Item 1. BUSINESS
GENERAL
Great Lakes Chemical Corporation is a Delaware corporation incorporated in 1933, having its principal executive offices in West Lafayette, Indiana. The Company's operations consist of one dominant industry segment - chemicals and allied products. Within this segment the Company is well diversified focusing on performance chemicals, water treatment chemicals, petroleum additives and specialized services and manufacturing. The Corporate profile on page 3 and the Review of Operations on pages 14 through 19 of the 1994 Annual Report to Stockholders are incorporated herein by reference.
The term "Great Lakes" as used herein means Great Lakes Chemical Corporation and Subsidiaries unless the context indicates otherwise.
Net sales by Business Unit are set forth in the following table (dollars in millions):
PRODUCTS AND SERVICES
The following is a list of principal and certain other products and services provided by Great Lakes:
1994 DEVELOPMENTS
The Review of Operations on pages 14 through 19 of the 1994 Annual Report to Stockholders are incorporated herein by reference.
Raw Materials
The sources of essential raw materials for bromine are the brine from company-owned wells in Arkansas and sea water extraction plants in Europe. The Arkansas properties are located atop the Smackover lime deposits, which constitute a vast underground sea of bromine-rich brine. The area between ElDorado and Magnolia, Arkansas, (located about 35 miles west of ElDorado) provides the best known geological location for bromine production and both major domestic bromine manufacturers are located there. Based on projected production rates, the Company's brine reserves are conservatively estimated to be adequate for the foreseeable future.
Furfural is extracted from agricultural by-products and waste materials such as corncobs, sugar cane bagasse, rice hulls and oat hulls for which there are few alternative uses. These raw material sources for furfural production are expected to remain abundant and relatively inexpensive. Other materials used in the chemical processes are obtained from outside suppliers through purchase contracts. Supplies of these materials are believed to be adequate for the Company's future operations.
International Operations
Great Lakes has a substantial presence in foreign markets. The Company's investment in foreign countries is principally in Western Europe and represents $1,073 million or 51 percent of total assets.
Sales to customers in foreign countries (primarily Europe and the Far East) amount to 64, 62 and 61 percent of total sales for the years ended December 31, 1994, 1993, and 1992, respectively. Approximately 15, 15, and 19 percent of these foreign sales, respectively for the three years shown, are products exported from the U.S., with the balance of the Company's international sales primarily being products manufactured and sold by the Company's European subsidiaries and branches. The profitability on foreign sales (including U.S. exports and foreign manufactured products, except Octel) approximates those for domestic operations. Because of value-added pricing, Octel's alkyl lead products have a higher profitability than do most of the Company's other products.
The geographic segment data contained in the note "Industry Segments and Foreign Operations" of Notes to Consolidated Financial Statements on page 37 of the 1994 Annual Report to Stockholders is incorporated herein by reference.
Customers and Distribution
During the last three years, no single customer accounted for more than 10 percent of Great Lakes' total consolidated sales. The Company has no material 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 merchandizers 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. In addition, there are several small producers in the U.S. and overseas which are competitors in several individual products. The Company is the only U.S. producer of furfural and furfuryl alcohol, and it enjoys a significant market portion in every major geographic and product market in which it competes. The Company is a major producer of alkyl lead. The Company competes with several manufacturers and distributors of swimming pool and spa chemicals and equipment. Through its Bio-Lab subsidiary, the Company operates 43 branch distribution outlets for chemicals and pool and spa equipment in the U.S. Products are differentiated by brand names to the retail, wholesale and mass merchandising markets.
Principal methods of competition are price, product quality and purity, technical services and ability to deliver promptly. The Company is able to move quickly in providing new products to meet identified market demands, and believes its production costs are among the lowest in the world. These factors, combined with high technical skills, allow the Company to compete effectively. One negative factor in its ability to compete with the major overseas producer of bromine is the fact that this producer receives significant subsidies from its government, and enjoys favorable duty advantages on its exports to certain markets.
Seasonality and Working Capital
The products, which the Company sells to the agricultural and swimming pool markets, exhibit some seasonality; however, the effect on overall Company sales and profits is not material. 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 alkyl lead products have somewhat larger working capital requirements than do the Company's other major products, because of extended distribution lines and credit terms for large volume refinery customers.
The effect of the above items on working capital requirements is not material.
Research and Development and Patents
Research and development expenditures are included in the note "Research and Development Expense" of the Notes to Consolidated Financial Statements on page 37 of the 1994 Annual Report to Stockholders and is incorporated herein by reference. The Company holds no patents, licenses, franchises or concessions which are essential to its operations.
Environmental and Toxic Substances Control
The Company recognizes its responsibility for the sound environmental management of its businesses and operations. In partial fulfillment of this responsibility, the Company has subscribed to the comprehensive environmental stewardship program developed by the Chemical Manufacturers Association known as Responsible Care.
The Company is in material compliance with all environmental laws and regulations to which it is subject.
Employees
The Company has approximately 7,900 employees.
Item 2.
Item 2. PROPERTIES
Great Lakes has plants at 32 locations in 13 states and 15 plants in 9 foreign countries. Most principal plants are owned. Listed under Item 1 above in a table captioned Products and Services are the principal locations at which products are manufactured, distributed or marketed.
The Company leases warehouses, distribution centers and space for offices throughout the world. All of the Company's facilities are in good repair, suitable for the Company's businesses, and have sufficient space to meet present marketing demands at an efficient operating level.
Item 3.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings involving the Company, its subsidiaries or any of its properties. Furthermore, no director, officer or affiliate of the Company, or any associate of any director or officer is involved, or has a material interest in, any proceeding which would have a material adverse effect on the Company.
Item 103 of Regulation S-K requires disclosure of administrative or judicial proceedings arising under any federal, state or local provisions dealing with protection of the environment, if the monetary sanctions might exceed $100,000. The following proceeding may result in sanctions exceeding $100,000.
In 1993, the Company and the United States Environmental Protection Agency agreed in principle to settle an action brought by the EPA under Section 15(1)(c) of TOSCA for a payment of $125,000 and the performance of $2,000,000 of environmentally beneficial capital projects at the Company's ElDorado, Arkansas, site. The proposed consent decree states that the Company does not admit the allegations made by the EPA.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter ended December 31, 1994.
PART II
Item 5.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 6, 1995, there were approximately 4,900 registered holders of Great Lakes Common Stock. Additional information is contained in the 1994 Annual Report to Stockholders, under the captions "Stock Price Data" and "Cash Dividends Paid" on page 25 all of which are incorporated herein by reference.
Item 6.
Item 6. SELECTED FINANCIAL DATA
This information is contained in the 1994 Annual Report to Stockholders, under the caption "Financial Review" on pages 26 and 27, and is incorporated herein by reference.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 21 through 25 of the 1994 Annual Report to Stockholders, is incorporated herein by reference.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements together with the report thereon of Ernst & Young LLP dated January 30, 1995, appearing on pages 28 through 38 and the "Quarterly Results of Operations" on page 39 of the 1994 Annual Report to Stockholders, are incorporated herein by reference.
Item 9.
Item 9. DISAGREEMENT OF ACCOUNTING AND FINANCIAL DISCLOSURE
No change of auditors or disagreements on accounting methods have occurred which would require disclosure hereunder.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
Information with respect to directors of the Company is contained under the heading "Proposal One: Election of Directors" in the Great Lakes' Proxy Statement relating to the 1995 Annual Meeting of Stockholders dated March 4, 1995, which is incorporated herein by reference.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation and Other Information" in the 1995 Proxy Statement is incorporated by reference in this report.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the heading "Security Ownership of Certain Beneficial Owners and Management" in the 1995 Proxy Statement is included by reference in this report.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Compensation Committee Interlocks and Insider Participation" in the 1995 Proxy Statement is included by reference in this report.
PART IV
Item 14.
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 January 30, 1995, appearing on pages 28 through 38 of the 1994 Annual Report to Stockholders, are incorporated by reference in Item 8:
Consolidated Balance Sheets - December 31, 1994 and 1993 Consolidated Statements of Income and Retained Earnings - Years ended December 31, 1994, 1993, and 1992 Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993, and 1992 Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following additional information is filed as part of this report and should be read in conjunction with the 1994 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.
3. Exhibits
13. 1994 Annual Report to Stockholders 21. Subsidiaries - Incorporated herein by reference is the list of subsidiaries appearing on page 40 of the 1994 Annual Report to Stockholders 23. Consents of Independent Auditors
(b) Reports on Form 8-K
There were no Form 8-K's filed during the quarter ended December 31, 1994.
(c) Exhibits
The response to this section of Item 14 is submitted as a separate section of this report.
(d) Financial Statement Schedules
The response to this section of Item 14 is submitted as a separate section of this report.
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 6, 1995 /s/ Robert B. McDonald ------------------------------------- Robert B. McDonald, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SCHEDULE II
GREAT LAKES CHEMICAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1994
(A) Reserve balance of Bayrol and Lowi at date of acquisition. (B) Uncollectible accounts receivable written off, net of recoveries and foreign currency translation.