ITEM 1. BUSINESS
(a) General Development of Business. The general development -------------------------------- of the registrant's business for the fiscal year ended October 31, 1994, is set out in the registrant's 1994 Annual Report to Stockholders on pages 1 through 5 and is incorporated by reference herein. No material changes in the registrant's mode of doing business occurred during the five years ended October 31, 1994.
(b) Financial information about Industry Segments. Industry ---------------------------------------------- segment data is set out in the registrant's 1994 Annual Report to Stockholders on pages 13-14 under the caption "1994 Operating Results", page 17 under the caption "Industry Segment Data", page 18 under the caption "Worldwide Operations" and page 28 under the caption "Segment Information", and is incorporated by reference herein.
(c) Narrative Description of Business. ----------------------------------
1) Specialty Chemical Segment. Specialty chemicals are --------------------------- produced primarily from petrochemicals and petroleum derived raw materials, and include demulsifiers, corrosion inhibitors, drilling fluids, polymers and waxes, water treating chemicals, and fuel and other additives. Sales for the three major product groupings within the specialty chemical segment (oil field chemicals, industrial chemicals, and industrial polymers and waxes) for the three fiscal years through October 31, 1994, are summarized in the 1994 Annual Report to Stockholders on page 17 under the caption "Industry Segment Data" and is incorporated by reference herein.
Registrant markets its products and services primarily to producers and transporters of crude oil and natural gas, related service companies and petroleum refineries throughout the world through the registrant's own field staff and a limited number of agents and distributors. The registrant also serves other major markets such as adhesives, agribusiness, coatings, packaging, petrochemicals, plastics fabrication, power utilities, and printing inks.
During the fiscal year ended October 31, 1994, there were no material changes in the kinds of products or services rendered, or in the markets or methods of distribution by registrant. It is the continuing nature of the business for a number of new or improved products to be introduced annually; typically, no individual new product or service is immediately material to sales or earnings.
Registrant's joint business alliance with Energy BioSystems Corporation (EBC) continues to make steady progress in its efforts to commercialize a breakthrough biocatalytic desulfurization (BDS) process for hydrocarbons. Registrant's participation will include 22% of EBC's worldwide gross profits from biodesulfurization unit sales and fees. In return, registrant will provide development resources, separation technology, engineering know-how and ongoing customer service for all BDS units worldwide.
Registrant is dependent on the availability of petrochemicals and petroleum-derived raw materials and supplies, which have been available in the past in adequate quantities. In the past year, registrant's operations were not affected materially by any raw material shortages. Registrant presently does not foresee any shortage of materials in the near future.
Registrant has numerous patents, patent applications, and licenses under patents, of various durations which, in the aggregate, are material to the operation of the registrant. The registrant, however, does not believe that expiration of any particular patent or group thereof would have a material adverse effect upon its business as a whole.
The specialty chemical business is not considered to be seasonal.
The registrant traditionally has carried sufficient inventory at various stages of production in order to respond quickly to the needs of its customers. Accounts receivable generally are due within thirty days of invoicing, and letters of credit are employed when deemed appropriate. The registrant believes that its practices are consistent with industry standards.
Registrant's customers are located throughout the world and no one customer constitutes more than 10% of the registrant's business.
Foreign operations account for a significant portion of the registrant's specialty chemical business. Non-U.S. revenues were approximately 32% to 33% of total specialty chemical revenues during each of the last three years.
Orders from customers for specialty chemical products generally are filled from stock or manufactured within a few days or weeks after receipt of the order and, as a result, backlog of orders is not significant in relation to total annual dollar volume of sales.
The registrant's specialty chemical product lines, oil field chemicals, industrial chemicals, and industrial polymers and waxes are in competition with a number of manufacturers. Competitive companies vary in size from large international companies to small companies which may compete with the registrant in the sale of one product or a line of products. All aspects of this business are considered to be very competitive. Registrant is recognized as a leader in providing services and products to the oil field chemical market. In the registrant's opinion, registrant's overall competitive position in the market has not changed materially in the past fiscal year, although registrant is unable to predict the extent to which its business may be affected by future competition or by consolidations within the industry. Information on acquisitions, joint ventures, and alliances made by the registrant is set out in the registrant's 1994 annual report on page 15 under the caption "Acquisitions, Joint Ventures, and Alliances" and is incorporated by reference herein.
2. Equipment Segment - The equipment segment designs, ----------------- installs and services processing equipment for petroleum, petrochemical and electrical power generating industries. Products and services are marketed both domestically and in foreign countries through the registrant's own field staff and a limited number of agents and distributors.
During the past year the registrant has not had, and in the foreseeable future does not anticipate, any shortage of raw materials.
Certain products of the equipment segment are covered under patents, patent applications, and licenses under patents. Registrant does not believe that expiration of any particular patent or group thereof would have a material adverse effect upon its business as a whole.
The equipment segment business is not seasonal, but is subject to the business cycles of the industries which it serves.
This segment primarily produces processing equipment upon order from customers. Accounts receivable generally are due within thirty days of invoicing, and letters of credit are employed when deemed appropriate. The registrant believes that its practices are consistent with industry standards.
Registrant's equipment customers are located throughout the world and no one customer constitutes a significant portion of the registrant's business on a continuing basis. However, one or several equipment contracts may represent a significant portion of the equipment segment revenues in a particular year.
Foreign operations account for a significant portion of the registrant's equipment business. Non-U.S. revenues ranged from 43% to 69% of total equipment revenues during the last three years.
The amount of backlog orders for the equipment segment at October 31, 1994, approximates $11.1 million. Substantially all of these orders are expected to be completed in fiscal 1995. Backlog orders as of October 31, 1993 were $11.5 million.
The equipment segment is in competition with similar equipment and services offered by other competitors. Although, in registrant's opinion, registrant's competitive position in its equipment business has not changed materially in the past year, the registrant is unable to predict the extent to which its business may be affected by future competition.
3. Registrant's Business in General - The registrant expended -------------------------------- $12,737,000, $13,587,000, and $12,224,000, in fiscal years 1994, 1993 and 1992, respectively, on research activities relating to development of new products and services, and on improvement of existing products and services. During the last three years, approximately 94% to 96% was applicable to the registrant's specialty chemical products segment. The registrant also continued its strong commitment to technology by continuing to increase its emphasis on field applications support which, when combined with the research and development amounts, resulted in total technology expenditures of $23,267,000, $24,444,000, and $21,764,000 in fiscal years 1994, 1993 and 1992, respectively. The registrant directly sponsors substantially all of its research activities.
The registrant is subject to various federal, state and local laws and regulations concerning environmental matters. The registrant maintains a separate Safety, Health and Environmental Affairs Department charged with the responsibility of monitoring compliance with these various laws and regulations. For fiscal year 1994, these efforts did not result in any material capital expenditure or material charges to income, and it is not likely that these efforts will result in any material capital expenditure or material charges to income during fiscal year 1995.
Approximately 1,780 persons are employed worldwide by registrant and its subsidiaries.
(d) Financial Information About Foreign and Domestic ------------------------------------------------ Operations and Export Sales. Information under this caption is - ---------------------------- included in the registrant's 1994 Annual Report to Stockholders for each of the three years ended October 31, 1994, 1993, and 1992, respectively, on page 18 under the caption "Worldwide Operations" and is incorporated by reference herein.
Substantially all of the registrant's non-U.S. sales are made to major international companies, national oil companies and utilities, and contractors and distributors of long standing. Letters of credit are required when and where appropriate. The risk attendant to the foreign business conducted by registrant and its subsidiaries is believed to be
greater than the risk involved in doing business within the United States. The registrant protects itself from potential losses due to foreign currency fluctuations through pricing adjustments, maintenance of offsetting asset and liability balances, and utilization of foreign currency futures contracts when deemed appropriate.
ITEM 2.
ITEM 2. PROPERTIES
All properties are owned by the registrant, except for the following:
Registrant sold the Pasadena, Texas specialty chemical manufacturing facility on December 15, 1994.
Sales office facilities located at 16010 Barker's Point Lane, Houston, Texas, are leased under an agreement which expires April 14, 1997.
Petrolite Saudi Arabia Ltd. blending facilities are located on leased properties with the lease expiring 2002.
Petrolite Pacific Pte. Ltd. blending facilities are located on leased properties with the lease expiring 2009.
P.T. Petrolite Indonesia Patrama manufacturing facilities are located on leased property with the lease expiring in October, 2015.
In addition to the foregoing properties, the registrant and its subsidiaries occupy a number of small general and sales offices under short-term leases and its subsidiaries occupy a number of distribution warehouses located on small sites owned in fee.
Although facilities are of varying ages, the registrant considers them generally to be well maintained, equipped with modern and efficient equipment, and in good operating condition. Current productive capacity is adequate to meet demands for the immediate future.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Various claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business are pending against the registrant. Management and legal counsel are of the opinion that any sum the registrant may be required to pay in connection with the ultimate disposition of such proceedings in excess of the amounts recorded or disclosed in the financial statements of the registrant will not have a material adverse effect on its financial condition or results of operations.
The registrant has been named a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 with
respect to three "Superfund" sites. The registrant has not owned or operated any of the sites and other PRPs also have been so designated with respect to all such sites. Although this law technically imposes joint and several liability on each responsible party at each site, the extent of the registrant's expected financial contribution is expected to be limited based on the number of other PRPs and the relative volumes and types of materials involved at each site that may be attributable to the registrant. The registrant also is involved in remedial response and voluntary environmental cleanup, in some cases under the direction of governmental agencies, at other locations which are not the subject of the Superfund law. Subject to the difficulty in estimating future environmental costs, the registrant expects that any sums it may be required to pay in connection with such environmental matters in excess of the amounts recorded in the financial statements of the registrant will not have a material adverse effect on its financial condition or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of fiscal 1994.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding registrant's capital stock appears on page 16 of the registrant's 1994 Annual Report to Stockholders under the caption "Stockholders' Equity/Capital Stock" and is incorporated by reference herein. As of January 6, 1995 the registrant had 2,194 stockholders of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
A summary of selected financial data for the five years ended October 31, 1994 appears on pages 30 and 31 of the registrant's 1994 Annual Report to Stockholders under the caption "11-Year Summary", and is incorporated by reference herein.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information under this caption is in the registrant's 1994 Annual Report to Stockholders on pages 13 through 18, under the caption "Financial Review", and on page 24 under the captions "Short-Term Borrowings and Lines of Credit", and "Long-Term Debt" and is incorporated by reference herein.
During the fourth quarter, the registrant announced its plan to complete its program to cease manufacturing at its Webster Groves, Missouri facility by October 31, 1995. For additional information, see the caption "Reorganization" on page 26 of the registrant's 1994 Annual Report to Stockholders.
During fiscal 1994, inflation for both North America and the United Kingdom, which represent a significant part of the registrant's worldwide operations, approximated 2 1/2%. Inflation in other countries of less significance to the registrant generally ranged from 1 1/2% to 9%, except for certain countries in Latin America which experienced much higher inflation rates. Raw material price increases experienced by the registrant approximated the inflation rate in North America and increased only nominally in the United Kingdom over the prior year. The downturn in the North American oilfield marketplace resulted in intense competitive pressures in 1994. These competitive pressures led to flat sales prices throughout the year. Changes in revenues were primarily a result of product volume and product mix rather than sales price adjustments.
During the first quarter of fiscal 1994, the registrant adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes." The cumulative effect of implementing this new standard was a one-time, non-cash tax credit of $2.0 million, or $0.18 per share.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements of the registrant and its subsidiaries, and the Notes to Consolidated Financial Statements, together with the report thereon of Price Waterhouse LLP dated November 30, 1994, appearing on pages 19 through 29, the "Quarterly Results" on page 14, "Industry Segment Data" on page 17, and "Worldwide Operations" information on page 18 in the registrant's 1994 Annual Report to Stockholders, are incorporated by reference herein.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the registrants three most recent fiscal years there were no changes in or disagreements with the registrants independent accountants on accounting or financial disclosure.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a) Directors of registrant - Information regarding ----------------------- identification of directors, in the registrant's Notice of Annual Meeting and Proxy Statement for the registrant's Annual Meeting of Stockholders to be held March 6, 1995, which Proxy Statement shall be filed within 120 days of the end of the registrant's fiscal year, hereby is incorported by reference. Also see information on page 32 of the registrant's Annual Report to Stockholders under the caption "Corporate Organization" which is incorporated by reference herein.
c) Identification of certain significant employees - Mr. ------------------------------------------------ Stuart Monro joined the registrant in January, 1978. After having served in various sales and managerial positions within international operations, in March of 1989 he was appointed Managing Director of Petrolite Ltd. In June 1991, he was also appointed to the position of General Manager of the newly created EuroChem Division. He holds various diplomas and degrees including a Licentiate in Chemistry and an M.B.A. degree in Management from the City University in London.
Mr. David Winslett joined Petrolite in December of 1982 with 15 years of refinery and speciality chemical experience. From 1982 to 1989 Winslett was Operations Manager for the European Industrial Chemicals business based in Kirkby, England. Since 1989, he has served in various capacities in Petrolite's St. Louis office, including Vice President in the Industrial Chemicals Division. On June 16, 1993, he was promoted to General Manager of the Industrial Chemicals Division. Winslett is a graduate of the University of Wales with a B.Sc. (Honors) in Chemistry.
Mr. Francis X. Foran joined Petrolite in April, 1993 when the company acquired the business and certain of the assets of Welchem, Inc. Foran had served at Welchem as head of international operations, and before that he served in various management positions during his 28 years' experience in the oil service industry worldwide. Foran is a graduate of University College Dublin.
d) Business experience - Information regarding business ------------------- experience of directors in the registrant's Notice of Annual Meeting and Proxy Statement for the registrant's Annual Meeting of Stockholders to be held March 6, 1995, which Proxy Statement shall be filed within 120 days of the end of the registrant's fiscal year, hereby is incorporated by reference.
Officers are elected to serve until removed or until a successor has been elected or appointed. Except as noted below, each of the officers in Item 10 (b) has served in his present office for at least five years. The following is a brief description of past positions
of those officers who were elected to their present position within the last five years.
Mr. John M. Casper joined the registrant in February, 1994 as Vice President and Chief Financial Officer. He has 25 years experience in financial and operations management, most recently as Executive Vice President with Mitek, Inc., where he was Chief Financial Officer and responsible for overseas operations in Southeast Asia, Japan, Australia/New Zealand, Africa and Canada. He holds a B.S. degree from Drexel Institute of Technology and an M.B.A. from Oklahoma State University.
Dr. Ralph J. Churchill returned to the registrant July 1, 1989 as Vice President-Corporate Development. In June 1990, he became Vice President of Technology and in January 1993, he also was named to the position of Vice President, Marketing. In December, 1993, he was appointed Vice President-Special Projects and in June, 1994, he was appointed vice president and general manager of the Tretolite Division. He served the registrant in various research and management positions before leaving in 1981 to head his own management consulting firm. He holds a Ph.D. in sanitary engineering.
Mr. William F. Haberberger joined the Registrant in October 1977, as an internal auditor. Since 1980, he has served in various financial managerial positions of the registrant's international operations until his election to Controller on March 4, 1991. He holds a B.S. degree in Business from the University of Missouri - St. Louis and is a certified public accountant.
Mr. John F. McCartney has served as Assistant General Counsel since joining the registrant in 1973, managing legal aspects of the registrants international operations, primarily working to establish subsidiaries, affiliates and joint venture companies worldwide. He was named Vice President in August 1989. During July 1992, he also assumed responsibility for the administration of the Law Department and now is Vice President, General Counsel.
Mr. Charles R. Miller joined the registrant in May 1990, as an attorney, and was elected Secretary on August 12, 1992. His title now is Corporate Secretary, Associate
General Counsel. He has fifteen years experience in the public and private practice of law, most recently as an attorney in the executive branch of Missouri state government.
Mr. William E. Nasser has been an employee of the registrant since 1962. He served as Vice President and General Manager of Petrolite's Specialty Polymers from March 1980 until May 1988, when he was elected President and Chief Operating Officer. In February 1992, he also was elected Chairman of the Board and Chief Executive Officer.
Dr. Derek Redmore joined Petrolite as a research chemist in 1965 and was promoted to group Leader in 1966. From 1972 to 1993, he held various managerial positions with increasing responsibility in Research and Development, most recently Director of Technology Support. In December 1993, he was elected Vice President, Technology. Redmore earned his B.Sc. and Ph.D. degrees in Organic Chemistry at the University of Nottingham.
Mr. Steven F. Schaab joined the registrant in November 1992, and was elected Treasurer effective January 1, 1993. He has 19 years of experience in financial and treasury management, most recently with Peabody Holding Company, Inc. A certified public accountant, he holds a B.S.B.A. degree in accounting from the University of Missouri-Columbia.
e) Compliance with Section 16(a) of the Exchange Act. -------------------------------------------------- Information regarding compliance with Section 16(a) of the Exchange Act is in the registrant's Notice of Annual Meeting and Proxy Statement for the registrant's Annual Meeting of Stockholders to be held March 6, 1995, which Proxy Statement shall be filed within 120 days of the end of the registrant's fiscal year, hereby is incorporated by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding Compensation of Executive Officers, Retirement Benefits, and Compensation of Directors is in the registrant's Notice of Annual Meeting and Proxy Statement for the registrant's Annual Meeting of Stockholders to be held March 6, 1995, which Proxy Statement shall be filed within 120 days of the end of the registrant's fiscal year,
hereby is incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding Security Ownership of Certain Beneficial Owners and Management is in registrant's Notice of Annual Meeting and Proxy Statement for the registrant's Annual Meeting, to be held March 6, 1995, which Proxy Statement shall be filed within 120 days of the end of the registrant's fiscal year, hereby is incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Certain Transactions is in registrant's Notice of Annual Meeting and Proxy Statement for the registrant's Annual Meeting, to be held March 6, 1995, which Proxy Statement shall be filed within 120 days of the end of the registrant's fiscal year, hereby is incorporated by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The consolidated financial statements and supplementary information of the registrant have been incorporated by reference under Item 8. With the exception of the aforementioned information, and the information incorporated specifically in Items 1, 5, 6, 7, 8, 10, and 14, the Petrolite Corporation 1994 Annual Report is not to be deemed filed as part of this report. Financial statement schedules listed below should be read in conjunction with financial statements in the 1994 Annual Report to Stockholders. Financial statement schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or because the required information is shown in the financial statements or notes thereto.
a) Documents filed as a part of this report:
Financial Statements previously incorporated by reference under Item 8 herein above.
Consolidated statements of earnings for the years ended October 31, 1994, 1993 and 1992.
Consolidated balance sheets at October 31, 1994 and 1993.
Consolidated statements of cash flows for the years ended October 31, 1994, 1993 and 1992.
Consolidated statements of stockholders' equity for the years ended October 31, 1994, 1993 and 1992.
Notes to consolidated financial statements.
Report of independent accountants
b) No reports on Form 8-K were filed with the SEC during the fourth quarter of fiscal 1994.
Individual financial statements of the registrant's subsidiaries have been omitted since the registrant is primarily an operating registrant and the operating subsidiaries included in the consolidated financial statements, in the aggregate, do not have minority equity interest and/or indebtedness to any person other than the registrant or its consolidated subsidiaries in amounts which together exceed 5 percent of total consolidated assets at October 31, 1994. Separate financial statements of subsidiaries not consolidated, and 50% or less owned entities (accounted for by the equity method) have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary.
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.
PETROLITE CORPORATION ---------------------
(Registrant)
By s/ John M. Casper ------------------------- John M. Casper Vice President and Chief Financial Officer
Dated: January 26, 1995 ---------------------------------------
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.