolidated Affiliates 74,578 72,767 Other Assets 113,494 117,698 ---------- ---------- $2,669,958 $2,661,339 ========== ==========
1 3 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) -------------------------------------------------
June 30 December 31 1997 1996 ---------------------- (thousands of dollars) Liabilities and Stockholders' Equity Current Liabilities Notes payable $ 728 $ 288 Accounts payable 137,479 190,853 Accrued expenses 137,787 127,333 Income taxes payable 158,216 98,687 Dividends payable 9,576 9,242 Current portion of long-term debt 5,712 7,717 ---------- ---------- Total current liabilities 449,498 434,120 Long-Term Debt, less Current Portion 569,854 503,795 Other Noncurrent Liabilities 82,166 109,012 Deferred Income Taxes 86,153 83,912 Minority Interest 39,696 43,601 Stockholders' Equity Common stock, $1 par value, authorized 200,000,000 shares, issued 72,490,552 shares (1996 - 72,455,051 shares) 72,491 72,455 Additional paid-in capital 121,610 121,224 Retained earnings 1,989,787 1,893,104 Cumulative translation adjustment (40,114) 17,064 Treasury stock at cost 12,642,200 shares (1996 - 10,842,200 shares) (701,183) (616,948) ---------- ---------- Total stockholders' equity 1,442,591 1,486,899 ---------- ---------- $2,669,958 $2,661,339 ========== ==========
2 4 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME -------------------------------------------------
Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------------- 1997 1996 1997 1996 -------- -------- ---------- ---------- (in thousands except per share data) Net Sales $549,897 $594,949 $1,043,363 $1,131,909 Operating Expenses Cost of products sold 372,117 396,101 710,402 747,324 Selling, administrative and research expenses 63,016 72,381 125,675 141,366 -------- -------- ---------- ---------- 435,133 468,482 836,077 888,690 -------- -------- ---------- ---------- Income from Operations 114,764 126,467 207,286 243,219 Equity in earnings of Affiliate and Other Income 8,158 27,021 15,727 34,599 Interest and Other Expenses 20,579 28,067 33,340 44,460 Minority Interest in Income of Subsidiaries 7,152 7,263 13,714 14,878 -------- -------- ---------- ---------- Income Before Income Taxes 95,191 118,158 175,959 218,480 Income Taxes 32,800 40,200 60,700 74,300 -------- -------- ---------- ---------- Net Income $ 62,391 $ 77,958 $ 115,259 $ 144,180 ======== ======== ========== ========== Net Income per Share $ 1.04 $ 1.20 $ 1.91 $ 2.23 ======== ======== ========== ========== Dividends Declared per Share $ 0.16 $ 0.15 $ 0.31 $ 0.27 ======== ======== ========== ========== Average Shares Outstanding 59,837 63,971 60,350 64,627
3 5 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------------------
Six Months Ended June 30 ---------------------- 1997 1996 ---- ---- (thousands of dollars) OPERATING ACTIVITIES Net Income $115,259 $144,180 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 65,175 61,198 Changes in deferred items and other 560 6,743 -------- -------- Cash provided by operations excluding changes in working capital 180,994 212,121 Changes in working capital other than debt, net of effects from business combinations 14,241 (72,412) Other noncurrent liabilities (23,271) (7,757) -------- -------- Net Cash Provided by Operating Activities 171,964 131,952 INVESTING ACTIVITIES Plant and equipment additions (79,553) (108,773) Business combinations, net of cash acquired (7,822) (23,172) Other (8,868) (10,910) -------- -------- Net Cash Used in Investing Activities (96,243) (142,855) FINANCING ACTIVITIES Net borrowings (repayment) under short-term credit lines 475 (3,177) Net increase in commercial paper and other long-term obligations 67,572 47,914 Proceeds from stock options exercised 421 1,067 Minority interest (3,390) 1,446 Repurchase of common stock (84,235) (82,733) Cash dividends (18,576) (17,294) -------- -------- Net Cash Used in Financing Activities (37,733) (52,777) Effect of Exchange Rate Changes on Cash and Cash Equivalents (11,974) (1,239) -------- -------- Increase (Decrease) in Cash and Cash Equivalents 26,014 (64,919) Cash and Cash Equivalents at Beginning of Year 202,255 180,970 -------- -------- Cash and Cash Equivalents at End of Period $228,269 $116,051 ======== ========
4 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE SIX MONTHS ENDED JUNE 30, 1997 -------------------------------------- RESULTS OF OPERATIONS Second quarter sales of $550 million declined $45 million from the $595 million reported in the 1996 quarter. Net income of $62 million, or $1.04 per share, was down $16 million from the prior-year period. Six month sales of $1.0 billion declined 8 percent from the $1.1 billion reported in 1996. Net income for the period was $115 million, or $1.91 per share, down $29 million from 1996. Comparative sales by business unit are set forth in the following table ($-million):
Second Quarter Year to Date --------------------- ---------------------- 1997 1996 Change 1997 1996 Change ---- ---- ------ ---- ---- ------ Flame Retardants $ 73 $ 75 (3)% $ 149 $ 145 3 % Intermediates & Fine Chemicals* 95 80 19 % 169 162 4 % Petroleum Additives* 133 133 -- 254 269 (6)% Polymer Stabilizers 61 63 (3)% 122 123 (1)% Specialized Services* 71 83 (14)% 143 170 (16)% Water Treatment 117 161 (27)% 206 263 (22)% ---- ---- ----- ------ ------ ----- $550 $595 8 % $1,043 $1,132 (8)% ==== ==== ===== ====== ====== =====
*1996 restated to be consistent with current year. On an overall basis, the sales decline reflects the following:
Second Year Quarter to Date ------- ------- Selling Prices $(12) $(17) Volumes 39 42 Foreign Exchange (7) (12) Dispositions (65) (102) ---- ---- $(45) $(89) ==== ====
Flame Retardants sales declined slightly from the prior year as volume improvements were more than offset by lower prices and 5 7 unfavorable foreign exchange. Recently announced price increases have not yielded any positive results as yet; and in some instances, customers are delaying purchases and working down inventory. Intermediates and Fine Chemicals sales improved over the prior-year periods. Furfural and derivatives sales volume increased to fill the market gap created by a fire at a competitor's plant. Pricing remains soft. Fine chemicals sales expanded as customers ramped up requirements for certain pharmaceutical and agrochemical intermediates. Petroleum Additives sales were comparable to the prior-year period. Retail alkyl lead compound tonnage and prices improved slightly over the prior-year quarter. For the year, retail volumes are expected to decline about 11 percent while prices are expected to show an improvement in the low, single-digit range. Wholesale volumes were down compared to 1996 reflecting lower tonnage sales to DuPont while prices improved. The relationship of retail to wholesale business was 70/30 for the quarter compared to 63/37 last year. Non-lead petroleum additives volumes were off in the quarter while sales of performance chemicals doubled as the Octaquest product is running near capacity. Polymer Stabilizers double-digit gains in volume were more than offset by price decreases and adverse currency effects. Antioxidants for plastics, particularly no dust and binary blends, is the main growth area. Specialized Services sales declined despite 20 percent-plus gains registered by the Enviro-Energy Performance group (EEP), the Fluorine group and Wil labs toxicological testing business. The disposal of the engineered surface applications business (E/M) in late 1996 and the contraction of the Eastern European trading business are the detractors from sales. EEP business continues to expand due to the level of offshore drilling activity, increasing service capabilities and a rebound in the environmental services business from last year's low. The fluorine business continues to expand the geographic coverage and range of applications for FM-200(R). Water Treatment sales showed significant volume improvements excluding the negative effect of selling the wholesale distribution business (BLN) in late 1996. Recreational water treatment sales in 6 8 the U.S. market expanded due to gains in the distributor market even though weather conditions in the Midwest and Northeast markets were suboptimal. European sales were off due to comparatively poor weather conditions. Gross Profits of $178 million were $21 million less than the prior year. The decline reflects selling price decreases of $12 million, volume improvements of $10 million, increased cost of $3 million, negative currency impacts due to the relative strength of the dollar versus most European currencies and the Japanese yen of $3 million and a gain related to business dispositions of $13 million recorded in the prior year. As a percentage of sales, gross profits of 32.3 percent overall declined 1.1 percentage points from the 1996 quarter. Selling, Administrative and Research expenses were $63 million, a decline of $9 million from the prior-year quarter, due primarily to dispositions. As a percentage of sales, SAR's declined 0.7 percentage points to 11.5 percent of sales. FINANCIAL CONDITION Cash provided from operations amounted to $172 million, an increase of $40 million over the prior year, reflecting significantly lower investments in inventories and accounts receivable, and reduced tax payments. Trade account receivables are $33 million lower than June 30, 1996, due to lower sales. Days sales outstanding is 80 days compared to 79 days a year ago. The divestiture of the water treatment distribution business caused the one-day increase, and masks improvement in all key units. Inventory levels are down $26 million from a year ago; however, turnover has decreased to 3.4 times per year from 3.8 times. Higher inventories of furfural and derivatives and petroleum additives account for the majority of the decrease in turnover. Tax payments during the first half of 1997 are significantly lower than the prior-year period which included a $38 million settlement with the IRS for years 1989 through 1991. The increase in income taxes payable since December 31, 1996 is a function of the due dates for payments in the United Kingdom. 7 9 The decrease in accounts payable since December 31, 1996 reflects reduced capital spending, the timing of activities and the reclassification of certain items to accrued liabilities. Capital spending of $80 million is $29 million less than a year ago. Cost improvement projects and new products are the primary areas of plant and equipment additions. It is anticipated that spending for the year will be about $160 million. During the first six months of 1997, the company has repurchased 1.8 million shares of common stock at a cost of $84 million, or $46.80 per share. The company is authorized to purchase up to an additional 4.5 million shares. It is management's intention to do so as conditions warrant. A cash dividend of $0.16 per share was paid during the quarter, an increase of 6.6% over the $0.15 paid in the prior-year quarter. OTHER MATTERS The company's Board of Directors approved a plan to spin off its petroleum additives business creating a new independently traded public company (Octel) effective July 16, 1997. The company created by the spin-off will consist of the company's tetraethyl lead antiknock compounds business and its non-lead petroleum additives businesses. In anticipation of the spin-off, Great Lakes has signed a memorandum of understanding with Chevron Chemical Company pursuant to which Octel would acquire the 10.65 percent interest in Octel held by Chevron. This transaction is expected to be completed by the end of September, 1997. Prior to the spin-off, Octel will raise approximately $450 million through borrowings in the public and private sector and use a portion of the proceeds to finance the acquisition of the Chevron interest. The remainder of the proceeds, plus available cash from Octel, less taxes and transaction costs, will be distributed to Great Lakes in the form of a special distribution of roughly $300 million. It is anticipated that the debt will mature over eight years and have an average interest cost of 9.5 percent. This level of debt will result in debt to total capitalization of about 60 percent. 8 10 The transaction will be carried out in the form of a tax-free distribution to Great Lakes shareholders of shares in the new petroleum additives company, and it is expected to be completed in approximately nine months. The transaction is subject to receipt of a favorable ruling from the Internal Revenue Service, the acquisition of all existing minority interests in Octel, and final approval by Great Lakes' Board of Directors of the structure and financing of the new company. Set forth below are certain summary, unaudited proforma information that the company believes is important to enable the reader to have a meaningful understanding of the two companies' historical results. The proforma data are for information purposes and are provided solely to illustrate how the companies would look on a stand-alone basis and may not necessarily reflect the future results nor the results those companies would have achieved if they had been operated as separate, independent companies during the period presented. ($-millions)
Three Months Six Months Ended June 30 Ended June 30 ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- GLCC Sales $419 $465 $791 $867 EBITDA 80 95 146 169 EBIT 59 74 103 127 Capital Spending 35 56 74 106 Octel Sales $133 $133 $254 $269 EBITDA 60 64 118 130 EBIT 48 54 95 111 Capital Spending 2 -- 5 3
NOTES: (1) EBIT - Earnings before net interest, income taxes and minority interest (2) EBITDA - Earnings before net interest, income taxes, depreciation, amortization and minority interest 9 11 (3) Effective Income Tax Rate - On a proforma basis, the effective income tax rate for GLCC is approximately 33 percent and Octel is approximately 35 percent. FORWARD LOOKING STATEMENT This report contains forward looking statements involving risk and uncertainties that effect the company's operations as discussed in the 1996 annual report on Form 10-K filed with the Securities and Exchange Commission. Accordingly, there is no assurance that the company's expectations will be realized. 10 12 GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------- NOTE A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position and results of operations. It is management's opinion, however, that all material adjustments (consisting of normal recurring accruals) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. NOTE B - Income Taxes The provision for income taxes at the effective tax rates reconciles with the statutory U.S. Federal tax rate as follows:
Six Months Ended June 30 ---------------- 1997 1996 ---- ---- Statutory U.S. Federal tax rate 35.0% 35.0% Decrease in taxes relating to various minor items (.5) (1.0) ---- ---- 34.5% 34.0% ==== ====
NOTE C - Subsequent Event The company's Board of Directors approved a plan to spin off its petroleum additives business effective July 16, 1997. The transaction will be carried out in the form of a tax-free distribution to shareholders. 11 13 PART II. Other Financial Information ITEM 6. Exhibits and Reports on Form 8-K The Company did not file, nor was it required to file, a Form 8-K because of a change in independent auditors or because of any material unusual charges or credits to income occurring during the quarter for which this report was filed. SIGNATURES Pursuant to the requirements of the Securities Exchange act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date August 4, 1997 By /s/ Robert T. Jeffares ------------------------ ------------------------- Robert T. Jeffares Executive Vice President and Chief Financial Officer Date August 4, 1997 By /s/ Robert J. Smith ------------------------ ------------------------- Robert J. Smith, Controller 12 EX-27 2 FDS
5 6-MOS DEC-31-1997 JUN-30-1997 228,269 0 514,176 8,626 412,031 1,186,570 1,463,040 592,096 2,669,958 449,498 569,854 0 0 72,491 1,370,100 2,669,958 1,043,363 1,059,090 710,402 836,569 18,700 (492) 14,640 175,959 60,700 115,259 0 0 0 115,259 1.91 1.91
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