EXHIBIT 13
FINDING BETTER SOLUTIONS
Crompton Corporation, is a global producer and marketer of specialty chemicals
and polymer products and equipment. The company has about 8,300 employees in
research, manufacturing, sales, and administrative facilities in every major
market around the world.
Available in 120 countries, our products and services solve customer problems
and add value to customers' products. Our 113 million shares of common stock are
traded on the New York Stock Exchange under the symbol CK. Up-to-date
information about the company is available at www.cromptoncorp.com. The
interactive version of this report is at www.cromptoncorp.com/ar2000.
The company has six primary business segments divided into two groups:
POLYMER PRODUCTS
POLYMER ADDITIVES
The largest worldwide producer of heat stabilizers for polyvinyl chloride. A
leading worldwide producer of additives for plastics and rubber.
KEY PRODUCTS Plastics additives include alkyls, amides, stearates, white oils,
heat stabilizers, plasticizers, lubricants, olefin additives, tin specialties,
antioxidants, antistats, polymer modifiers, foaming agents, polymerization
inhibitors, chemical intermediates, curatives, and dispersants. Rubber chemicals
include antioxidants, antiozonants, accelerators, blowing agents, and
miscellaneous specialty products. Urethane chemicals include polyester polyols,
polyurethane dispersions, microcellular systems and silicones. Markets Served
Products are sold to producers, compounders, extruders, and molders of vinyl,
rubber, styrenics, polyolefins, and fiberglass. Rubber and plastic applications
in construction, automotive, transportation, tires, packaging, flooring, and
synthetic fibers. Coatings and adhesives for industrial and marine uses.
POLYMERS
The number one world supplier of castable urethane prepolymers. The number one
manufacturer of EPDM in North America. World's largest dedicated nitrile rubber
production facility.
KEY PRODUCTS Abrasion- and wear-resistant castable urethane prepolymers. Heat-,
sunlight- and ozone-resistant EPDM rubber. Oil-resistant nitrile rubber
polymers.
MARKETS SERVED Urethane end products include industrial and printing rolls,
mining machinery and equipment, mechanical goods, solid industrial tires &
wheels, and sporting/recreational goods. EPDM is used in numerous automotive
applications as well as in roofing, hose, wire & cable insulation, and
construction. Nitrile rubber is used in automotive hoses, seals, O-rings, and
other consumer and industrial applications.
POLYMER
PROCESSING EQUIPMENT
The number one worldwide producer of plastics and rubber extruders and extrusion
systems.
KEY PRODUCTS
Integrated single-screw, twin-screw and compounding extruders, and extrusion
systems with advanced electronic controls.
MARKETS SERVED
Packaging, automotive, construction, appliance, medical, power & communications
cables, plastics.
SPECIALTY PRODUCTS
ORGANOSILICONES
World's leading supplier of specialty silicones and organofunctional silanes
serving a wide variety of industrial and consumer markets.
KEY PRODUCTS
Silane coupling agents and adhesion promoters. Silicone surfactants, foam
control agents and other specialty silicones. Urethane foam additives, including
surfactants and catalysts.
MARKETS SERVED
Rubber, coatings, fiberglass, adhesives & sealants used for automotive,
transportation and tires, construction, and other industrial applications.
Urethane foam for automotive, appliances and construction. Textiles and
non-wovens, agriculture, personal care.
CROP PROTECTION
A world leader in seed treatment products, with the largest seed treatment
company in North America, our Gustafson joint venture with Bayer Corporation.
KEY PRODUCTS
Fungicides, miticides, insecticides, herbicides, growth regulants, seed
treatments, and surfactants.
MARKETS SERVED
Focus on high-value crops such as fruits, nuts, cotton, turf, and ornamentals.
Seed treatments cross all major crop segments and geographies.
OTHER SPECIALTIES
A leading global supplier of components serving the fuels and lubricants
industry. World's leading supplier of white oils and petrolatums to the personal
care industry. Leading North American producer of industrial dyes.
KEY PRODUCTS
Petroleum and lubricant additives. USP white mineral oils, petrolatums,
microcrystalline waxes, cable-filling compounds. Industrial dyes. Fatty acids
and glycerines.
MARKETS SERVED
Petroleum and lubricant additive components for automotive, marine and
metalworking. Paper, coatings, inks, and film. Personal care, household, and
institutional.
FINANCIAL HIGHLIGHTS
(In thousands of dollars, except graph and
per share data) (a) 2000 1999
- --------------------------------------------------------------------------------
Net sales $3,038,430 $ 2,092,358
Operating profit $ 268,335 $ 1,383
Interest expense $ 120,476 $ 69,833
Net earnings (loss) $ 89,273 $ (175,038)
Basic earnings (loss) per share $ .78 $ (2.10)
Diluted earnings (loss) per share $ .78 $ (2.10)
Total assets $3,528,327 $ 3,726,618
Total debt $1,506,823 $ 1,390,974
Stockholders' equity $ 753,976 $ 759,912
Operating profit, EBITDA and net earnings before
special items (refer to page 38) are as follows:
EBITDA before special items $ 468,015 $ 335,843
Operating profit before special items $ 291,483 $ 225,901
Net earnings before special items $ 104,273 $ 94,988
<FN>
(a) The 1999 amounts include the results of operations of Crompton & Knowles
Corporation for the twelve months ended December 1999 and the results of
operations of Witco Corporation for the months of September through
December 1999. The 1996 to 1998 amounts represent the results of Crompton &
Knowles Corporation.
</FN>
[GRAPHIC DELETED HERE]
(a) The 1999 amouhnts include the results of operations of Crompton & Knowles
Corportion for the twelve months ended Decmeber 1999 and the results of
operations of Witco Corporation for the months of September through December
1999. The 1996 to 1998 represent the results of Crompton & Knowles Corporation.
1
FELLOW SHAREHOLDERS
Our first full year as the new Crompton Corporation was both satisfying and
disappointing. While I am pleased to report that we made significant progress in
achieving our company's strategic objectives in 2000, I regret to report that we
did not meet our financial performance targets for the year.
We were successful in restructuring, strengthening and integrating our core
businesses to reduce costs, improve efficiencies and to assure their long-term
success. External factors, including an unprecedented surge in energy and raw
materials costs, together with unfavorable foreign currency shifts, masked much
of our company's progress for the year.
STRONG OPERATING PERFORMANCE
Our net sales in 2000 were $3.04 billion, slightly below the prior year's
adjusted sales of $3.09 billion. However, excluding the impact of foreign
currency translation, sales for the year increased by one percent. Operating
profit before special items of $291.5 million in 2000 was up four percent from
adjusted 1999 operating profit of $281.6 million. Net earnings before special
items were $104.3 million, or 91 cents per share, excluding a plant closing
charge. Including this after-tax charge of $15 million, net earnings were $89.3
million, or 78 cents per share, in 2000, compared to a net loss of $175 million,
or $2.10 per share in 1999, the year Crompton & Knowles and Witco Corporation
merged to form the new Crompton Corporation.
External factors -- rising raw material and energy costs, and the impact of
negative foreign currency, especially the Euro -- impacted us by $60 million in
2000, fully offsetting the $60 million in savings we promised and delivered
through our worldwide merger synergy cost- reduction program. In fact, without
these external factors, our company's performance last year would have been in
line with original financial forecasts for earnings per share of $1.20, a full
29 cents per share higher than we reported.
CUSTOMER FOCUS
Our ability to hold sales and to post operating profit gains before special
items in 2000 -- while we integrated, consolidated and restructured our
businesses and product lines in a difficult environment -- is testament to
Crompton's 8,300 employees. They truly understand and have worked to implement
our company's guiding principle that customers come first. They are dedicated to
combining the most advanced and differentiated technical offerings with the most
creative and responsive applications experts to provide our customers with not
just products, not just services, but genuine solutions that help them succeed.
This commitment is embodied in our corporate tag line: Crompton -- Finding
Better Solutions, and it guides our thinking in everything we do.
STRATEGIC FOCUS
During 2000 we completed a strategic review of all of our businesses. We
examined market positions, technological strengths, production advantages, and
new product- development opportunities. We also measured every business against
financial yardsticks which would qualify them as true specialty chemical
businesses with superior operating profit margins, growth and returns on
capital. Finally, we studied the degree to which our operating businesses
complemented each other and would help drive our unifying corporate objective of
Finding Better Solutions.
The results are compelling. Our businesses are uniquely positioned to serve
key end-use industries with a breadth of technology, expertise and market
coverage unmatched by other suppliers. From automotive and transportation, to
the construction/home furnishings markets, from agriculture to packaging and
apparel, Crompton adds value and offers distinct advantages for our customers
with performance-enhancing products. These capabilities, supported by specific
examples of successful partnering with customers, are briefly illustrated in the
individual business review sections of this report, and are discussed more
extensively on our corporate web site www.cromptoncorp.com.
GROWTH
To support our businesses and to reinforce their growth potential, in 2000 we
invested $155 million in capital projects primarily to expand capacity, improve
production efficiencies and maintain environmental standards. Our largest single
investment was $50 million for
2
increased production of silanes at our facility in Termoli, Italy. This
capacity, due to come on-stream this spring, will enable us to meet strong
demand from key customers who produce the newest generation of energy-efficient
tires. Our 2001 capital budget of $155 million will continue to support growth
plans in our core businesses.
In line with our strategy to focus resources on the core businesses with
the greatest sustainable competitive advantage, in 2000 we initiated the process
of divesting our Industrial Surfactants and Refined Products businesses. The
proceeds will be used primarily to repay debt and to repurchase stock.
Our accomplishments in 2000 were significant:
We integrated our operating businesses to achieve maximum merger synergies and
efficiencies in production, marketing and sales, saving $60 million in costs on
an ongoing basis;
We completed a strategic review of our businesses, identifying core operations
and initiated divestments to monetize non-strategic assets;
We closed and consolidated less-efficient facilities;
We restructured management systems to push down decision making, authority and
accountability, improving customer responsiveness;
We regained customers and extended our market reach;
We harmonized pay, benefits and incentive compensation packages in the merged
corporation to align the interests of our employees with those of our
shareholders;
We invested for growth; and
Our operations performed strongly in
an unusual and difficult year.
CONFIDENT OUTLOOK
These achievements reinforce our confidence that we are on course with our
strategic initiatives and that our business and market actions will enable us to
meet our objectives. Our primary goal is to deliver consistent top- line growth
accompanied by sustainable annual earnings per share growth of 10% over the long
term. We're equally confident that we will meet our long-term objective of
increasing our return on capital employed to 15% within five years.
While we are focused on accelerating Crompton's growth through coordinated
marketing and customer service efforts, we remain concerned about the worldwide
economic outlook. Present conditions do not permit us to think otherwise, as
energy and raw material costs remain unusually high and currencies remain
volatile. While lower interest rates could be expected to stimulate a resumption
of economic growth, we will continue to seek and identify more opportunities for
cost reductions, improved capital utilization and increased efficiencies
throughout our organization while working to enhance our company's effectiveness
in the marketplace.
We believe that our dedication to hands-on management, combined with a
strategy of employee empowerment and customer focus will, in the long term,
create significant shareholder value. We appreciate and value your support and
will keep you informed of our progress.
Respectfully yours,
/s/ Vincent A. Calarco
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
March 12, 2001
3
Beginning in 2003, European environmental regulations will limit the use of
lead-based heat stabilizers that until now have been crucial to the manufacture
of polyvinyl chloride construction pipe. Crompton has patented new technology
for an organic-based, heavy-metal-free product that is more environmentally
sound than lead-based products. New capacity is being added at the Lampertheim,
Germany plant.
For more on this success story, visit us at www.cromptoncorp.com/ar2000
KEY DEVELOPMENTS OF 2000
Organic-based stabilizers introduced in Europe to replace metal-based
stabilizers in production of PVC pipe. Expanding production capacity for
market-leading product that is an environmentally sound alternative to
lead-based stabilizers.
Brought online upgraded stearate lubricant production in Memphis, Tennessee for
plastics markets.
Closed Freeport, Bahamas antioxidant plant, transferring production to other
facilities. Move resulted in significant ongoing operating cost savings.
With one of the most extensive POLYMER ADDITIVES lines serving the polymer
industry, Crompton enables producers, compounders, extruders, and molders to
meet the growing demand for better and more environmentally friendly products.
Our products are key to the development of new materials such as engineered
plastics and nanocomposites that bring lighter, stronger, safer, and more
economical materials to construction, transportation and other global markets.
Royaltuf(R) modified EPDM toughens engineered thermoplastics. Polybond(R)
coupling agents are critical to the production of advanced composites.
Production of these materials represents the fastest-growing segments of the
specialty chemicals industry.
We are the world's largest producer of value-added polymer chemicals for
polyvinyl chloride, with a complete line of metal and metal-free vinyl heat
stabilizers. Our lubricants, plasticizers and other products solve PVC
manufacturing challenges and improve the characteristics of PVC products. Our
new line of organic-based stabilizers is leading the industry in providing PVC
makers with an innovative solution to mounting environmental challenges.
Our products for the olefins and styrenics markets are used in every stage
of the manufacturing process from monomer stabilization to polymerization to
compounding to fabrication. New grades of Naugard(R) inhibitors, polymer
modifiers and antioxidants are helping speed the expansion of plastics into
developing global markets. Polybond(R) coupling agents with enhanced performance
characteristics make possible new materials in advanced markets such as wire and
cable insulation and wood-filled compounds.
We have been a world leader in rubber chemicals for over a century and have
a comprehensive line of more than 100 different products used in rubber
processing. Our Flexzone(R) antiozonants and Naugard(R) antioxidants extend the
life of rubber products from tires to wire and cable by providing protection
from ozone, oxygen, heat and light.
Global polyurethane processors depend on our urethane chemicals, including
polyester polyols and dispersions, to manufacture solid, liquid and foam
materials. Our Fomrez(R) polyester polyols are critical in flexible foams;
Witcobond(R) water-based dispersions provide hard, clear coatings for woods,
plastics, leather, and rubber; and Witcothane(R) microcellular systems provide
increased wear and light weight to footwear and industrial applications.
4
KEY DEVELOPMENTS OF 2000
Implemented strategy to expand higher-margin product applications for EPDM.
Introduced new specialty grades for use in wire and cable markets.
Expanded production of low-free TDI and PPDI castable urethanes in North
America and Europe to meet growing global demand.
Brought online world's largest nitrile rubber production facility. Mexican
facility will produce new grades of product to serve global customers.
VAIL RUBBER WORKS, INC.
Crompton's Adiprene(R) low-free TDI castable urethanes provide the "tough" in
"the tough ones come to us," the slogan of Vail Rubber. Vail's Tim Hanley
finishes industrial rolls for delivery to metal and paper manufacturers.
Aluminum makers use a series of these rolls in stretching and bending the metal
under high tension. Adiprene rolls resist cut and tear, resulting in less
downtime and lower material scrap rates.
For more on this success story, visit us at www.cromptoncorp.com/ar2000
Crompton's Adiprene(R) low-free TDI castable urethanes provide the "tough" in
"the tough ones come to us," the slogan of Vail Rubber. Vail's Tim Hanley
finishes industrial rolls for delivery to metal and paper manufacturers.
Aluminum makers use a series of these rolls in stretching and bending the metal
under high tension. Adiprene rolls resist cut and tear, resulting in less
downtime and lower material scrap rates.
For more on this success story, visit us at www.cromptoncorp.com/ar2000
Crompton is a global leader in POLYMERS, providing EPDM rubber, castable
urethane prepolymers and nitrile rubber to global markets that depend on unique
wear and durability characteristics.
We are the largest North American producer of EPDM and one of the most
experienced manufacturers in the world. EPDM or "crackless rubber" withstands
heat, sunlight and ozone without deteriorating. With three production lines
producing Royalene EPDM, we have world-class quality, high-volume capability
and production flexibility to meet the most challenging global customer demands.
We produce over 30 different types of EPDM, which has varied uses in
automotive, construction, wire and cable, and mechanical goods markets. A
typical new car has about 20 pounds of EPDM in its weather stripping, hoses,
seals, and cable. In commercial construction, EPDM is the industry standard for
roofing applications because of its 25-year life expectancy.
The use of RoyalEdge(R), a new generation of EPDM, is growing in the wire
and cable market where it is valued for improved electrical stability and
superior processing properties.
We are the world's largest supplier of castable urethanes with over 200
prepolymers in our product line. Applications for Adiprene(R)/Vibrathane(R) cast
urethane prepolymers range from industrial machinery, such as mining equipment
and printing press rolls, to sporting goods, such as golf ball covers and skate
wheels. The unique abrasion resistance and durability characteristics of our
castable urethane products are an inspiration for new applications in a wide
variety of markets.
Environmentally friendly formulations of Adiprene(R) LFTDI (low-free
toluene diisocyanate) and PPDI (para-phenylene diisocyanate) prepolymers are
showing strong growth in worldwide ultra-high performance applications, and we
have expanded plants in North America and Europe to help us meet growing
customer demand.
These innovative products are backed by our advanced manufacturing
technology such as our Ribbon Flow System(R), a moldless casting combination of
rotational casting and room temperature curing to produce high-performance
industrial rolls.
In a joint venture with DESC, a diversified Mexican chemical company, we
operate the largest dedicated nitrile rubber plant in the world, providing
oil-resistant Paracril nitrile rubber to global automotive and industrial
customers.
5
ADC TELECOMMUNICATIONS turned to us when it decided to do in-house extrusion of
guides that house fiber optic cables. As The Broadband Company(TM), ADC is a
world leader in fiber optics, network equipment and integration services to
deliver high-speed internet, data and voice services. Our Davis-Standard
systems, backed by experienced engineers, process specialists, testing and
customer training personnel, are providing ADC with the production capability
necessary to excel in highly competitive markets.
For more on this success story, visit us at www.cromptoncorp.com/ar2000
KEY DEVELOPMENTS OF 2000
Introduced advanced composite extrusion systems for high-speed production
of new wood fiber/plastic materials for the construction industry. Systems
produce lumber products that are 40 percent polymer for longer life and ease of
maintenance.
Assisted in the development of the proprietary OrganoSilicones dry silane
product for wire and cable and unique equipment-additive combination for PVC
extrusion. Processes provide impressive improvements in productivity.
Completed new blown film testing center at Somerville, New Jersey facility
and small systems testing center at Pawcatuck, Connecticut facility.
As the world's number one producer of extruders and extrusion systems for
plastics and rubber, our POLYMER PROCESSING EQUIPMENT unit rounds out our
unmatched product line to serve the polymer industry. Customers who buy our
polymers and polymer additives can also depend on Davis-Standard for the most
advanced and productive machinery available for manufacturing their products.
With a common customer base, Davis-Standard systems can be used to test new
Crompton materials, allowing us to bring both equipment and polymer products to
market faster and at lower cost than our competition.
Our integrated extrusion systems, patented feedscrew technology, and
advanced computer-based controls, are the impetus to produce rubber and plastic
extruded forms for a wide range of everyday products in packaging, construction
and automotive products. Recent advancements include our in-line systems that
combine multiple technologies into one to allow our customers to reduce
manufacturing steps and increase productivity, and our Woodtruder(TM) that
combines current wood fiber processing and plastics extrusion technology.
We continue to make advancements in feedscrew designs. We also introduced
new technology for extruding foam such as styrene to expand future applications
for the material.
In addition to single- and twin-screw extrusion systems, Davis-Standard is
a leading producer of industrial blow molding systems used to produce outdoor
furniture and toys, and extrusion coating systems for flexible packaging.
A lean manufacturing program has been implemented to free up capital and
other resources while improving productivity. We continue to work with our
customers to develop complete process solutions. To ensure quality, our assembly
specialists, who have an intimate knowledge of our product, verify that each
system is properly wired and tested before it leaves our plant, and then travel
to our customer's site to reassemble and install the system.
We have patents pending on several new product developments. We have
introduced a new low-temperature gear extruder for elastomer processing that is
showing significant reduction in scrap rates. We have made several advancements
in solid and foam processing technology for the data communications cable
industry.
6
KEY DEVELOPMENTS OF 2000
Commenced $50 million expansion of silanes production capacity at
Termoli, Italy facility to meet growing demand from greentyre manufacturers.
This is second commercialization of new process that reduces waste and
eliminates chlorides.
Initiated expansion of silanes capacity at Sistersville, West Virginia
plant to serve expanding North American markets.
Secured five-year silanes contract with largest supplier of clearcoat
finishes to the automotive industry. Clearcoat is finishing application
providing durable, high-gloss to vehicles.
ORGANOSILICONES offers more than 500 silicone-based chemical products to
worldwide customers whose success depends on the product characteristics that
our silanes and silicones convey. We are the world's leading supplier of
organofunctional silanes that are critical in linking organic and inorganic
materials, thus imparting outstanding adhesion, durability and abrasion
resistance properties in rubber products, coatings, adhesives and sealants,
thermoplastics and fiberglass. Our specialty silicones are active in the success
of a wide variety of products from textiles and cosmetics to pulp and paper
processing chemicals.
Our sulfur silanes cross-linkers have been instrumental in the development
of environmentally preferable greentyres. These new tires have less rolling
resistance due to the use of silica instead of carbon black in the rubber
compound. The result is improved tire life, handling and fuel economy.
Silane technology has brought equally extraordinary product advances in the
coatings industry. Our patented chemistry is used in water-based paints,
sealants, adhesives, and polymer solutions to give them the durability and
adhesive properties of solvent-based materials while not sacrificing their
convenience, ease of use and favorable environmental qualities.
In the consumer market, our Silsoft(R) organosilicone copolymers enhance
the performance of shampoos and hair conditioners. Our Magnasoft(R) brands of
organo-modified silicones allow the textile industry to provide superior
softening for high-end fabrics used in clothing, bedding and toweling.
The SAG(R) and Sentry(R) foam control additives are valued in diverse
markets such as food and beverage processing, pharmaceuticals and waste-water
treatment. Our newest foam control agent has been very successful in high-speed
pulp and paper manufacturing, allowing producers to take advantage of our better
performing and more environmentally friendly product.
Our additives serve the urethane industry with a broad range of product
offerings including Niax(R) silicone surfactants. We are known for our
problem-solving innovation in a global industry that is challenged to find more
environmentally friendly production alternatives. New surfactant technology has
been introduced in specialty urethane foam manufacturing to meet emission
requirements while using environmentally acceptable carbon dioxide in the
blowing process. In molded foam, our products improve the comfort of automotive
seating and the safety aspects of interior car parts.
SUMITOMO BAKELITE SINGAPORE
SUMITOMO BAKELITE SINGAPORE, the world's largest manufacturer of
semiconductor encapsulating compounds, employs organosilicone products as key
components in epoxy molding compounds and clear resins for electronic chips.
Silanes are used as adhesive promoters and cross-linking aids, while silicone
fluids improve a number of the material's properties including thermal and
moisture resistance.
For more on this success story, visit us at www.cromptoncorp.com/ar2000
7
HANNAFORD
=========
HANNAFORD SEEDMASTER SERVICES of Boyup-Dardan, Australia operates under a
Crompton-subsidiary franchise agreement to offer local farmers in Western
Australia a wide range of seed treatment products and professional application
services for wheat, barley and other crops. Using a mobile seed grader,
Hannaford grades, cleans and treats seeds at farm sites. Our
Vitavax(R)fungicide, one of the world's best-selling seed-treatment products, is
a key product for Australian wheat growers.
For more on this success story, visit us at www.cromptoncorp.com/ar2000
KEY DEVELOPMENTS OF 2000
Dimilin(R) insecticide sales surged worldwide with particular success in
non-crop uses including locust control, animal health and forestry.
Bifenazate miticide was granted reduced risk status by the EPA, which will
speed up U.S. registration for use on food crops. The product had a very highly
successful launch in Japan and Korea.
The Gustafson joint venture introduced Gaucho(R) into seed corn market,
providing this insecticide with a large market for future growth.
CROP PROTECTION is focused on improving crop quality and increasing yields
for farmers of high-value crops such as nuts, citrus, tobacco, cotton, rice,
tree and vine fruits, and ornamental plants. Crompton's surfactants increase the
effectiveness of the active ingredients in fungicides, herbicides and
insecticides.
Our product formulations and application advice are specific to crops and
geographic regions around the world, and our fungicides, miticides,
insecticides, herbicides, and growth regulants benefit from a loyal and
expanding customer base.
We generate higher sales margins by focusing on high-value market niches
where we have decades of experience with the crops and growing conditions around
the world. In turn, we serve larger commodity markets such as cotton and corn
with targeted, value-added products such as our Harvade(R) defoliant that aids
in harvesting. We are constantly expanding our presence in niche markets by
developing new products, obtaining new use registrations, and acquiring new
labels.
We are a world leader in seed-treatment products to assure germination and
healthy seedlings. Our Vitavax(R) fungicide is one of the world's best-selling
seed- treatment products and stimulates growth as well as controls disease. A
significant portion of our Crop Protection business is related to seed-treatment
products and application systems. Gustafson LLC, our joint venture with Bayer,
is the largest seed-treatment company in North America, and combines active
ingredients from both partners with proprietary formulations and delivery
systems.
In Australia, our Hannaford Seedmaster Services subsidiary holds the major
share in seed treatment and is leveraging that strength into expanded product
offerings in other crop protection applications.
Our Industrial Surfactants products provide considerable economic and
environmental benefits in agriculture. Our surfactants and dispersants,
primarily used in herbicides and insecticides, reduce the surface tension of the
product, increasing its ability to spread over and penetrate leaf surfaces.
Farmers can cover more acreage with less active ingredient and lower spray
volume.
Our surfactants also have a broad range of uses in oilfield chemicals for
well drilling, production and enhanced oil recovery. These markets have grown
considerably with the recent expansion of oil and gas exploration and production
activity.
8
KEY DEVELOPMENTS OF 2000
Brought online sixth production expansion for Synton PAO synthetic
lubricant. Initiated seventh expansion at Elmira, Ontario, Canada facility to be
completed in 2001.
Introduced Hybase C-231 calcium sulfonate, a multi-functional petroleum
additive with outstanding anti-wear properties. It is an extreme pressure agent
and detergent for transport applications.
Rationalized production of calcium sulfonate lubricant additives at Gretna,
Louisiana facility in order to focus assets on higher value-added, higher margin
businesses.
TEXACO
TEXACO field engineer Ron Reiniger keeps heavy mining equipment operating around
the clock in extreme weather and load conditions at Fording Coal's Whitewood
Mine near Edmonton, Alberta, Canada. Crompton's calcium sulfonate grease
technology is a key component in the Texaco product that lubricates the heavily
loaded gears on the 60 cubic yard drag line.
For more on this success story, visit us at www.cromptoncorp.com/ar2000
Our PETROLEUM ADDITIVES unit offers one of the most comprehensive product lines
of components to lubricant package additive formulators and manufacturers of
products for the transportation, industrial, grease, and fuels markets. Our
performance components allow our customers to formulate products that can meet
demanding new industry specifications driven by higher performance and advanced
environmental requirements.
Our sulfur-nitrogen chemistry combined with advanced detergent technology
provides for the development of new products to meet performance challenges in
both lubricants and fuels. Our customers are being required to meet new and more
stringent lubricant specifications that will increase sales of new products such
as friction modifiers, antioxidants, anti-wear compounds, and deposit-control
additives, all of which are critical to cleaner, more efficient lubricant
systems.
Our high-performance synthetic fluids are finding new markets in the
lubricants industry. For automotive and industrial lubricants makers, Synton(R)
PAO synthetic fluids answer the challenge of extended drain intervals and
enhanced high-temperature performance in machinery and gearboxes.
Responding to the environmental demands of the metalworking industry, we
are developing new anti-wear components to replace chlorine-based additives.
Our calcium sulfonate premium grease continues to solve tough customer
problems where severe operating conditions exist. New grease formulations have
exceeded customer expectations in steel and paper mills, mines, and on board
ocean-going ships.
INDUSTRIAL COLORS serves a wide range of industrial markets including paper,
leather, films, specialty printing inks, and wood stains with solvent-soluble
and water-soluble dyes in liquid and powder forms.
Our REFINED PRODUCTS unit is the world leader in the production and
marketing of white oils, petrolatums, cable fillers, refrigeration oil, and
waxes to a broad range of end-use markets. Our customers depend on the high
quality of our products in markets ranging from personal care and cosmetics to
industrial applications such as telecommunications cable-filling compounds and
plastics additives.
Our GLYCERIN AND FATTY ACIDS business is derived from renewable sourced
materials, and provides cost-effective ingredients for such diverse markets as
personal care, paper and packaging, paints and coatings, and tires.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The December 31, 2000 working capital balance of $361.4 million increased $219.6
million from the December 31, 1999 balance of $141.8 million, and the current
ratio increased to 1.5 from 1.1 in 1999. The increase in working capital and the
current ratio were primarily due to the decrease in accrued expenses, accounts
payable and short-term borrowings, partially offset by a decrease in accounts
receivable. Days sales in receivables averaged 47 days in 2000, versus 46 days
in 1999. Inventory turnover averaged 3.7 in 2000, compared to 3.4 in 1999.
Net cash provided by operations of $175 million increased $86.4 million
from net cash provided by operations of $88.6 million in 1999. The increase was
mainly due to the inclusion of an additional eight months of operations of Witco
Corporation (Witco) in 2000, which is a result of the merger of Crompton and
Knowles Corporation (C&K) and Witco (the "Merger") effective September 1, 1999.
Net cash provided by operations, proceeds on the issuance of Senior Notes and
proceeds from the sale of accounts receivable were used primarily to pay down
credit agreement debt and short-term borrowings, finance capital expenditures,
pay merger related costs, repurchase common shares and make dividend payments.
The Company's debt to total capital ratio increased slightly to 67% in 2000 from
65% in 1999, primarily as a result of the repurchase of common shares. The
Company's future liquidity needs are expected to be financed from operations.
On March 7, 2000, the Company issued $600 million of Senior Notes due 2005
with a coupon rate of 8.5%. Effective March 24, 2000, the Company swapped $300
million of this amount into variable interest rate debt (three month LIBOR plus
fixed spread of 1.22%) which expires on March 15, 2005. The variable interest
rate on the swap contract was 7.8% at December 31, 2000. On June 9, 2000, the
Company exchanged the $600 million Senior Notes, which were not registered with
the Securities and Exchange Commission for public trading, for identical
securities which are registered.
On March 10, 2000, the Company amended the amount of its $1 billion senior
unsecured revolving credit facility to $600 million. Of this amount, $200
million was available through October 2000 and $400 million through October
2004. On October 26, 2000, the Company renewed $192 million of its $200 million
facility, which will be available through October 2001. Borrowings on these
facilities are at various rate options determined on the date of borrowing.
Borrowings under these facilities totaled $260 million at December 31, 2000,
with a weighted average interest rate of 7.48%.
The Company has access to short-term uncommitted facilities based on
current money market rates. At December 31, 2000, the Company had no outstanding
borrowings under these facilities. The Company also has arrangements with
various banks for short-term lines of credit for its international subsidiaries
aggregating $48.8 million, of which $5 million was outstanding at December 31,
2000.
In addition, the Company has available accounts receivable securitization
programs to sell up to $200 million of domestic accounts receivable to agent
banks. As of December 31, 2000, $176.3 million of domestic accounts receivable
had been sold under these agreements. In addition, the Company's European
subsidiaries have accounts receivable securitization programs to sell up to $25
million of accounts receivable. As of December 31, 2000, $24 million of accounts
receivable had been sold under these European agreements.
In November 1999, the Board of Directors approved a share repurchase
program for 10% of the common shares then outstanding, or approximately 11.9
million shares. As of December 31, 2000, the Company had repurchased 6.8 million
common shares under that program at an average price of $11.91 per share.
In November 1999, the Company announced a cost savings program intended to
reduce costs by $60 million in 2000. The Company achieved the $60 million in
cost savings in 2000 through salaried staff reductions, consolidation of plants
and offices, purchasing and logistics efficiencies and the elimination of
outside services and consultants.
On April 19, 2000, the Company announced that it was exploring strategic
alternatives, including the possible sale, for its Refined Products business. On
May 22, 2000, the Company announced that it was in preliminary discussions with
a select group of strategic buyers for the sale of its Industrial Specialties
business. Due to the difficult economic environment, the divestitures are
progressing at a slower pace than originally anticipated. The Company intends to
use the proceeds primarily to pay down debt and to repurchase common shares.
10
In December 2000, the Company closed its manufacturing facility in
Freeport, Grand Bahama Island. In connection with the facility closure, the
Company incurred an after-tax charge of $15 million. The closure of this
facility is expected to benefit annual net earnings by $2 million.
Capital expenditures for 2000 amounted to $154.8 million as compared to
$131.8 million in 1999. The increase is primarily due to the inclusion of an
additional eight months of Witco operations. Capital expenditures are expected
to approximate $155 million in 2001, primarily for the Company's replacement
needs and improvement of domestic and foreign facilities.
ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June
1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," which delayed the effective date of Statement No. 133 to fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued Statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
which amends some of the provisions of Statement No. 133. The Company adopted
the provisions of FASB Statements No. 133 and No. 138 effective January 1, 2001.
The adoption of these Statements does not have a material impact on the earnings
or financial position of the Company.
ENVIRONMENTAL MATTERS
The Company is involved in claims, litigation, administrative proceedings and
investigations of various types in a number of jurisdictions. A number of such
matters involve claims for a material amount of damages and relate to or allege
environmental liabilities, including clean-up costs associated with hazardous
waste disposal sites, natural resource damages, property damage and personal
injury. The Company and some of its subsidiaries have been identified by
federal, state or local governmental agencies, and by other potentially
responsible parties (each a "PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or comparable
state statutes, as a PRP with respect to costs associated with waste disposal
sites at various locations in the United States. In addition, the Company is
involved with environmental remediation and compliance activities at some of its
current and former sites in the United States and abroad.
Each quarter, the Company evaluates and reviews estimates for future
remediation and other costs to determine appropriate environmental reserve
amounts. For each site, a determination is made of the specific measures that
are believed to be required to remediate the site, the estimated total cost to
carry out the remediation plan, the portion of the total remediation costs to be
borne by the Company and the anticipated time frame over which payments toward
the remediation plan will occur. As of December 31, 2000, the Company's reserves
for environmental remediation activities totaled $164.5 million. It is
reasonably possible that the Company's estimates for environmental remediation
liabilities may change in the future should additional sites be identified,
further remediation measures be required or undertaken, the interpretation of
current laws and regulations be modified or additional environmental laws and
regulations be enacted.
The Company intends to assert all meritorious legal defenses and all other
equitable factors which are available to it with respect to the above matters.
The Company believes that the resolution of these environmental matters will not
have a material adverse effect on its consolidated financial position. While the
Company believes it is unlikely, the resolution of these environmental matters
could have a material adverse effect on its consolidated results of operations
in any given year if a significant number of these matters are resolved
unfavorably.
MARKET RISK & Risk Management Policies
The operations of the Company are exposed to financial market risks, including
changes in interest rates and foreign currency exchange rates. The Company uses
derivative financial instruments to reduce its exposure to these risks. The
Company does not use derivative financial instruments for trading or speculative
purposes.
The Company's primary interest rate risk exposure results from changes in
the fair value of its long-term, U.S. dollar fixed rate debt, as well as cash
flow risk associated with long-term variable rate debt. The Company used
interest rate swap contracts to convert $300 million of its $600 million 8.5%
Senior Notes to variable rate debt and to convert its $61.8 million long-term
variable rate Dutch guilder denominated debt to fixed rate debt. Each interest
rate swap contract is designated with the principal balance and the term of the
11
specific debt obligation. These contracts involve the exchange of interest
payments over the life of the contract without an exchange of the notional
amount upon which the payments are based. The differential to be paid or
received as interest rates change is accrued as other liabilities or assets and
recognized as an adjustment to interest expense. The changes in the fair value
of the swap contracts due to changes in market interest rates are not recognized
in the financial statements. In the event of early extinguishment of the
designated debt obligations, any realized or unrealized gain or loss from the
swap would be recognized in income coincident with the extinguishment gain or
loss. The following table provides information about the Company's derivative
and other financial instruments that are sensitive to changes in interest rates.
For long-term financial instruments, the table presents principal cash flows and
related weighted average interest rates by expected maturity date. Weighted
average variable interest rates are based on the applicable floating rate index
as of the reporting date. For interest rate swaps, the table presents the
notional amount and weighted average interest rates by maturity date. The
notional amounts are used to calculate the contractual cash flows to be
exchanged under the respective contracts.
INTEREST RATE SENSITIVITY
2006 and Total Fair Value at
(In thousands) 2001 2002 2003 2004 2005 Thereafter Principal 12/31/00
- -----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT:
Fixed rate $ 1,207 $ 1,599 $165,929 $ 2,044 $ 601,081 $ 421,166 $1,193,026 $ 1,112,487
Average interest rate 7.64% 7.64% 7.64% 7.80% 7.81% 6.82%
Variable rate - swapped $ 61,758 $ 61,758 $ 61,758
Average interest rate (a) 5.63% 5.63% 5.63%
Other variable rate $ 60,000 $ 200,000 $ 8,500 $ 268,500 $ 268,500
Average interest rate (a) 7.40% 7.40% 7.38% S 7.38% 5.05% 5.05%
INTEREST RATE SWAPS:
Total pay fixed/receive variable $ 61,758 $ 61,758 $ (234)
Average pay rate 5.20% 5.20% 5.20%
Average receive rate (a) 5.63% 5.63% 5.63%
Total pay variable/receive fixed $ 300,000 $ 300,000 $ 14,800
Average pay rate (a) 7.80% 7.80% 7.80% 7.80% 7.80%
Average receive rate 8.50% 8.50% 8.50% 8.50% 8.50%
- --------------------------------------------------------------------------------
<FN>
(a) Average variable interest rate is based on rates in effect at December 31,
2000.
</FN>
The Company's short-term exposure to changes in foreign currency exchange rates
results from transactions entered into by the Company and its foreign
subsidiaries in currencies other than their local currency (primarily trade
payables and receivables). The Company manages these transactional currency
risks on a consolidated basis, which allows it to net its trade payable and
receivable exposure. The Company is also exposed to currency risk on
intercompany transactions (including long-term intercompany loans). The Company
purchases foreign currency forward contracts, primarily denominated in Swiss
francs, British pounds, Singapore dollars, Canadian dollars and the Euro, to
hedge its transaction exposure. These contracts are generally settled on a
monthly basis. Realized and unrealized gains and losses on foreign currency
forward contracts that are designated and effective as hedges of recorded
transactions are recognized in earnings to offset the impact of valuing recorded
foreign currency trade payables, receivables and intercompany transactions at
current rates. Discounts and premiums on foreign currency forward contracts that
are designated and effective as hedges are recorded as a deferred asset and
amortized over the respective contract life. Realized and unrealized gains and
losses on contracts that do not satisfy the requirements of an effective hedge
would be reported as other expense (income). The fair value of the foreign
currency forward contracts used to hedge the Company's intercompany loan, trade
payable and trade receivable exposures is not significant at December 31, 2000,
and are short-term in nature.
12
EURO CONVERSION
On January 1, 1999, certain member countries of the European Union adopted the
Euro as their common legal currency. Between January 1, 1999 and December 31,
2001, transactions may be conducted in either the Euro or the participating
countries' national currencies. However, effective January 1, 2002, the
participating countries will withdraw their national currencies as legal tender
and complete the conversion to the Euro.
The Company conducts business in Europe and does not expect the conversion
to the Euro to have an adverse effect on its competitive position, results of
operations or consolidated financial position. At December 31, 2000, the
Company's systems were processing business transactions in the Euro and the
participating countries' national currencies. The Company is in the process of
further upgrading its information systems, which will allow the Company to
conduct business solely in the Euro on January 1, 2002. The Company does not
anticipate any disruption to its operations due to the conversion to the Euro.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Annual Report are forward-looking
statements that involve risks and uncertainties, including, but not limited to,
general economic conditions, energy and raw material prices and availability,
production capacity, changes in interest rates and foreign currency exchange
rates, changes in technology, market demand and customer requirements, the
enactment of more stringent environmental laws and regulations, and other risks
and uncertainties detailed in the Company's filings with the Securities and
Exchange Commission. These statements are based on currently available
information and the Company's actual results may differ significantly from the
results discussed. Forward-looking information is intended to reflect opinions
as of the date the report was produced and such information will not necessarily
be updated by the Company.
OPERATING RESULTS - 2000 COMPARED TO 1999
OVERVIEW
Consolidated net sales increased 45% to $3.04 billion in 2000 from $2.09 billion
in 1999. After adjusting 1999 net sales to exclude $150.5 million from the
divestiture of the textile colors business and to include $1,148.7 million from
Witco operations for the first eight months of 1999, net sales decreased 2%. The
decrease was mainly due to lower foreign currency translation, primarily the
Euro. International sales, including U.S. exports, were 46% of total sales, down
from 47% on a comparable basis in 1999. This decrease was also due to lower
foreign currency translation, primarily the Euro.
Net earnings for 2000 were $89.3 million, or $0.78 per common share basic
and diluted, as compared to a net loss of $175 million, or $2.10 per common
share basic and diluted in 1999. Earnings before after-tax special items (as
detailed on page 38) were $104.3 million, or $0.91 per common share basic and
diluted, as compared to $95 million, or $1.14 per common share basic and
diluted, in 1999.
Gross margin as a percentage of sales decreased to 31.6% in 2000 from 34.9%
in 1999. The decrease was primarily due to higher raw material and energy costs,
lower foreign currency translation and the impact of including an additional
eight months of Witco operations in 2000. Consolidated operating profit before
special items increased $65.6 million to $291.5 million in 2000 from $225.9
million in 1999. After adjusting 1999 to exclude $6.8 million from the
divestiture of the textile colors business, and to include $62.4 million from
Witco operations for the first eight months of 1999, operating profit increased
4% from an adjusted $281.6 million in 1999.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands)
2000 1999
---- ----------------------------------------------------------
WITCO OPERATIONS
AS AS EIGHT MONTHS TEXTILE COLORS AS
REPORTED REPORTED ENDED AUGUST 31 (A) BUSINESS ADJUSTED
---------- ----------------------------------------------------------
NET SALES
Polymer Products
Polymer Additives $ 992,690 $ 620,188 $ 430,440 $ -- $ 1,050,628
Polymers 335,081 316,300 -- -- 316,300
Polymer Processing Equipment 310,490 300,016 -- -- 300,016
Eliminations (14,175) (3,469) -- -- (3,469)
---------- ----------------------------------------------------------
1,624,086 1,233,035 430,440 -- 1,663,475
---------- ----------------------------------------------------------
Specialty Products
OrganoSilicones 484,424 158,925 306,630 -- 465,555
Crop Protection 413,706 294,798 116,438 -- 411,236
Other 516,214 405,600 295,164 (150,527) 550,237
---------- ----------------------------------------------------------
1,414,344 859,323 718,232 (150,527) 1,427,028
---------- ----------------------------------------------------------
Total net sales $ 3,038,430 $ 2,092,358 $ 1,148,672 $ (150,527) $ 3,090,503
---------- ----------------------------------------------------------
OPERATING PROFIT
Polymer Products
Polymer Additives $ 79,482 $ 67,880 $ 34,164 $ -- $ 102,044
Polymers 71,771 82,951 -- -- 82,951
Polymer Processing Equipment 24,640 19,981 -- -- 19,981
---------- ----------------------------------------------------------
175,893 170,812 34,164 -- 204,976
---------- ----------------------------------------------------------
Specialty Products
OrganoSilicones 84,139 16,784 40,055 -- 56,839
Crop Protection 83,756 69,194 13,411 -- 82,605
Other 32,449 25,144 10,264 (6,756) 28,652
---------- ----------------------------------------------------------
200,344 111,122 63,730 (6,756) 168,096
---------- ----------------------------------------------------------
General corporate expense
including amortization (84,754) (56,033) (35,467) -- (91,500)
---------- ----------------------------------------------------------
Total operating profit
before special items 291,483 225,901 $ 62,427 $ (6,756) $ 281,572
Special items (b) (23,148) (224,518) --------------------------------------------
---------- -----------
Total operating profit $ 268,335 $ 1,383
---------- -----------
<FN>
(a) Excludes the oleochemicals and derivatives business sold on August 31, 1999.
(b) Special items affecting operating profit include the following expenses:
</FN>
2000 1999
---- ----
Facility closure costs (includes $2,967 in cost of products sold) $ 23,148 $ -
Write-off of in-process research and development - 195,000
Merger related costs - 29,518
Total special items $ 23,148 $ 224,518
POLYMER PRODUCTS
Polymer products sales of $1.62 billion declined 2% from an adjusted $1.66
billion in 1999. Operating profit of $175.9 million decreased 14% from an
adjusted $205 million in 1999.
Polymer additives sales of $992.7 million decreased 6% from an adjusted
$1.05 billion in 1999 primarily as a result of lower foreign currency
translation of 4% and lower pricing of 2%. Plastic additives sales were down 6%
primarily due to lower foreign currency translation. Rubber chemicals sales
decreased 1%, as the 4% impact of lower pricing and foreign currency translation
more than offset volume growth of 3%. Urethane chemicals sales were down 10%
primarily due to lower foreign currency translation of 4% and lower volume due
to rationalization of lower margin business. Polymer additives operating profit
of $79.5 million declined 22% from an adjusted $102 million in 1999 primarily
due to adverse foreign currency impact, higher energy costs and lower selling
prices.
Polymers sales of $335.1 million were 6% above 1999 primarily due to volume
growth, as higher selling prices of 2% offset lower foreign currency
translation. EPDM sales were up 3% primarily due to higher pricing. Urethanes
sales rose 10% primarily due to volume growth, partially offset by lower foreign
currency translation of 2%. Polymers operating profit of $71.8 million was down
13% from 1999 primarily as a result of lower nitrile rubber joint venture income
and increased raw material and energy costs, which more than offset the impact
of higher unit sales and improved pricing.
14
Polymer processing equipment sales of $310.5 million increased 4% from 1999
primarily due to volume growth of 7%, partially offset by lower foreign currency
translation of 3%. Operating profit of $24.6 million rose 23% from 1999
primarily as a result of higher sales volume. The equipment order backlog
totaled $105 million at the end of 2000 compared to $113 million at the end of
1999.
SPECIALTY PRODUCTS
Specialty products sales of $1.41 billion represent a decrease of 1% from an
adjusted $1.43 billion for 1999. Operating profit of $200.3 million increased
19% from an adjusted $168.1 million in 1999.
OrganoSilicones sales of $484.4 million rose 4% from an adjusted $465.6
million in 1999 primarily due to volume growth of 8%, partially offset by lower
foreign currency translation of 3% and lower pricing of 1%. The most prominent
growth was in the sulfur silanes market attributable to increased industry
demand and a greater market share. Operating profit of $84.1 million was up 48%
from an adjusted $56.8 million in 1999 primarily due to increased sales volume
and lower operating costs.
Crop protection sales of $413.7 million were 1% above an adjusted $411.2
million in 1999 primarily due to higher volume. An increase in surfactants
demand was partially offset by actives market weakness mainly attributable to
adverse weather conditions and lower insect infestation. Operating profit of
$83.8 million was 1% ahead of an adjusted $82.6 million in 1999 primarily due to
higher sales volume and increased joint venture earnings.
Other sales of $516.2 million decreased 6% from an adjusted $550.2 million
in 1999 primarily due to a decline in volume of 8% and lower foreign currency
translation of 1%, partially offset by higher pricing of 3%. Petroleum additives
sales declined 6% primarily due to lower volume mainly attributable to the
closure of the Gretna, Louisiana plant. Refined products sales were down 4%
primarily due to lower volume offset in part by a partial recovery of increased
raw material costs through higher pricing. Glycerine/fatty acids and industrial
colors sales declined 13% and 5%, respectively, primarily due to lower volume
and lower pricing. Operating profit of $32.4 million was up 13% from an adjusted
$28.7 million in 1999 primarily as a result of reduced operating costs including
the closure of the Gretna facility.
OTHER
Selling, general and administrative expenses of $417.6 million increased
26% versus 1999 mainly due to the inclusion of an additional eight months of
Witco operations in 2000. Depreciation and amortization (up 56%), research and
development costs (up 24%) and interest expense (up 73%) also increased
primarily as a result of the inclusion of an additional eight months of Witco
operations in 2000.
Facility closure costs of $20.2 million include primarily the write-off of
long-lived assets, decommissioning costs and severance costs related to the
closure of the Company's manufacturing facility in Freeport, Grand Bahama
Island. An additional $2.9 million of related closure costs is included in cost
of products sold.
Other expense of $5.5 million decreased $42.5 million from 1999. The
decrease is mainly due to two special items in 1999, including the loss on the
sale of the textile colors business of $83.3 million, partially offset by the
gain on the sale of the specialty ingredients business of $42.1 million. The
effective tax rate, excluding the impact of special items, was 37% in 2000
compared to 1999 rates of 36.4% (as reported) and 39.2% (reflecting the Merger
as if it had occurred at the beginning of 1999).
OPERATING RESULTS - 1999 COMPARED TO 1998
OVERVIEW
Consolidated net sales increased 16% to $2.09 billion in 1999 from $1.8 billion
in 1998. After adjusting 1998 net sales to exclude $216.1 million from
deconsolidated joint ventures and the divestiture of the specialty ingredients
business, and to include $550.8 million from Witco operations for the months of
September through December 1998, net sales decreased 2%. This decrease was
primarily the result of lower sales in the Polymer Processing Equipment and Crop
Protection businesses. International sales, including U.S. exports, were 45% of
total sales, up from 40% in 1998.
The net loss for 1999 was $175 million, or $2.10 per common share basic and
diluted, as compared to net earnings of $161.8 million, or $2.20 per common
share basic and $2.14 per common share diluted in 1998. Earnings before
after-tax special items (as detailed on page 38) were $95 million, or $1.14 per
common share basic and diluted, as compared to $117.3 million, or $1.59 per
common share basic and $1.55 per common share diluted, in 1998.
15
Gross margin as a percentage of sales decreased to 34.9% from 36.2% in 1998. The
decrease was primarily due to the impact of including four months of Witco
results, lower pricing and unfavorable product mix. Consolidated operating
profit before special items decreased $34 million to $225.9 million from $259.9
million in 1998. After adjusting 1998 to exclude $19.6 million from the
deconsolidated joint ventures and the divestiture of the specialty ingredients
business, and to include $24 million from Witco operations for the months of
September through December 1998, operating profit decreased 15% from an adjusted
$264.3 million in 1998.
(In thousands) 1999 1998
------------ ---------------------------------------------------------------------
Witco Operations
Four Months
As As Ended Deconsolidated Divested As
Reported Reported December 31 Joint Ventures Business Adjusted
------------ ---------------------------------------------------------------------
Net Sales
Polymer Products
Polymer Additives $ 620,188 $ 391,964 $ 214,608 $ -- $ -- $ 606,572
Polymers 316,300 342,527 -- (41,520) -- 301,007
Polymer Processing Equipment 300,016 344,480 -- -- -- 344,480
Eliminations (3,469) -- -- -- -- --
1,233,035 1,078,971 214,608 (41,520) -- 1,252,059
Specialty Products
OrganoSilicones 158,925 -- 144,718 -- -- 144,718
Crop Protection 294,798 348,000 49,376 (84,966) -- 312,410
Other 405,600 369,148 142,075 -- (89,590) 421,633
859,323 717,148 336,169 (84,966) (89,590) 878,761
Total net sales $ 2,092,358 $ 1,796,119 $ 550,777 $(126,486) $ (89,590) $ 2,130,820
Operating Profit
Polymer Products
Polymer Additives $ 67,880 $ 49,215 $ 16,325 $ -- $ -- $ 65,540
Polymers 82,951 79,892 -- (709) -- 79,183
Polymer Processing Equipment 19,981 46,653 -- -- -- 46,653
170,812 175,760 16,325 (709) -- 191,376
Specialty Products
OrganoSilicones 16,784 -- 16,621 -- -- 16,621
Crop Protection 69,194 84,882 820 (10,840) -- 74,862
Other 25,144 35,760 1,544 -- (7,863) 29,441
111,122 120,642 18,985 (10,840) (7,863) 120,924
General corporate expense
including amortization (56,033) (36,544) (11,273) (187) -- (48,004)
Total operating profit
before special items 225,901 259,858 $ 24,037 $ (11,736) $ (7,863) $ 264,296
Special items (a) (224,518) (41,560) -----------------------------------------------------
----------- ----------
Total operating profit $ 1,383 $ 218,298
----------- ----------
<FN>
(a) Special items affecting operating profit include the following expenses:
</FN>
1999 1998
---- ----
- --------------------------------------------------------------------------------
Write-off of in-process research and development $ 195,000 $ -
Merger related costs 29,518 -
Facility closure costs - 33,600
Other - 7,960
- --------------------------------------------------------------------------------
Total special items $ 224,518 $ 41,560
- --------------------------------------------------------------------------------
POLYMER PRODUCTS
Polymer products sales of $1.23 billion represent a decrease of 2% from an
adjusted $1.25 billion for 1998. Operating profit for polymer products of $170.8
million declined 11% from an adjusted $191.4 million for 1998.
Polymer additives sales of $620.2 million increased 2% from an adjusted
$606.6 million for 1998 primarily due to volume growth of 6%, partially offset
by 2% declines attributable to lower pricing and foreign currency translation.
Plastic additives sales were up 4% primarily
16
as a result of higher volume, partially offset by lower foreign currency
translation. Rubber chemicals sales were essentially unchanged from 1998 as
greater volume of 5% was offset by lower pricing. Urethane chemicals sales rose
3% primarily due to higher volume of 8%, partially offset by lower foreign
currency translation of 3% and lower pricing of 2%. Polymer additives operating
profit of $67.9 million rose 4% from an adjusted $65.5 million in 1998 primarily
as a result of higher sales volume, partially offset by lower pricing in rubber
chemicals.
Polymers sales of $316.3 million rose 5% versus an adjusted $301 million
for 1998 primarily due to volume growth of 4% and improved pricing of 2%.
Urethane sales were up 6% primarily as a result of higher volume. EPDM sales
increased 4% primarily due to improved pricing. Polymers operating profit of $83
million increased 5% from an adjusted $79.2 million in 1998 primarily as a
result of improved pricing and greater sales volume, partially offset by higher
EPDM raw material costs.
Polymer processing equipment sales of $300 million decreased 13% from 1998
primarily due to lower sales volume and pricing which was reflective of the
downward cycle experienced by the plastics machinery market during the second
half of 1999. Operating profit of $20 million decreased 57% from 1998 primarily
as a result of competitive pricing pressure, lower volume and increased sales of
lower margin equipment systems. The equipment order backlog totaled $113 million
at the end of 1999 compared to $118 million at the end of 1998.
SPECIALTY PRODUCTS
Specialty products sales of $859.3 million represent a decrease of 2% from an
adjusted $878.8 million for 1998. Operating profit of $111.1 million decreased
8% from an adjusted $120.9 million for 1998.
OrganoSilicones sales of $158.9 million were 10% above an adjusted $144.7
million for 1998 primarily due to volume growth of 14%, partially offset by
lower foreign currency translation of 4%. The business benefited from a
recovering Asian economy, new product introductions, growth in the "greentyre"
market and increased orders with major customers. Operating profit of $16.8
million was 1% above an adjusted $16.6 million for 1998 primarily due to
increased sales volume, partially offset by higher 1999 consulting costs and
certain non-recurring items that had a favorable impact on 1998 earnings.
Crop protection sales of $294.8 million declined 6% from an adjusted $312.4
million in 1998 primarily due to lower volume particularly in the herbicides and
fungicides businesses. These businesses were adversely affected by a general
weakness in the U.S. and European farm economies, unfavorable weather conditions
and increased competition associated with genetically engineered seeds.
Operating profit of $69.2 million decreased 8% from an adjusted $74.9 million in
1998 primarily as a result of lower sales volume.
Other sales of $405.6 million declined 4% from an adjusted $421.6 million
in 1998 primarily due to lower pricing of 3% and lower foreign currency
translation of 1%. Petroleum additives and refined products sales increased 7%
and 12%, respectively, primarily as a result of higher sales volume.
Glycerine/fatty acids sales rose 5% primarily due to volume growth, partially
offset by lower pricing. Colors sales were down 14% primarily due to lower
volume and pricing for textile colors. The textile colors business was sold in
December 1999. Other operating profit of $25.1 million decreased 15% from an
adjusted $29.4 million in 1998 primarily due to lower pricing in the colors
business, partially offset by higher sales volume in the remaining businesses.
OTHER
Selling, general and administrative expenses of $331.1 million increased 25%
versus 1998 primarily due to the Merger, offset partially by the impact of the
deconsolidation of the joint ventures and the divestiture of the specialty
ingredients business. Depreciation and amortization (up 45%) and research and
development costs (up 29%) also increased as a result of the Merger. Interest
expense of $69.8 million decreased 11% primarily due to lower levels of
indebtedness prior to the Merger, which more than offset the four months impact
of the debt acquired in the Merger. Other expense of $48 million in 1999
includes a loss on the sale of the textile colors business of $83.3 million, a
gain on the sale of the specialty ingredients business of $42.1 million and fees
related to the accounts receivable securitization of $6.3 million. Other income
of $158.9 million in 1998 includes a gain of $153.4 million resulting from the
sale of a 50% interest in the Gustafson seed treatment business. The effective
tax rate, excluding the impact of special items was 36.4% compared to 37.2% in
1998.
17
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal years ended 2000, 1999 and 1998
(In thousands of dollars, except per share data) 2000 1999 1998
----------- --------------------------
NET SALES $ 3,038,430 $ 2,092,358 $ 1,796,119
COSTS AND EXPENSES
Cost of products sold 2,077,088 1,361,373 1,146,200
Selling, general and administrative 417,643 331,050 264,710
Depreciation and amortization 182,017 116,648 80,536
Research and development 84,571 67,954 52,775
Equity income (11,405) (10,568) --
Facility closure costs 20,181 -- 33,600
Acquired in-process research and development -- 195,000 --
Merger and related costs -- 29,518 --
----------- --------------------------
OPERATING PROFIT 268,335 1,383 218,298
Interest expense 120,476 69,833 78,520
Other expense (income) 5,485 47,979 (158,938)
----------- --------------------------
EARNINGS
Earnings (loss) before income taxes and extraordinary loss 142,374 (116,429) 298,716
Income taxes 53,101 42,922 115,493
----------- --------------------------
Earnings (loss) before extraordinary loss 89,273 (159,351) 183,223
Extraordinary loss on early extinguishment of debt -- (15,687) (21,468)
----------- --------------------------
Net earnings (loss) $ 89,273 $ (175,038) $ 161,755
----------- --------------------------
BASIC EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) before extraordinary loss $ .78 $ (1.91) $ 2.48
Extraordinary loss -- (.19) (.28)
----------- --------------------------
Net earnings (loss) $ .78 $ (2.10) $ 2.20
----------- --------------------------
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) before extraordinary loss $ .78 $ (1.91) $ 2.42
Extraordinary loss -- (.19) (.28)
----------- --------------------------
Net earnings (loss) $ .78 $ (2.10) $ 2.14
----------- --------------------------
18
CONSOLIDATED BALANCE SHEETS
Fiscal years ended 2000 and 1999
(In thousands of dollars, except per share data) 2000 1999
---- ----
ASSETS
CURRENT ASSETS
Cash $ 20,777 $ 10,543
Accounts receivable 323,097 411,536
Inventories 552,386 523,363
Other current assets 180,635 174,311
------------- -----------
Total current assets 1,076,895 1,119,753
NON-CURRENT ASSETS
Property, plant and equipment 1,182,087 1,262,345
Cost in excess of acquired net assets 938,792 969,625
Other assets 330,553 374,895
------------- -----------
$ 3,528,327 $ 3,726,618
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 27,429 $ 81,162
Accounts payable 234,955 330,591
Accrued expenses 306,680 422,252
Income taxes payable 127,950 121,366
Other current liabilities 18,449 22,599
------------- -----------
Total current liabilities 715,463 977,970
------------- -----------
NON-CURRENT LIABILITIES
Long-term debt 1,479,394 1,309,812
Post-retirement health care liability 206,469 216,797
Other liabilities 373,025 462,127
STOCKHOLDERS' EQUITY
Common stock, $.01 par value - issued 119,372,359
and 119,071,693 shares in 2000 and 1999, respectively 1,194 1,191
Additional paid-in capital 1,051,371 1,047,518
Accumulated deficit (133,864) (200,374)
Accumulated other comprehensive income (86,221) (61,238)
Treasury stock at cost (78,504) (27,185)
------------- -----------
Total stockholders' equity 753,976 759,912
------------- -----------
$ 3,528,327 $ 3,726,618
============= ===========
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended 2000, 1999 and 1998
Increase (decrease) in cash (In thousands of dollars) 2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 89,273 $(175,038) $ 161,755
Adjustments to reconcile net earnings
(loss) to net cash provided by operations:
Facility closure costs 23,148 -- 33,600
Acquired in-process research and development -- 195,000 --
Loss on sale of textile colors -- 83,333 --
Gain on sale of specialty ingredients -- (42,060) --
Merger and related costs -- 29,518 --
Extraordinary loss on early extinguishment of debt -- 15,687 21,468
Gustafson joint venture gain -- -- (153,429)
Depreciation and amortization 182,017 116,648 80,536
Equity income (11,405) (10,568) --
Deferred taxes 19,068 (26,281) (5,366)
Changes in assets and liabilities:
Accounts receivable 25,359 4,539 497
Inventories (41,546) (25,475) 7,314
Other current assets (24,171) 25,422 (11,508)
Other assets 30,361 7,333 3,358
Accounts payable and accrued expenses (85,574) (73,963) (32,188)
Income taxes payable 6,969 (10,776) 79,568
Other current liabilities (3,790) 4,983 (10,562)
Post-retirement health care liability (10,858) (2,342) (3,727)
Other liabilities (22,914) (24,624) (7,161)
Other (892) (2,712) 5,367
--------- --------- ---------
Net cash provided by operations 175,045 88,624 169,522
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (154,814) (131,782) (66,628)
Merger related expenditures (66,740) (17,420) --
Proceeds from sale of specialty ingredients -- 103,000 --
Proceeds from sale of textile colors -- 75,322 --
Acquired cash of Witco Corporation -- 236,658 --
Proceeds from Gustafson joint venture -- -- 180,000
Other investing activities (25,303) (15,521) (9,717)
--------- --------- ---------
Net cash (used in) provided by investing activities (246,857) 250,257 103,655
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on senior notes 593,754 -- --
(Payments) proceeds on credit agreement borrowings (420,000) 93,720 199,894
(Payments) proceeds on short-term borrowings (54,799) 61,267 15,535
Payments on long-term notes (4,075) (356,449) (460,034)
Premium paid on early extinguishment of debt -- (20,431) (22,984)
Proceeds from sale of accounts receivable 35,560 -- 80,000
Treasury stock acquired (54,003) (101,781) (94,974)
Dividends paid (22,763) (9,351) (3,721)
Other financing activities 8,959 (6,222) 14,425
--------- --------- ---------
Net cash provided by (used in) financing activities 82,633 (339,247) (271,859)
--------- --------- ---------
CASH
Effect of exchange rates on cash (587) (1,195) 179
--------- --------- ---------
Change in cash 10,234 (1,561) 1,497
Cash at beginning of period 10,543 12,104 10,607
Cash at end of period $ 20,777 $ 10,543 $ 12,104
========= ========= =========
20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FISCAL YEARS ENDED
2000, 1999 and 1998 (In thousands of dollars, except per share data)
Accumulated
Additional Other
Common Paid-in Accumulated Comprehensive Treasury
Stock Capital Deficit Income Stock Total
---------------------------------------------------------------------------------------
BALANCE, DECEMBER 27, 1997 $ 7,733 $ 232,213 $ (174,019) $ (45,789) $ (40,228) $ (20,090)
Comprehensive income:
Net earnings 161,755 161,755
Equity adjustment for translation
of foreign currencies 5,427 5,427
Other 1,948 1,948
--------
Total comprehensive income 169,130
Cash dividends ($.05 per share) (3,721) (3,721)
Stock options, warrants and other
issuances (1,130,258 shares) 6,402 9,956 16,358
Treasury stock acquired
(5,368,600 shares) (94,974) (94,974)
---------------------------------------------------------------------------------------
BALANCE, DECEMBER 26, 1998 7,733 238,615 (15,985) (38,414) (125,246) 66,703
---------------------------------------------------------------------------------------
Comprehensive income:
Net loss (175,038) (175,038)
Equity adjustment for translation
of foreign currencies (22,984) (22,984)
Other 160 160
Total comprehensive income (197,862)
Cash dividends ($.10 per share) (9,351) (9,351)
Stock options and other issuances
(17,030 common shares
and 243,017 treasury shares) 3,703 2,132 5,835
Treasury stock acquired
(6,366,900 shares) (101,781) (101,781)
Change in par value (5,893) 5,893 -
Cancellation of treasury stock
(11,850,119 shares) (1,185) (196,525) 197,710 -
Merger with Witco (53,572,031 shares) 536 995,832 996,368
---------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 1,191 1,047,518 (200,374) (61,238) (27,185) 759,912
---------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 89,273 89,273
Equity adjustment for translation
of foreign currencies (24,231) (24,231)
Other (752) (752)
Total comprehensive income 64,290
Cash dividends ($.20 per share) (22,763) (22,763)
Stock options and other issuances
(300,666 common shares and
218,815 treasury shares) 3 3,853 2,684 6,540
Treasury stock acquired
(4,579,500 shares) (54,003) (54,003)
---------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 1,194 $ 1,051,371 $ (133,864) $ (86,221) $ (78,504) $ 753,976
---------------------------------------------------------------------------------------
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MERGER
On September 1, 1999, the shareholders of Crompton and Knowles Corporation (C&K)
and Witco Corporation (Witco) approved a tax-free stock-for-stock merger of C&K
and Witco (the "Merger"). The terms of the Merger provided that (a) C&K merge
with and into CK Witco Corporation (the former name of Crompton Corporation, the
"Company") and (b) immediately thereafter, Witco merge with and into the
Company, so that the Company is the surviving corporation. Also, under the terms
of the Merger, each share of C&K's common stock was automatically converted into
one share of the Company's common stock, and each share of Witco's common stock
was exchanged for 0.9242 shares of the Company's common stock. The Merger was
accounted for as a purchase and accordingly, the results of operations of Witco
have been included in the consolidated financial statements from the date of
acquisition. An allocation of the purchase price resulted in cost in excess of
the estimated fair value of acquired net assets (goodwill) of $832 million.
Goodwill is being amortized on a straight-line basis over forty years.
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of all
majority-owned subsidiaries. Other affiliates in which the Company has a 20% to
50% ownership are accounted for in accordance with the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Effective with the Merger in 1999, the Company adopted a fiscal year ending
on December 31. Prior to the Merger, C&K's fiscal year ended on the last
Saturday in December.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which requires the Company to make
estimates and assumptions that affect the amounts and disclosures reported in
the financial statements and accompanying notes. Actual results could differ
from these estimates.
ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June
1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133," which delayed the effective date of Statement No. 133 to fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued Statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
which amends some of the provisions of Statement No. 133. The Company adopted
the provisions of FASB Statements No. 133 and No. 138 effective January 1, 2001.
The adoption of these Statements does not have a material impact on the earnings
or financial position of the Company.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's views on selected revenue recognition
issues based upon existing generally accepted accounting principles. The Company
was required to comply with the guidelines of SAB 101 by the end of the fourth
quarter of 2000. The Company has reviewed its revenue recognition policies and
has concluded that its policies and practices are in compliance with the
guidelines of SAB 101.
INVENTORY VALUATION
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated
depreciation. Depreciation expense ($142.7 million in 2000, $89.2 million in
1999 and $59.4 million in 1998) is computed generally on the straight-line
method using the following ranges of asset lives: buildings and improvements: 10
to 40 years, machinery and equipment: 3 to 25 years, and furniture and fixtures:
3 to 10 years.
Renewals and improvements which extend the useful lives of the assets are
capitalized. Capitalized leased assets and leasehold improvements are
depreciated over their useful lives or the remaining lease term, whichever is
shorter. Expenditures for maintenance and repairs are charged to expense as
incurred.
LONG-LIVED ASSETS
The Company evaluates the recoverability of the carrying value of long-lived
assets, including intangible assets, of each of its businesses by assessing
whether the projected cash flows of each of its businesses is sufficient to
recover the existing unamortized cost of these assets. In addition, the Company
periodically evaluates the future period over which the benefit of long-lived
assets will be received, based on the undiscounted value of future cash flows.
If the Company determines that any assets have been permanently impaired, the
amount of the impairment is written-off against earnings in the quarter in which
the impairment is determined.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTANGIBLE ASSETS
The excess cost over the fair value of net assets of businesses acquired is
being amortized on a straight-line basis over 20 to 40 years. Accumulated
amortization was $73.8 million and $49.4 million in 2000 and 1999, respectively.
Patents, unpatented technology, trademarks and other intangibles (net) of
$148.8 million in 2000 and $152.3 million in 1999, included in other assets, are
being amortized principally on a straight-line basis over their estimated useful
lives ranging from 6 to 40 years. Accumulated amortization was $148.4 million
and $135.5 million in 2000 and 1999, respectively.
FINANCIAL INSTRUMENTS
Financial instruments are presented in the accompanying consolidated financial
statements at either cost or fair value as required by generally accepted
accounting principles.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts denominated in foreign currencies are translated
generally at the current rate of exchange as of the balance sheet date, while
revenues and expenses are translated at average rates of exchange during the
periods presented. The cumulative foreign currency adjustments resulting from
such translation are included in accumulated other comprehensive income.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
STATEMENTS OF CASH FLOWS
Cash includes bank term deposits of three months or less. Cash payments during
the fiscal years ended 2000, 1999 and 1998 included interest payments of $110.7
million, $79.4 million and $79.5 million and income tax payments of $33.8
million, $67 million and $33.5 million, respectively.
OTHER DISCLOSURES
Included in accounts receivable are allowances for doubtful accounts in the
amount of $22.1 million in 2000 and $23.4 million in 1999.
Included in accrued expenses are environmental liabilities of $29.9 million
in 2000 and $47.8 million in 1999 and merger related accruals of $19.9 million
in 2000 and $112.8 million in 1999.
Included in other liabilities are environmental liabilities in the amount
of $134.6 million in 2000 and $150.2 million in 1999, merger related accruals of
$12.5 million in 2000 and $18 million in 1999 and pension liabilities of $125.5
million in 2000 and $148.5 million in 1999.
Included in selling, general and administrative expenses are net shipping
and handling costs of $72.4 million in 2000 and $41.6 million in 1999.
ACQUIRED IN-PROCESS RESEARCH
AND DEVELOPMENT
Acquired in-process research and development (IPR&D) represents the value
assigned in a purchase business combination to research and development projects
of the acquired business that had commenced, but had not yet been completed at
the date of acquisition, and which, if unsuccessful, have no alternative future
use in research and development activities or otherwise. In accordance with FASB
Statement No. 2 "Accounting for Research and Development Costs" as clarified by
FASB Interpretation No. 4, amounts assigned to purchased IPR&D that meet the
above stated criteria must be charged to expense as part of the allocation of
the purchase price of the business combination. Accordingly, charges totaling
$195 million were recorded in the third quarter of 1999 as part of the
allocation of the purchase price related to the Merger.
The Company engaged an independent appraiser to provide a basis for
allocating a portion of the purchase price of Witco to the purchased IPR&D. The
fair value assigned to purchased IPR&D was determined by the independent
appraiser applying the income approach and a valuation model, incorporating
revenue and expense projections, probability of commercial and technological
success, stage of development and present value factors.
The more significant IPR&D projects were principally in the Polymer
Additives and OrganoSilicones segments. The following is a summary of the
acquired IPR&D projects as of the date of the Merger and the values assigned:
Projected IPR&D
Business Percent Completion Value
Segment Complete Date (in thousands)
- ----------------------------------------------------------------
Polymer
Additives (a) 24-86% 2000-2003 $ 62,000
OrganoSilicones (b) 8-65% 2000-2001 106,000
Crop Protection (c) 21-37% 2000-2004 27,000
- ----------------------------------------------------------------
Total IPR&D $195,000
================================================================
(a) Includes the development of an internal anti-static agent for
use in acrylic sheets and pellets for extrusion and injection
molding ($18,000), replacement of lead-based stabilizers utilized in
PVC ($15,000) and approximately 35 other projects ($29,000).
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Includes the development of a family of chemicals utilized in finished
tires, which are expected to provide improved compounding and dispersion of
silica in a single compounding pass ($11,000), production of a chemical to be
used in the manufacture of silica tires, resulting in improved performance and
longer life ($21,000) and approximately 78 other projects ($74,000).
(c) Includes approximately 29 projects.
Due to the uniqueness of each of the projects, the costs and effort
required were estimated based on the latest available information. Additionally,
the completion date reflected management's best estimate of the time that the
Company would begin to benefit from cash inflows or cost reductions from the
projects. However, there is a risk that certain projects may not be completed
successfully for a variety of reasons including changes in strategies, changes
in market demand or customer requirements, technology issues, etc. However, the
projected revenues, costs, and margins in the cash flow forecasts are
substantially consistent with projections utilized by management in evaluating
the feasibility of research and development projects.
PRO FORMA FINANCIAL INFORMATION
The following pro forma unaudited results of operations for the twelve months
ended 1999 and 1998 assume the Merger had been consummated as of January 1,
1998, and exclude the write-off of acquired in-process research and development
of $195 million: (In thousands of dollars, except per share data)
1999 1998
---- ----
Net sales $ 3,421,651 $ 3,797,742
----------- ------------
Earnings before
extraordinary loss (a) $ 52,611 $ 234,652
----------- ------------
Net earnings (a) $ 36,924 $ 213,184
----------- ------------
Net earnings before
extraordinary loss per
basic common share $ 0.44 $ 1.85
=========== ============
Net earnings before
extraordinary loss per
diluted common share $ 0.44 $ 1.82
=========== ============
Net earnings
per basic
common share $ 0.31 $ 1.68
=========== ============
Net earnings
per diluted
common share $ 0.31 $ 1.65
=========== ============
Weighted average
basic shares outstanding 119,489 126,854
=========== ============
Weighted average
diluted shares outstanding 120,846 128,961
=========== ============
(a) The pro forma net earnings before extraordinary loss and net earnings
include the following after-tax special items:
(In thousands) 1999 1998
---- ----
Restructuring charges
(credits)-- net $ 1,954 $ (21,100)
Environmental charge - 13,435
(Gain) loss on sale of
businesses and
investment-- net 38,731 (95,288)
Merger and related costs 20,608 -
Facility closure costs - 21,100
Other - 5,000
---------- ------------
Loss (income) from special items $ 61,293 $ (76,853)
========== ============
MERGER ACCRUALS
As a result of the Merger, the Company recorded $176.1 million of merger
related accruals as a component of cost in excess of acquired net assets
(goodwill), summarized as follows:
Severance Other
and Merger Merger
Related Related Related
(In thousands) Costs Fees Costs Total
----------------------------------------------------------
September 1,
1999 accrual $ 128,261 $ 41,619 $ 6,174 $ 176,054
Cash payments (53,961) (10,400) (967) (65,328)
---------- ---------- --------- ------------
Balance at
Dec. 31, 1999 74,300 31,219 5,207 110,726
Cash payments (37,583) (25,325) (3,832) (66,740)
---------- ---------- --------- ------------
Purchase
accounting
revisions (19,039) (5,894) 6,231 (18,702)
---------- ---------- --------- ------------
Balance at
Dec. 31, 2000 $ 17,678 $ - $ 7,606 $ 25,284
========== ========== ========= ============
Also, as a result of the Merger, the Company recorded a charge of $29.5
million during the fourth quarter of 1999, summarized as follows:
Severance Facility Other
and Closure and Merger
Related Maintenance Related
(In thousands) Costs Costs Costs Total
----------------------------------------------------------
Fourth quarter
1999 charge $ 18,959 $ 8,988 $ 1,571 $ 29,518
Cash payments (8,942) (125) (406) (9,473)
--------- ---------- -------- --------
Balance at
Dec. 31, 1999 10,017 8,863 1,165 20,045
Cash payments (8,521) (3,317) (1,142) (12,980)
Reserve
reclassifications (149) (750) 899 -
--------- ---------- -------- --------
Balance at
Dec. 31, 2000 $ 1,347 $ 4,796 $ 922 $ 7,065
========= ========== ======== ========
24
DIVESTITURES AND JOINT VENTURES
In December 2000, the Company closed its manufacturing facility in Freeport,
Grand Bahama Island. In connection with the facility closure, the Company
incurred a pre-tax charge of $23.1 million (of which $2.9 million is included in
cost of products sold) summarized as follows:
Write-Off Facility Severance
of Closure and and
Long-Lived Maintenance Other
(In thousands) Assets Costs Costs Total
-----------------------------------------------------------
December
2000 charge $ 15,498 $ 6,210 $ 1,440 $ 23,148
Realized (15,498) (3,213) - (18,711)
-----------------------------------------------------------
Balance at
Dec. 31, 2000 $ - $ 2,997 $ 1,440 $ 4,437
===========================================================
In December 1999, the Company sold its textile colors business to Yorkshire
Group PLC for $86.5 million ($78 million in cash proceeds and a 12.4% equity
interest in Yorkshire valued at approximately $8.5 million). The sale resulted
in a pre-tax loss of $83.3 million.
In January 1999, the Company sold its specialty ingredients business to
Chr. Hansen Holding A/S of Denmark for $103 million, which resulted in a pre-tax
gain of $42.1 million in the first quarter of 1999.
In November 1998, the Company and Bayer Corporation formed a 50/50 joint
venture to serve the agricultural seed treatment markets in North America. The
basis of the joint venture is the Company's Gustafson seed treatment business.
The Company received cash proceeds of $180 million in the transaction which
resulted in a fourth quarter 1998 pre-tax gain of $153.4 million. Also, in
November 1998, the Company announced the formation of a joint venture with
GIRSA, a subsidiary of DESC, S.A. de C.V. to produce nitrile rubber products in
Mexico. The joint venture resulted in the closure of the Company's existing
nitrile rubber facility in Painesville, Ohio. In connection with the facility
closure, the Company incurred a pre-tax charge of $33.6 million, of which $28.9
million has been realized as of December 31, 2000 ($3 million in 2000). The
remaining reserve balance of $4.7 million relates to facility closure and
maintenance costs.
ACCOUNTS RECEIVABLE PROGRAM
In September 2000, the Company converted its two existing agreements to sell
domestic accounts receivable into a single agreement. The agreement is a three
year agreement that allows for the sale of up to $200 million in receivables to
agent banks, of which $176.3 million had been sold at December 31, 2000 at a
cost of approximately 6.64%. At December 31, 1999, the Company had two
agreements to sell up to $232 million of domestic accounts receivable to agent
banks, of which $164.7 million had been sold at a cost of approximately 6.27%.
In December 2000, the Company's European subsidiaries entered into
agreements to sell foreign accounts receivable to agent banks. The agreements
allow for the sale of up to $25 million in receivables, of which $24 million had
been sold at December 31, 2000 at a Euro cost of approximately 5%.
These programs reduce financing costs versus borrowings under the revolving
credit agreement and diversify the Company's sources of financing.
INVENTORIES
(In thousands) 2000 1999
---- ----
Finished goods $ 421,200 $ 410,513
Work in process 29,610 27,394
Raw materials and supplies 101,576 85,456
---------- ----------
$ 552,386 $ 523,363
========== ==========
PROPERTY, PLANT AND EQUIPMENT
(In thousands) 2000 1999
---- ----
Land and improvements $ 51,079 $ 50,922
Buildings and improvements 187,733 189,982
Machinery and equipment 1,322,932 1,264,954
Furniture and fixtures 48,267 41,170
Construction in progress 134,665 163,663
---------- ----------
1,744,676 1,710,691
Less accumulated
depreciation 562,589 448,346
---------- ----------
$1,182,087 $1,262,345
========== ==========
LEASES
At December 31, 2000, minimum rental commitments under non-cancelable operating
leases amounted to $28.7 million (2001), $25.8 million (2002), $22.7 million
(2003), $20.3 million (2004), $19 million (2005) and $131.3 million (2006 and
thereafter).
Rental expenses under operating leases were $34.5 million (2000), $20.9
million (1999) and $15.8 million (1998).
Future minimum lease payments under capital leases at December 31, 2000
were not significant.
Real estate taxes, insurance and maintenance expenses generally are
obligations of the Company and accordingly, are not included as part of rental
payments. It is expected that in the normal course of business, leases that
expire will be renewed or replaced by similar leases.
25
INDEBTEDNESS
Long-Term Debt
(In thousands) 2000 1999
---------- ----------
Credit facilities $ 260,000 $ 680,000
8.50% Senior Notes due 2005,
net of unamortized discount
of $5,205, with an effective
interest rate of 8.71% 594,795 --
6.60% Notes due 2003, net of
unamortized discount of
$3,986 in 2000 and $5,752
in 1999, with an effective
interest rate of 7.67% 161,014 159,248
6.125% Notes due 2006, net
of unamortized discount of
$12,117 in 2000 and $14,501
in 1999, with an effective
interest rate of 7.71% 137,883 135,499
6.875% Debentures due 2026,
net of unamortized discount
of $26,428 in 2000 and
$27,485 in 1999, with an
effective interest rate of 7.58% 123,572 122,515
7.75% Debentures due 2023, net
of unamortized discount of
$1,624 in 2000 and $1,696 in
1999, with an effective interest
rate of 7.82% 108,376 108,304
AIBOR based Bank Loans due 2003 61,758 66,298
Other 31,996 37,948
---------- ----------
$1,479,394 $1,309,812
========== ==========
The Company's long-term debt instruments are recorded at face value, net of
unamortized discounts. Such discounts will be amortized to interest expense over
the life of the related debt instrument.
On March 7, 2000, the Company issued $600 million of Senior Notes due 2005
with a coupon rate of 8.5% and $25 million of floating rate Notes due 2001.
Effective March 24, 2000, the Company swapped $300 million of its 8.5% Senior
Notes into variable interest rate debt (three month LIBOR plus fixed spread of
1.22%) which expires on March 15, 2005. On June 9, 2000, the Company exchanged
the $600 million Senior Notes, which were not registered with the Securities and
Exchange Commission for public trading, for identical securities which are
registered. The variable interest rate on the swap contract was 7.8% at December
31, 2000.
At December 31, 2000, the Company also had outstanding interest rate swap
contracts to convert its variable interest rate (AIBOR - Amsterdam Interbank
Offered Rate), Dutch guilder denominated debt to fixed rate debt. The weighted
average variable interest rate on the Dutch guilder denominated debt was 5.63%
at December 31, 2000. The aggregate notional amount of these swap contracts was
$61.8 million at December 31, 2000. The weighted average fixed interest rate on
these swap contracts was 5.2% at December 31, 2000.
DEBT REDEMPTIONS AND REPURCHASES
On November 4, 1999, the Company offered to purchase for cash any and all of its
outstanding 9% Senior Notes and 10.5% Senior Notes. As a result of the offer,
during the fourth quarter of 1999, the Company repurchased $180.6 million of its
9% Senior Notes and $149.5 million of its 10.5% Senior Notes at a purchase price
of 102% and 110%, respectively, plus accrued and unpaid interest. Also during
1999, the Company repurchased in the open market $22.9 million of its 10.5%
Senior Notes. As a result of these repurchases, the Company recognized an
extraordinary loss of $15.7 million, net of a tax benefit of $8.9 million.
During 1998, the Company redeemed its outstanding 11% Senior Subordinated
Notes at a price of 105.5% of the principal amount thereof and its 12%
Subordinated Discount Notes at a price of 100% of the principal amount thereof.
In addition, the Company repurchased in the open market $44.4 million of its 9%
Senior Notes and $62.8 million of its 10.5% Senior Notes. As a result of these
redemptions and repurchases, the Company recognized an extraordinary loss of
$21.5 million, net of tax benefit of $13.1 million.
CREDIT FACILITIES
On October 28, 1999, the Company entered into a $600 million 364-day senior
unsecured revolving credit facility and a $400 million five-year senior
unsecured credit facility with a syndicate of lenders. On March 10, 2000, the
Company amended the amount of its $1 billion senior unsecured revolving credit
facility to $600 million. Of this amount, $200 million was available through
October 2000 and $400 million through October 2004. On October 26, 2000, the
Company renewed $192 million of its $200 million facility which is available
through October 2001. Borrowings on these facilities are at various rate options
determined on the date of borrowing. In addition, the Company must pay a
facility fee on the aggregate amount of the 364-day and the five-year credit
facilities (at December 31, 2000 these rates are .15% and .20%, respectively).
The Company is also required to pay a utilization fee on the outstanding balance
of each of the credit facilities, if such balances are in excess of 33% of the
available credit (at December 31, 2000 the rate is .25% for both facilities). At
December 31, 2000, borrowings under the 364-day and the five-year credit
facilities were $60 million and $200 million, respectively, with weighted
average interest rates of 7.51% and 7.47%, respectively. The Company has
classified the 364-day credit facility as long-term based on its ability and
intent to refinance on a long-term basis.
26
The Company also has access to short-term uncommitted facilities based on
current money market rates. At December 31, 2000, the Company had no outstanding
borrowings under these short-term uncommitted facilities. At December 31, 1999,
borrowings under these short-term uncommitted facilities were $75.3 million,
with a weighted average interest rate of 6.72%. The Company also has
arrangements with various banks for short-term lines of credit for its
international subsidiaries aggregating $48.8 million in 2000 and $19.9 million
in 1999, of which $5 million and $2.8 million were outstanding at December 31,
2000 and December 31, 1999, respectively.
DEBT COVENANTS
The Company's various debt agreements contain covenants which limit the ability
to incur additional debt, create or assume mortgages or engage in mergers,
consolidations, and certain sales or leases of assets. In addition, the credit
agreements require the Company to maintain certain financial ratios. At December
31, 2000, the Company was in compliance with all of its debt covenants.
MATURITIES
At December 31, 2000, the scheduled maturities of long-term debt during the next
five fiscal years are: 2001 - $1.2 million; 2002 - $62.4 million; 2003 - $228.5
million; 2004 - $203 million; and 2005 - $602.1 million.
FINANCIAL INSTRUMENTS
The Company purchases foreign currency forward contracts that are designated and
effective as hedges of recorded transactions (principally foreign currency trade
receivables and payables, and intercompany loans), which otherwise would expose
the Company to foreign currency risk. The Company enters into interest rate swap
contracts to modify the interest characteristics of some of its outstanding
debt. Further information is provided in the Market Risk and Risk Management
Policies section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
At December 31, 2000, the Company had outstanding foreign currency forward
contracts with an aggregate notional amount of approximately $329.5 million, to
hedge foreign currency risk on foreign currency accounts receivable and payable
and intercompany loans. These forward contracts are generally outstanding for
one month and are primarily denominated in Swiss francs, British pounds,
Singapore dollars, Canadian dollars and the Euro. At December 31, 1999, the
Company had outstanding foreign currency forward contracts with an aggregate
notional amount of approximately $308.8 million.
At December 31, 2000, the Company had outstanding interest rate swap
contracts with an aggregate notional amount of $361.8 million. These contracts
are used to convert the Company's $61.8 million variable rate Dutch guilder
denominated debt to fixed rate debt, and to convert $300 million of its 8.5%
Senior Notes to variable rate debt. At December 31, 1999, the Company had
interest rate swap contracts with an aggregate notional amount of $66.3 million
related to its variable rate Dutch guilder denominated debt.
All contracts have been entered into with major financial institutions. The
risk associated with these transactions is the cost of replacing these
agreements, at current market rates, in the event of default by the
counterparties. Management believes the risk of incurring such losses is remote.
The carrying amounts for cash, accounts receivable, other current assets,
accounts payable and other current liabilities approximate their fair value
because of the short-term maturities of these instruments. The fair value of
long-term debt is based primarily on quoted market values. For long-term debt
which has no quoted market values, the fair value is estimated by discounting
projected future cash flows using the Company's incremental borrowing rate. The
fair value of interest rate swap and foreign currency forward and swap contracts
is the amount at which the contracts could be settled based on quotes provided
by investment banking firms.
The following table presents the carrying amounts and estimated fair values
of material financial instruments used by the Company in the normal course of
its business.
2000
---------------------------------
(In thousands) Carrying Amount Fair Value
---------------------------------
Long-term debt $ (1,479,394) $( 1,448,536)
Interest rate swap contracts (a) $ (993) $ 14,566
Foreign currency forward and
swap contracts (b) $ (326) $ 3,682
1999
---------------------------------
(In thousands) Carrying Amount Fair Value
---------------------------------
Long-term debt $ (1,309,812) $( 1,280,936)
Interest rate swap contracts (a) $ (1,389) $ (635)
Foreign currency forward and
swap contracts (c) $ 16,732 $ 21,607
============ =============
(a) Carrying amount included in other liabilities.
(b) Carrying amount primarily included in other liabilities.
(c) $34,383 of carrying amount included in other assets and $17,651 included in
other liabilities.
27
INCOME TAXES
The components of earnings (loss) before income taxes and extraordinary loss,
and the provision for income taxes are as follows:
(In thousands) 2000 1999 1998
---- ---- ----
Pretax Earnings (Loss):
Domestic $ 8,259 $ (153,347) $ 207,595
Foreign 134,115 36,918 91,121
----------- ------------ ---------
$ 142,374 $ (116,429) $ 298,716
=========== =========== ===========
Income Taxes:
Domestic
Current $ 4,169 $ 27,949 $ 95,386
Deferred 9,372 (10,833) (7,381)
----------- ------------ ---------
13,541 17,116 88,005
----------- ------------ ---------
Foreign
Current 29,864 41,254 25,473
Deferred 9,696 (15,448) 2,015
----------- ------------ ---------
39,560 25,806 27,488
----------- ------------ ---------
Total
Current 34,033 69,203 120,859
Deferred 19,068 (26,281) (5,366)
----------- ------------ ---------
$ 53,101 $ 42,922 $ 115,493
=========== =========== ===========
The provision (benefit) for income taxes differs from the Federal statutory rate
for the following reasons:
(In thousands) 2000 1999 1998
- -------------- ---- ---- ----
Provision (benefit)
at statutory rate $ 49,831 $(40,750) $ 104,551
Goodwill
amortization 8,512 4,016 4,395
Foreign income tax
rate differential (7,380) 10,766 (5,686)
State income taxes,
net of federal benefit 3,984 (2,105) 7,629
Non-deductible
acquired IPR&D -- 68,250 --
Impact of valuation
allowance -- 3,216 3,598
Other, net (1,846) (471) 1,006
-------- -------- ---------
Actual provision for
income taxes $ 53,101 $ 42,922 $ 115,493
======== ======== =========
Provisions have been made for deferred taxes based on differences between the
financial statement and the tax basis of assets and liabilities using currently
enacted tax rates and regulations. The components of the net deferred tax assets
and liabilities are as follows:
(In thousands) 2000 1999
- -------------- ---- ----
Deferred tax assets:
Pension and other
post-retirement liabilities $ 118,184 $ 118,989
Accruals for environmental
remediation 51,873 59,802
Merger related accruals 9,493 17,226
Intercompany royalty 24,592 --
Other accruals 85,795 129,660
NOL and credit carryforwards 53,991 79,070
Inventories and other 29,925 4,448
Deferred tax liabilities:
Property, plant and equipment (110,892) (108,966)
Intangibles (22,883) (23,267)
Financial instruments (17,185) (29,353)
Other (9,332) (10,267)
--------- ---------
Net deferred tax asset before
valuation allowance 213,561 237,342
Valuation allowance (16,668) (53,562)
--------- ---------
Net deferred tax asset
after valuation allowance $ 196,893 $ 183,780
========= =========
Net deferred taxes include $126.5 million and $127.8 million in other current
assets and $70.4 million and $56 million in other assets in 2000 and 1999,
respectively.
At December 31, 1999, the Company had an aggregate of $147.8 million of net
operating loss carryforwards (NOL's) ($116.9 million generated domestically and
$30.9 million related to the Company's foreign subsidiaries), $20.9 million of
excess foreign tax credits (FTC's) and $4 million of other foreign tax assets.
At December 31, 1999, the Company was uncertain if it would be able to utilize
all of the NOL's, excess FTC's and other foreign tax assets, thus, a valuation
allowance was established. The valuation allowance at December 31, 1999 included
$28.6 million related to the NOL's, $4 million for the other foreign tax assets
and $20.9 million related to excess FTC's.
At December 31, 2000, the Company had an aggregate of $143 million of NOL's
($106 million generated domestically and $37 million related to the Company's
foreign subsidiaries) and $4 million of other foreign tax assets. During 2000,
circumstances changed which caused a change in the Company's judgment about the
realizability of the deferred tax assets related to the NOL's and excess FTC's.
As a result, in order to reflect current utilization of the deferred tax assets,
and to adjust for expected future utilization, the Company reduced the valuation
allowance
28
related to NOL's by $15.9 million and reduced the valuation allowance
related to excess FTC's by $20.9 million. The impact of these changes has been a
reduction of goodwill. The valuation allowance at December 31, 2000 includes
$12.7 million related to the NOL's ($7.9 million for which subsequently
recognized tax benefits will be applied to reduce goodwill) and $4 million
related to other foreign deferred tax assets. The Company's NOL's are subject to
certain limitations and will begin to expire in 2005.
A provision has not been made for U.S. taxes which would be payable if
undistributed earnings of the foreign subsidiaries of approximately $316 million
at December 31, 2000 were distributed to the Company in the form of dividends
since certain foreign countries limit the extent of repatriation of earnings
while, for others, the Company's intention is to permanently reinvest such
foreign earnings. A determination of the amount of the unrecognized deferred tax
liability related to undistributed earnings is not practicable.
In addition, the Company has not recognized a deferred tax liability for
the difference between the book basis and the tax basis of its investment in the
common stock of its subsidiaries. Such difference relates primarily to $247
million of unremitted earnings earned by Witco's foreign subsidiaries prior to
the Merger on September 1, 1999. The Company does not expect this difference in
basis to become subject to tax at the parent level, as it is the Company's
intention to permanently reinvest such foreign earnings.
EARNINGS PER COMMON SHARE
The computation of basic earnings (loss) per common share is based on the
weighted average number of common shares outstanding. Diluted earnings (loss)
per share is based on the weighted average number of common and common share
equivalents outstanding. The computation of diluted loss per share for fiscal
year 1999 equals the basic calculation since common stock equivalents were
antidilutive.
(In thousands, except per share data)
2000 1999 1998
---- ---- ----
Earnings (loss) before
extraordinary loss $ 89,273 $ (159,351) $183,223
========== =========== ========
Net earnings (loss) $ 89,273 $ (175,038) $161,755
========== =========== ========
Basic
Weighted average
shares outstanding 113,644 83,507 73,696
========== =========== ========
Earnings (loss) before
extraordinary loss $ .78 $ (1.91) $ 2.48
========== =========== ========
Net earnings (loss) $ .78 $ (2.10) $ 2.20
========== =========== ========
Diluted
Weighted average
shares outstanding 113,644 83,507 73,696
Stock options,
warrants and other
equivalents 1,521 -- 2,004
---------- ----------- --------
Weighted average
shares adjusted
for dilution 115,165 83,507 75,700
========== =========== ========
Earnings (loss) before
extraordinary loss $ .78 $ (1.91) $ 2.42
========== =========== ========
Net earnings (loss) $ .78 $ (2.10) $ 2.14
========== =========== ========
CAPITAL STOCK
The Company is authorized to issue 500 million shares of $.01 par value common
stock. Prior to the Merger, C&K was authorized to issue 250 million shares of
$.10 par value common stock. There were 119,372,359 and 119,071,693 shares
issued at year-end 2000 and 1999, respectively, of which 6,597,185 and 2,236,500
shares were held as treasury stock in 2000 and 1999, respectively.
In November 1999, the Board of Directors approved a share repurchase
program for 10% of the common shares then outstanding, or approximately 11.9
million shares. As of December 31, 2000, the Company had repurchased 6.8 million
common shares under that program at an average price of $11.91 per share.
The Company is authorized to issue 250,000 shares of preferred stock
without par value, none of which are outstanding. At the time of the Merger,
C&K's existing preferred share purchase rights were terminated. On September 3,
1999, the Company declared a dividend distribution of one Preferred Share
Purchase Right (Rights)
29
on each outstanding share of common stock. These Rights entitle stockholders to
purchase one one-hundredth of a share of a new series of junior participating
preferred stock at an exercise price of $100. The Rights are only exercisable if
a person or group acquires 15% or more of the Company's common stock or
announces a tender offer which, if successful, would result in ownership of 15%
or more of the Company's common stock.
COMPREHENSIVE INCOME
Components of accumulated other comprehensive income are as follows:
(In thousands) 2000 1999
Foreign currency ---- ----
translation adjustment $ (83,833) $ (59,602)
Other (2,388) (1,636)
---------- ------------
Accumulated other
comprehensive income $ (86,221) $ (61,238)
========== ============
STOCK INCENTIVE PLANS
The 1988 Long-Term Incentive Plan (1988 Plan), as amended, authorized the Board
to grant stock options, stock appreciation rights, restricted stock and
long-term performance awards covering up to 10 million shares to the officers
and other key employees of C&K over a period of ten years through October 1998.
Non-qualified and incentive stock options were granted under the 1988 plan at
prices not less than 100% of the fair market value of the underlying common
shares on the date of the grant. All outstanding options will expire not more
than ten years and one month from the date of grant.
The 1993 Stock Option Plan for Non-Employee Directors, as amended in 1996,
authorized 200,000 options to be granted to non-employee directors. The options
vest over a two year period and are exercisable over a ten year period from the
date of grant, at a price equal to the fair market value of the underlying
common shares on the date of grant.
The 1998 Long-Term Incentive Plan (1998 Plan) was approved by the
shareholders of C&K in 1999. This plan authorizes the Board to grant stock
options, stock appreciation rights, restricted stock and long-term performance
awards to eligible employees and non-qualified stock options to non-employee
directors over a ten year period. During 2000 and 1999, non-qualified and
incentive stock options were granted under the 1998 Plan at prices not less than
100% of the fair market value of the underlying common shares on the date of
grant. All outstanding options will expire not more than ten years and one month
from the date of grant. The 1998 Plan authorizes the Company to grant shares and
options for shares of common stock equal to the sum of (i) the shares available
for award under the 1988 Plan and the 1993 Stock Option Plan For Non-Employee
Directors as of October 18, 1998 and (ii) the shares awarded under prior plans
of C&K which were forfeited, expired, lapsed, not earned or tendered to pay the
exercise price of options or withholding taxes. In 1999, the number of common
shares reserved for issuance under the 1998 plan was increased by 2.8 million
shares and, pursuant to the Merger, increased by an additional 5 million shares.
Under the terms of the Merger, the shareholders also approved the conversion of
all outstanding Witco options into options to purchase the Company's common
stock. These 4.7 million converted options expired 30 days after the Merger, and
became available for grant under the 1998 Plan.
Under the 1988 Plan, 1,261,000 common shares have been transferred to an
independent trustee to administer restricted stock awards for C&K's long-term
incentive program. At December 31, 2000, deferred compensation relating to such
shares in the amount of $0.6 million is being amortized over an estimated
service period of six to fifteen years.
In 1996, C&K granted long-term incentive awards from the 1988 Plan in the
amount of 824,250 shares which were earned at the end of 1998 based upon the
achievement of certain financial criteria. The shares earned in 1998 vest
ratably at 25% per year with the final installment payable at retirement.
Compensation expense related to such shares is accrued over a six year period.
In October 1999, C&K granted long-term incentive awards in the amount of
2,175,000 shares of restricted stock from the 1998 Plan. In connection with the
Merger, vesting requirements relating to 300,000 shares of restricted stock were
waived. The remaining 1,875,000 shares have been earned as of December 31, 2000
based upon the achievement of certain financial criteria and will vest over a
three year period ending on January 1, 2003. The compensation expense relating
to these shares is being accrued over a three year period.
In January 2000, the Company granted long-term incentive awards under the
1998 Plan for a maximum of 2,707,250 shares to be earned at the end of 2002 if
certain financial criteria are met. In January 2001, in connection with a
restructuring of the Company's long-term incentive award program, the January
2000 awards were canceled and awards were made for a maximum of 2,343,367 shares
to be earned if certain vesting and financial criteria are met at the end of
2002. Any shares earned will vest in January 2003, 2004, and 2005. The
compensation expense relating to these shares will be accrued over a four year
period.
30
Effective in 1996, the Company adopted the provisions of FASB Statement No.
123, "Accounting and Disclosure of Stock-Based Compensation." As permitted, the
Company elected to continue its historical method of accounting for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation expense
has not been recognized for stock based compensation plans other than restricted
stock awards under the Company's long-term incentive programs. Had compensation
cost for the Company's stock option and long-term incentive awards been
determined under the fair value method, net earnings (loss) (in thousands) would
have been $85,094, $(182,747) and $158,641 for the years 2000, 1999 and 1998,
respectively. Net earnings (loss) per common share (basic) would have been
$0.75, $(2.19) and $2.15 and net earnings (loss) per common share (diluted)
would have been $0.74, $(2.19) and $2.06 for the years 2000, 1999 and 1998,
respectively. The average fair value per share of options granted was $3.56 in
2000, $3.42 in 1999, and $5.46 in 1998. The fair value of options granted was
estimated using the Black-Scholes option pricing model with the following
assumptions for 2000, 1999 and 1998, respectively: dividend yield 1.9%, 2.1%,
and .35%, expected volatility 39%, 33%, and 31%, risk-free interest rate 5.8%,
6.3%, and 4.6%, and expected life 8 years, 8 years, and 6 years.
Changes during 2000, 1999 and 1998 in shares under option are summarized as
follows:
Price Per Share
-----------------------------------------
Range Average Shares
Outstanding at --------------------------------------------
12/27/97 $ 3.13-26.41 $ 14.46 6,130,576
Granted 14.34 14.34 1,077,112
Exercised 3.13-19.31 9.74 (966,664)
Lapsed 13.00-26.41 19.06 (34,543)
-----------------------------------------
Outstanding at
12/26/98 3.13-26.41 15.15 6,206,481
Granted 8.34-17.13 9.36 4,320,500
Exercised 5.22-16.88 8.38 (177,865)
Lapsed 8.34-26.41 16.24 (115,870)
-----------------------------------------
Outstanding at
12/31/99 3.13-26.41 12.81 10,233,246
Granted 8.16-8.34 8.16 2,168,500
Exercised 5.22-13.00 8.10 (45,357)
Lapsed 8.16-26.41 12.61 (585,067)
-----------------------------------------
Outstanding at
12/31/00 $ 3.13-26.41 $ 11.98 11,771,322
=========================================
Exercisable at
12/26/98 $ 3.13-26.41 $ 14.16 3,650,289
=========================================
Exercisable at
12/31/99 $ 3.13-26.41 $ 15.15 4,461,652
=========================================
Exercisable at
12/31/00 $ 3.13-26.41 $ 14.15 6,718,519
=========================================
Shares available for grant at year-end 2000 and 1999 were 4,357,732 and
8,697,610, respectively.
The following table summarizes information concerning currently outstanding and
exercisable options:
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at end of Contractual Exercise at end of Exercise
Prices 2000 Life Price 2000 Price
-----------------------------------------------------------------------------
$ 3.13-5.22 219,115 1.4 $ 4.92 219,115 $ 4.92
$ 8.16-8.34 5,840,335 9.1 $ 8.28 1,351,505 $ 8.34
$ 11.75-13.57 1,014,044 3.4 $ 12.27 1,014,044 $ 12.27
$ 14.34-17.13 3,681,632 5.6 $ 15.15 3,184,023 $ 15.26
$ 18.31-26.41 1,016,196 4.4 $ 23.04 949,832 $ 22.81
-----------------------------------------------------------------------------
11,771,322 6.9 $ 11.98 6,718,519 $ 14.15
=============================================================================
The Company has an Employee Stock Ownership Plan that is offered to eligible
employees of the Company and certain of its subsidiaries. The Company makes
contributions equivalent to a stated percentage of employee contributions. The
Company's contributions were $3.3 million in 2000, $4.2 million in 1999 and $2
million in 1998.
PENSION AND OTHER POST-RETIREMENT
BENEFIT PLANS
The Company has several defined benefit and defined contribution pension plans
covering substantially all of its domestic employees and certain international
employees. Benefits under the defined benefit plans are primarily based on the
employees' years of service and compensation during employment. The Company's
funding policy for the defined benefit plans is based on contributions at the
minimal annual amounts required by law plus such amounts as the Company may deem
appropriate. Contributions for the defined contribution plans are determined as
a percentage of each covered employees' salary. Plan assets consist of publicly
traded securities and investments in commingled funds administered by
independent investment advisors.
Employees of international locations are covered by various pension benefit
arrangements, some of which are considered to be defined benefit plans for
financial reporting purposes. Assets of these plans are comprised primarily of
insurance contracts and equity securities. Benefits under these plans are
primarily based upon levels of compensation. Funding policies are based on legal
requirements, tax considerations and local practices.
The Company also provides health and life insurance benefits for certain
retired and active employees and their beneficiaries and covered dependents for
substantially all of its domestic employees and certain international employees.
These plans are generally not pre-funded and are paid by the Company as
incurred, except for certain inactive government related plans.
31
Change in benefit obligation:
Pension Plans Post-Retirement Plans
--------------------------------------------------
(In thousands) 2000 1999 2000 1999
--------- -------- ------- -------
Benefit obligation at beginning of year $ 750,319 $ 251,798 $203,596 $ 151,440
Service cost 14,950 7,791 1,864 1,272
Interest cost 54,879 28,345 15,567 10,820
Plan participants' contributions 1,038 328 906 301
Plan amendments -- -- 4,009 --
Actuarial losses (gains) 25,316 (39,936) 4,539 (26,271)
Foreign currency exchange rate changes (8,501) (6,150) (119) 258
Acquisitions 14,210 547,377 -- 78,395
Benefits paid (49,394) (25,051) (17,699) (12,960)
Curtailments (336) (14,183) (1,317) 341
Settlements (518) -- -- --
Special termination benefits 2,811 -- 1,065 --
--------- --------- ------- --------
Benefit obligation at end of year $ 804,774 $ 750,319 $212,411 $ 203,596
========= --------- ------- ========
Change in plan assets:
Pension Plans Post-Retirement Plans
------------------------------------------------
(In thousands) 2000 1999 2000 1999
--------- -------- ------- -------
Fair value of plan assets at
beginning of year $ 721,971 $203,247 $ 43,511 $ 40,953
Actual return on plan assets 29,570 64,573 (1,037) 4,966
Foreign currency exchange rate changes (6,510) (3,012) -- --
Employer contributions 11,470 10,296 14,095 10,251
Plan participants' contributions 1,038 328 906 301
Acquisitions 10,002 471,590 -- --
Benefits paid (49,394) (25,051) (17,699) (12,960)
Settlements (475) -- -- --
--------- --------- ------- --------
Fair value of plan assets at end of year $ 717,672 $ 721,971 $39,776 $ 43,511
========= ========= ======= ========
Funded status:
Pension Plans Post-Retirement Plans
-----------------------------------------------------
(In thousands) 2000 1999 2000 1999
--------- -------- --------- ---------
Funded status $ (87,102) $ (28,348) $(172,635) $(160,085)
Unrecognized transition asset 1,558 3,499 -- --
Unrecognized actuarial gain (24,571) (78,994) (18,305) (32,298)
Unrecognized prior service cost 7,865 6,377 (15,529) (24,414)
--------- --------- ------- ---------
Net amount recognized $(102,250) $ (97,466) $(206,469) $(216,797)
========= ========= ======= -========
The amounts recognized in the consolidated balance sheets
consist of the following:
Pension Plans Post-Retirement Plans
-----------------------------------------------------
(In thousands) 2000 1999 2000 1999
--------- -------- -------- -------
Prepaid benefit costs $ 15,004 $ 48,030 $ -- $ --
Accrued benefit liabilities (125,503) (148,478) (206,469) (216,797)
Intangible asset 5,263 2,048 -- --
Accumulated other comprehensive income 2,986 934 -- --
--------- --------- ------- --------
Net amount recognized $(102,250) $ (97,466) $(206,469) $(216,797)
========= ========= ======= ========
32
Components of net periodic benefit cost (credit):
Pension Plans Post-Retirement Plans
------------------------------------------------------------------
(In thousands) 2000 1999 1998 2000 1999 1998
------ -------- ---- -------- ------- -------
Service cost $ 14,950 $ 7,791 $ 7,635 $ 1,864 $ 1,272 $ 1,256
Interest cost 54,879 28,345 16,044 15,567 10,820 9,958
Expected return on plan assets (59,941) (31,045) (15,610) (3,795) (3,175) (3,271)
Amortization of prior service cost 1,491 1,166 410 (4,877) (5,561) (6,196)
Amortization of unrecognized
transition obligation 59 36 58 -- -- --
Recognized actuarial (gains) losses (335) 5,883 74 (1,363) (1,269) (1,367)
Curtailment (gain) loss recognized (336) (14,449) 2,570 -- 196 --
Settlement gain recognized (61) -- -- -- -- --
-------- -------- -------- -------- -------- -------
Net periodic benefit cost (credit) $ 10,706 $ (2,273) $ 11,181 $ 7,396 $ 2,283 $ 380
======== ======== ======== ======== ======== =======
The assumed health care cost trend rate ranged from 7% - 10% and is assumed to
decrease gradually to 5% in 2020 and remain level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
One-Percentage One-Percentage
Point Point
(In thousands) Increase Decrease
- -----------------------------------------------------------------------------
Effect on the aggregate of the
service and interest cost
components of net periodic
post-retirement health care
benefit cost for 2000 $ 1,677 $ (1,716)
Effect on accumulated
post-retirement benefit
obligation for health care
benefits as of
December 31, 2000 $ 18,794 $ (16,540)
For pension plans with benefit obligations in excess of plan assets, the
aggregate benefit obligation was $320.9 million in 2000 and $292.2 million in
1999, and the aggregate fair value of plan assets was $204 million in 2000 and
$188.2 million in 1999.
The weighted-average discount rate used to calculate the projected benefit
obligation ranged from 6.0% - 7.75% in 2000 and 5.75% - 7.75% in 1999. The
expected long-term rate of return on plan assets ranged from 6.25% - 9.5% in
2000 and 7% - 9% in 1999. The assumed rate of compensation increase ranged from
3.0% - 4.25% in 2000 and 2.5% - 4.5% in 1999.
The Company's net cost of pension plans, including defined contribution
plans, was $28.9 million, $11.2 million, and $19 million in 2000, 1999 and 1998,
respectively.
CONTINGENCIES
The Company is involved in claims, litigation, administrative proceedings and
investigations of various types in various jurisdictions. A number of such
matters involve claims for a material amount of damages and relate to or allege
environmental liabilities, including clean-up costs associated with hazardous
waste disposal sites, natural resource damages, property damage and personal
injury. The Company and some of its subsidiaries have been identified by
federal, state or local governmental agencies, and by other potentially
responsible parties (each a "PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or comparable
state statutes, as a PRP with respect to costs associated with waste disposal
sites at various locations in the United States. In addition, the Company is
involved with environmental remediation and compliance activities at some of its
current and former sites in the United States and abroad.
Each quarter, the Company evaluates and reviews estimates for future
remediation and other costs to determine appropriate environmental reserve
amounts. For each site, a determination is made of the specific measures that
are believed to be required to remediate the site, the estimated total cost to
carry out the remediation plan, the portion of the total remediation costs to be
borne by the Company and the anticipated time frame over which payments toward
the remediation plan will occur. The total amount accrued for such environmental
liabilities at December 31, 2000 was $164.5 million. The Company estimates its
potential environmental liability to range from $145 million to $182 million at
December 31, 2000. It is reasonably possible that the Company's estimates for
environmental remediation liabilities may change in the future should additional
sites be identified, further remediation measures be required or undertaken, the
interpretation of current laws and regulations be modified or additional
environmental laws and regulations be enacted.
On May 21, 1997, the United States District Court, Eastern District of
Arkansas, entered an order finding that Uniroyal Chemical Co./Cie (a wholly
owned subsidiary of the Company) is jointly and severally liable to the United
States and Hercules Incorporated and Uniroyal Chemical Co./Cie are liable to
each other in contribution with respect to the remediation of the Vertac
Chemical Corporation site in Jacksonville, Arkansas. On October 23, 1998, the
Court entered an order granting the United State's motion for summary judgment
against Uniroyal Chemical Co./Cie and Hercules for removal and remediation costs
of $102.9 million at the Vertac site. On February 3, 2000, after trial on the
allocation of these costs, the Court entered an order finding Uniroyal Chemical
Co./Cie liable to the United States for approximately $2.3 million and liable to
Hercules in contribution for approximately $700,000 of these costs. Uniroyal
Chemical Co./Cie and Hercules have each appealed to the United States Court of
Appeals for the Eighth Circuit and a decision is expected during the second
quarter of 2001.
The Company intends to assert all meritorious legal defenses and all other
equitable factors which are available to it with respect to the above matters.
The Company believes that the resolution of these matters will not have a
material adverse effect on its consolidated financial position. While the
Company believes it is unlikely, the resolution of these matters could have a
material adverse effect on its consolidated results of operations in any given
year if a significant number of these matters are resolved unfavorably.
BUSINESS SEGMENT DATA
Effective in 1998, the Company adopted FASB Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which established
revised standards for reporting information about operating segments. Pursuant
to Statement No. 131 and the Merger, the Company redefined its reporting
segments into two major business categories, "Polymer Products" and "Specialty
Products." Polymer Products includes reporting segments of Polymer Additives
(plastic additives, rubber chemicals and urethane chemicals), Polymers (EPDM,
urethanes and nitrile rubber) and Polymer Processing Equipment (specialty
processing equipment and controls). Specialty Products includes reporting
segments of OrganoSilicones (silanes and specialty silicones), Crop Protection
(actives and surfactants) and Other (petroleum additives, refined products,
industrial colors and glycerine/fatty acids).
The accounting policies of the operating segments are the same as those
described in the summary of accounting policies. The Company evaluates a
segment's performance based on several factors, of which a primary financial
measure is operating profit. In computing operating profit, the following items
have not been deducted: amortization, interest expense, other expense (income)
and income taxes. Corporate assets are principally cash, intangible assets and
other assets maintained for general corporate purposes. Prior to 1999,
inter-segment sales were not significant. A summary of business data for the
Company's reportable segments for the years 2000, 1999 and 1998 follows.
INFORMATION BY BUSINESS SEGMENT
(In thousands) 2000 1999 1998
- -------------- ---- ---- ----
Sales
Polymer Products
Polymer
Additives $ 992,690 $ 620,188 $ 391,964
Polymers 335,081 316,300 342,527
Polymer
Processing
Equipment 310,490 300,016 344,480
Eliminations (14,175) (3,469) --
----------- ----------- -----------
1,624,086 1,233,035 1,078,971
----------- ----------- -----------
Specialty Products
OrganoSilicones 484,424 158,925 --
Crop Protection 413,706 294,798 348,000
Other 516,214 405,600 369,148
----------- ----------- -----------
1,414,344 859,323 717,148
----------- ----------- -----------
$ 3,038,430 $ 2,092,358 $ 1,796,119
=========== =========== ===========
Operating Profit
Polymer Products
Polymer
Additives $ 79,482 $ 67,880 $ 49,215
Polymers 71,771 82,951 79,892
Polymer
Processing
Equipment 24,640 19,981 46,653
----------- ----------- -----------
175,893 170,812 175,760
----------- ----------- -----------
Specialty Products
OrganoSilicones 84,139 16,784 --
Crop Protection 83,756 69,194 84,882
Other 32,449 25,144 35,760
----------- ----------- -----------
200,344 111,122 120,642
----------- ----------- -----------
Corporate (45,483) (28,573) (15,400)
Amortization (39,271) (27,460) (21,144)
Special items (23,148) (224,518) (41,560)
----------- ----------- -----------
$ 268,335 $ 1,383 $ 218,298
=========== =========== ===========
34
(In thousands) 2000 1999 1998
---- ---- ----
DEPRECIATION AND
AMORTIZATION
Polymer Products
Polymer Additives $ 47,523 $ 30,054 $ 18,043
Polymers 12,752 13,957 14,008
Polymer Processing
Equipment 2,543 2,951 3,481
-------- ---------- ----------
62,818 46,962 35,532
-------- ---------- ----------
Specialty Products
OrganoSilicones 23,293 6,929 --
Crop Protection 15,837 9,414 8,616
Other 22,314 19,615 15,779
-------- ---------- ----------
61,444 35,958 24,395
-------- ---------- ----------
Corporate 57,755 33,728 20,609
-------- ---------- ----------
$182,017 $ 116,648 $ 80,536
======== ========== ==========
SEGMENT ASSETS
Polymer Products
Polymer Additives $753,048 $ 788,062 $ 340,621
Polymers 196,876 226,678 192,172
Polymer Processing
Equipment 122,743 128,679 132,911
-------- ---------- ----------
1,072,667 1,143,419 665,704
======== ========== ==========
Specialty Products
OrganoSilicones 388,244 384,392 --
Crop Protection 306,103 316,733 181,036
Other 369,321 438,699 318,073
-------- ---------- ----------
1,063,668 1,139,824 499,109
-------- ---------- ----------
Corporate 1,391,992 1,443,375 244,080
-------- ---------- ----------
$3,528,327 $3,726,618 $1,408,893
======== ========== ==========
CAPITAL EXPENDITURES
Polymer Products
Polymer Additives $ 47,383 $ 49,005 $ 20,408
Polymers 13,774 23,938 15,937
Polymer Processing E
Equipment 3,355 3,204 4,733
-------- ---------- ----------
64,512 76,147 41,078
-------- ---------- ----------
Specialty Products
OrganoSilicones 47,760 8,586 --
Crop Protection 12,470 17,458 10,234
Other 21,212 21,333 14,888
-------- ---------- ----------
81,442 47,377 25,122
-------- ---------- ----------
Corporate 8,860 8,258 428
-------- ---------- ----------
$154,814 $ 131,782 $ 66,628
======== ========== ==========
(In thousands) 2000 1999 1998
- -------------- ---- ---- ----
EQUITY METHOD
INVESTMENTS
Polymer Products
Polymer Additives $ 41,832 $ 33,051 $ 31,090
Polymers 6,765 7,551 --
Polymer Processing
Equipment -- -- --
-------- ---------- ----------
48,597 40,602 31,090
-------- ---------- ----------
Specialty Products
OrganoSilicones 48 52 --
Crop Protection 20,725 22,262 11,909
Other 11,441 11,194 --
-------- ---------- ----------
32,214 33,508 11,909
-------- ---------- ----------
Corporate 1,750 -- --
-------- ---------- ----------
$ 82,561 $ 74,110 $ 42,999
======== ========== ==========
GEOGRAPHIC INFORMATION
Sales are attributed based on location of customer.
(In thousands) 2000 1999 1998
- -------------- ---- ---- ----
Sales
United States $1,644,125 $1,140,401 $1,077,190
Canada 145,566 108,041 106,230
Latin America 179,239 132,674 133,870
Europe/Africa 722,513 505,597 359,760
Asia/Pacific 346,987 205,645 119,069
--------- ---------- ----------
$3,038,430 $2,092,358 $1,796,119
========= ========== ==========
Property, plant and
equipment
United States $822,669 $ 938,555 $ 360,241
Canada 48,215 47,869 22,158
Latin America 15,307 15,021 7,213
Europe/Africa 270,435 233,836 71,168
Asia/Pacific 25,461 27,064 12,623
--------- ---------- ----------
$1,182,087 $1,262,345 $ 473,403
========= ========== ==========
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued
SUMMARIZED UNAUDITED QUARTERLY
FINANCIAL DATA
(In thousands, except per share data)
2000
---------------------------------------------
First Second Third Fourth
---------------------------------------------
Net sales $ 769,018 $ 802,886 $ 738,456 $ 728,070
Gross profit 251,302 272,092 227,542 210,406
Net earnings
(loss) 29,673 41,541 21,560 (3,501)
Net earnings (loss)
per common share:
Basic .26 .36 .19 (.03)
Diluted .26 .36 .19 (.03)
Dividends per
common share .05 .05 .05 .05
Market price per common share:
High 14.19 13.88 12.94 11.06
Low 9.00 9.31 7.69 6.94
1999
-----------------------------------------------------
First Second Third Fourth
-----------------------------------------------------
Net sales $ 396,292 $ 409,174 $ 500,429 $ 786,463
Gross profit 148,997 160,592 170,799 250,597
Earnings (loss)
before
extraordinary
loss 59,203 37,969 (179,920) (76,603)
Net earnings
(loss) 59,203 36,884 (180,128) (90,997)
Earnings (loss)
before
extraordinary
loss per common
share:
Basic .87 .58 (2.21) (.64)
Diluted .86 .57 (2.21) (.64)
Net earnings (loss)
per common share:
Basic .87 .56 (2.21) (.77)
Diluted .86 .55 (2.21) (.77)
Dividends per
common share -- .05 -- .05
Market price per
common share:
High 21.38 20.94 20.44 14.94
Low 15.31 14.94 13.88 7.13
The sum of earnings per common share for the four quarters do not equal the
total earnings per common share for 1999 due to changes in the average number of
shares outstanding.
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and have been audited
by KPMG LLP, Independent Certified Public Accountants, whose report is presented
herein.
Management of the Company assumes responsibility for the accuracy and
reliability of the financial statements. In discharging such responsibility,
management has established certain standards which are subject to continuous
review and are monitored through the Company's financial management and internal
audit group.
The Board of Directors pursues its oversight role for the financial
statements through its Audit Committee which consists of outside directors. The
Audit Committee meets on a regular basis with representatives of management, the
internal audit group and KPMG LLP.
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CROMPTON CORPORATION
We have audited the accompanying consolidated balance sheets of Crompton
Corporation and subsidiaries (the Company) as of December 31, 2000 and 1999, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
Stamford, Connecticut
February 1, 2001
37
FIVE YEAR SELECTED FINANCIAL DATA
(In millions of dollars, except per share data) 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS
Net sales $ 3,038.4 2,092.4 1,796.1 1,851.2 1,804.0
Gross profit $ 961.3 731.0 649.9 655.2 633.4
Operating profit $ 268.3 1.4 218.3 224.3 103.6
Interest expense $ 120.4 69.8 78.5 103.3 114.2
Other expense (income) $ 5.5 48.0 (158.9) (27.8) (1.3)
Earnings (loss) before income taxes and extraordinary loss $ 142.4 (116.4) 298.7 148.8 (9.3)
Provision for income taxes $ 53.1 42.9 115.4 56.7 12.7
Earnings (loss) before extraordinary loss $ 89.3 (159.3) 183.3 92.1 (22.0)
Extraordinary loss $ -- (15.7) (21.5) (5.3) (.5)
Net earnings (loss) $ 89.3 (175.0) 161.8 86.8 (22.5)
Special items, net of tax (included above):
Facility closure costs $ (15.0) -- (21.1) -- --
Acquired in-process research and development $ -- (195.0) =- --
Merger and related costs $ -- (20.6) -- -- (68.1)
Textile colors loss $ -- -- -- --
Specialty ingredients gain $ -- 26.8 -- -- --
Seed treatment gain $ -- -- 92.1 -- --
Severance and other costs $ -- -- -- (7.8) --
Special environmental charge $ -- -- -- (9.0) (18.5)
Postretirement settlement gain $ -- -- -- 16.8 --
Early extinguishment of debt $ -- (15.7) (21.5) (5.3) (.5)
Other $ -- -- (5.0) -- --
Total special items, net of tax $ (15.0) (270.0) 44.5 (5.3) (87.1)
Per Share Statistics
Basic
Earnings (loss) before extraordinary loss $ .78 (1.91) 2.48 1.25 (.31)
Net earnings (loss) $ .78 (2.10) 2.20 1.18 (.31)
Diluted
Earnings (loss) before extraordinary loss $ .78 (1.91) 2.42 1.22 (.31)
Net earnings (loss) $ .78 (2.10) 2.14 1.15 (.31)
Dividends $ .20 .10 .05 .05 .27
Book value $ 6.82 8.82 .32 (.27) (1.32)
Common stock trading range: High $ 14.19 21.38 32.81 27.38 20.13
Low $ 6.94 7.13 13.25 17.88 13.00
Average shares outstanding (thousands) - Basic 113,644 83,507 73,696 73,373 72,026
Average shares outstanding (thousands) - Diluted 115,165 83,507 75,700 75,358 72,026
Financial Position
Working capital $ 361.4 141.8 203.4 352.0 384.8
Current ratio 1.5 1.1 1.5 2.0 2.1
Total assets $ 3,528.3 3,726.6 1,408.9 1,548.8 1,657.2
Total debt $ 1,506.8 1,391.0 664.2 898.1 1,064.3
Stockholders' equity (deficit) $ 754.0 759.9 66.7 (20.1) (96.4)
Total capital employed $ 2,260.8 2,150.9 730.9 878.0 967.9
Total debt-to-capital % 66.7 64.7 90.9 102.3 110.0
Profitability Statistics (Before Special Items)
% Operating profit on sales 9.6 10.8 14.5 13.6 12.1
% Earnings on sales 3.4 4.5 6.5 5.0 3.6
% Earnings on average total capital 7.9 11.4 18.6 16.5 12.8
Other Statistics
EBITDA before special items $ 468.0 335.8 345.9 332.0 302.5
Capital spending $ 154.8 131.8 66.6 50.2 39.2
Depreciation $ 142.7 89.2 59.4 58.7 59.2
Amortization $ 39.3 27.4 21.1 21.2 23.4
Number of employees 8,306 8,612 5,536 5,583 5,725
CROMPTON
One American Lane
Greenwich, CT 06831
203-552-2000
www.cromptoncorp.com
CORPORATE MANAGEMENT
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
Robert W. Ackley
Executive Vice President
Polymer Processing Equipment
James J. Conway
Executive Vice President
Performance Chemicals and Elastomers
Joseph B. Eisenberg
Executive Vice President
Polymer Additives
Mary Gum
Executive Vice President
OrganoSilicones
Alfred F. Ingulli
Executive Vice President
Crop Protection
William A. Stephenson
Executive Vice President
Urethanes and Petroleum Additives
Peter Barna
Senior Vice President and
Chief Financial Officer
John T. Ferguson II
Senior Vice President and
General Counsel
Marvin H. Happel
Senior Vice President
Organization and Administration
Edward L. Hagen
Senior Vice President
Strategy and Development
Charles J. Marsden
Senior Vice President
Walter K. Ruck
Senior Vice President
Operations
OTHER CORPORATE OFFICERS
Brian J. Dick
Vice President, Finance
John R. Jepsen
Vice President, Treasurer
Barry J. Shainman
Secretary
Michael F. Vagnini
Corporate Controller
Gerald H. Fickenscher
Regional Vice President
Europe, Africa & the Middle East
Mark E. Harakal
Regional Vice President
Asia-Pacific
Michel J. Duchesne
Regional Vice President
Latin America
BOARD OF DIRECTORS
Vincent A. Calarco
Chairman of the Board
President and Chief Executive Officer
Robert A. Fox (1,4)
President and Chief Executive Officer
Foster Farms
Roger L. Headrick (2,3)
Managing General Partner
HMCH Ventures
Leo I. Higdon, Jr. (2)
President
Babson College
Harry G. Hohn (2,3)
Retired Chairman and Chief Executive Officer
New York Life Insurance Company
C.A. Piccolo (1,3)
President and Chief Executive Officer
HealthPic Consultants, Inc.
Bruce F. Wesson (1,4)
President
Galen Associates
General Partner
Galen Partners, L.P.
Patricia K. Woolf, Ph.D. (1,4)
Private Investor and Lecturer
Department of Molecular Biology
Princeton University
1 Member of Audit Committee
2 Member of Finance and Pension Committee
3 Member of Organization, Compensation and Governance Committee
4 Member of Safety, Health and Environment Committee
CORPORATE DATA
Corporate Headquarters
One American Lane
Greenwich, CT 06831
(203) 552-2000
www.cromptoncorp.com
AUDITORS
KPMG LLP
Stamford Square
3001 Summer Street
Stamford, CT 06905
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 288-9541
www.mellon-investor.com
ANNUAL MEETING
The annual meeting of stockholders will
be held at 11:15 a.m. on Tuesday, April 24, 2001, at
The University Club
One West 54th Street
New York, NY 10019
Form 10-K
A copy of the Company's report on
Form 10-K for 2000, as filed with the
Securities and Exchange Commission,
may be obtained free of charge by
writing to the Secretary of the
Corporation, One American Lane,
Greenwich, CT 06831
Investor Relations
William A. Kuser
Crompton Corporation
One American Lane
Greenwich, CT 06831
(203) 552-2000
bill_kuser@cromptoncorp.com
MEDIA RELATIONS
Robert P. Harwood
Crompton Corporation
Benson Road
Middlebury, CT 06749
(203) 573-2000
robert_harwood@cromptoncorp.com
For an interactive version of this report visit www.cromptoncorp.com/ar2000.
(C)2001 Crompton Corporation.
All rights reserved.
Crompton is a registered trademark of Crompton Corporation.
(R)and(TM)indicate registered and unregistered trade and service marks.