SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-30270
CROMPTON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2183153
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One American Lane, Greenwich, Connecticut 06831-2559
(Address of principal executive offices) (Zip Code)
(203) 552-2000
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
The number of shares of common stock outstanding is as follows:
Class Outstanding at April 30, 2002
Common Stock - $.01 par value 113,510,662
CROMPTON CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Accompanying Notes
Consolidated Statements of Earnings (Unaudited)-
First quarter ended 2002 and 2001 2
Consolidated Balance Sheets - March 31, 2002
(Unaudited) and December 31, 2001 3
Consolidated Statements of Cash Flows (Unaudited)-
First quarter ended 2002 and 2001 4
Notes to Consolidated Financial Statements
(Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
CROMPTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
First quarter ended 2002 and 2001
(In thousands of dollars, except per share data)
2002 2001
Net sales $ 644,838 $ 737,936
Cost of products sold 458,863 514,587
Selling, general and administrative 97,209 106,639
Depreciation and amortization 38,079 46,924
Research and development 20,218 20,564
Equity income (2,264) (5,987)
Operating profit 32,733 55,209
Interest expense 26,138 28,754
Other (income) expense (2,293) 1,815
Earnings before income taxes 8,888 24,640
Income taxes 2,133 8,870
Net earnings $ 6,755 $ 15,770
Basic earnings per common share $ .06 $ .14
Diluted earnings per common share $ .06 $ .14
Dividends declared per common share $ .05 $ .05
See accompanying notes to consolidated financial statements.
CROMPTON CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2002 (Unaudited) and December 31, 2001
(In thousands of dollars)
March 31, December 31,
2002 2001
ASSETS
CURRENT ASSETS
Cash $ 9,827 $ 21,506
Accounts receivable 223,064 188,133
Inventories 459,557 491,693
Other current assets 162,047 113,742
Total current assets 854,495 815,074
NON-CURRENT ASSETS
Property, plant and equipment 1,001,493 1,021,983
Cost in excess of acquired net assets 897,187 897,404
Other assets 443,036 497,727
$ 3,196,211 $ 3,232,188
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 15,323 $ 29,791
Accounts payable 260,026 234,985
Accrued expenses 263,287 285,329
Income taxes payable 89,918 111,905
Other current liabilities 18,198 20,608
Total current liabilities 646,752 682,618
NON-CURRENT LIABILITIES
Long-term debt 1,412,090 1,392,833
Postretirement health care liability 198,391 199,583
Other liabilities 389,732 409,613
STOCKHOLDERS' EQUITY
Common stock 1,192 1,192
Additional paid-in capital 1,049,927 1,051,257
Accumulated deficit (279,261) (280,350)
Accumulated other comprehensive loss (154,447) (151,839)
Treasury stock at cost (68,165) (72,719)
Total stockholders' equity 549,246 547,541
$ 3,196,211 $ 3,232,188
See accompanying notes to consolidated financial statements.
CROMPTON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
First quarter ended 2002 and 2001
(In thousands of dollars)
Increase (decrease) in cash 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 6,755 $ 15,770
Adjustments to reconcile net earnings
to net cash (used in) provided by
operations:
Depreciation and amortization 38,079 46,924
Equity income (2,264) (5,987)
Changes in assets and liabilities, net:
Accounts receivable (55,348) (38,401)
Inventories 29,696 (23,766)
Accounts payable 25,950 106,463
Other (52,735) (44,473)
Net cash (used in) provided by
operations (9,867) 56,530
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (16,836) (36,624)
Other investing activities 323 5,597
Net cash used in investing activities (16,513) (31,027)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on long-term
borrowings 19,651 (63,336)
(Payments) proceeds on short-term
borrowings (14,469) 5,171
Proceeds from sale of accounts
receivable 14,111 17,265
Dividends paid (5,666) (5,651)
Other financing activities 1,628 4,614
Net cash provided by (used in)
financing activities 15,255 (41,937)
CASH
Effects of exchange rate changes on cash (554) (393)
Change in cash (11,679) (16,827)
Cash at beginning of period 21,506 20,777
Cash at end of period $ 9,827 $ 3,950
See accompanying notes to consolidated financial statements.
CROMPTON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The information in the foregoing consolidated financial
statements is unaudited, but reflects all of the adjustments
which, in the opinion of management, are necessary for a fair
presentation of the results of operations for the interim periods
presented.
Included in accounts receivable are allowances for doubtful
accounts of $18.3 million at March 31, 2002 and $16.9 million at
December 31, 2001.
Accumulated depreciation amounted to $742.3 million at March 31,
2002 and $707.7 million at December 31, 2001.
It is suggested that the interim consolidated financial
statements be read in conjunction with the consolidated financial
statements and notes included in the Company's 2001 Annual Report
on Form 10-K.
FACILITY CLOSURES, SEVERANCE AND RELATED COSTS
As a result of the cost reduction initiative announced in July
2001, the Company recorded a pre-tax charge of $114 million for
facility closures, severance and related costs in 2001, of which
accruals totaling $41.1 million remained at December 31, 2001.
During the first quarter of 2002, these accruals were reduced by
payments of $3.8 million relating primarily to severance and
related items.
GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 141, "Business
Combinations" and Statement No. 142, "Goodwill and Other
Intangible Assets." Statement No. 141 requires that all business
combinations initiated after June 30, 2001 be accounted for using
the purchase method of accounting. It also specifies criteria
that must be met for intangible assets acquired in a purchase
combination to be recognized apart from goodwill. Statement No.
142 requires that the useful lives of all existing intangible
assets be reviewed and adjusted if necessary. It also requires
that goodwill and intangible assets with indefinite lives no
longer be amortized, but rather be tested for impairment at least
annually. Other intangible assets will continue to be amortized
over their useful lives and reviewed for impairment in accordance
with Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets."
In accordance with Statement No. 142, the Company discontinued
the amortization of goodwill effective January 1, 2002. The
following is a reconciliation to adjust previously reported
quarterly financial information to exclude goodwill amortization
expense:
(In thousands, except per share data) March 31, 2001
Net Earnings Per Share
Earnings Basic Diluted
Net earnings, as reported $ 15,770 $0.14 $0.14
Goodwill amortization expense 6,660 0.06 0.05
Adjusted net earnings $ 22,430 $0.20 $0.19
The Company has reviewed the classification of its intangible
assets and goodwill in accordance with Statement No. 141 and has
concluded that no change in the classification of its intangible
assets and goodwill is required. The Company's intangible assets
(excluding goodwill) are included in "other assets" on the
balance sheet and are comprised of the following:
(In thousands) March 31, 2002 December 31, 2001
Gross Accumulated Gross Accumulated
Cost Amortization Cost Amortization
Patents $135,091 $ (90,319) $132,923 $ (89,233)
Trademarks 89,709 (27,609) 94,136 (26,988)
Other 79,013 (45,735) 79,250 (44,646)
Total $303,813 $(163,663) $306,309 $(160,867)
The Company has reassessed the useful lives of its intangible
assets as required by Statement No. 142 and determined that the
existing useful lives are reasonable. Amortization expense
related to intangible assets amounted to $3.1 million and $3.3
million for the three months ended March 31, 2002 and 2001,
respectively. Estimated amortization expense for the next five
fiscal years is as follows: $12.5 million (2002), $13.1 million
(2003), $13.3 million (2004), $13.0 million (2005) and $13.2
million (2006).
During the first quarter, in accordance with the goodwill
impairment provisions of Statement No. 142, the Company allocated
its assets and liabilities, including goodwill, to its reporting
units. Much of the goodwill relates to the 1999 acquisition of
Witco Corporation and, accordingly, has been allocated to the
former business units of Witco. As a result of the allocation,
goodwill by reportable segment is as follows:
(In thousands) March 31, December 31,
2002 2001
Polymer Products
Polymer Additives $425,008 $425,011
Polymers 17,299 17,299
Polymer Processing Equipment 29,575 29,725
471,882 472,035
Specialty Products
OrganoSilicones 221,465 221,465
Crop Protection 54,858 54,922
Other 148,982 148,982
425,305 425,369
Total $897,187 $897,404
The Company is in the process of finalizing its reporting unit
fair value calculations as required by the goodwill impairment
provisions of Statement No. 142. The Company will complete this
process during the second quarter of 2002 and any impairment
losses will be recognized as a cumulative effect of an accounting
change as of the first quarter of 2002. Such losses are not
estimable at this time.
COMMON STOCK
As of March 31, 2002, there were 119,187,077 common shares issued
and 113,425,243 common shares outstanding at $.01 par value.
INVENTORIES
Components of inventories are as follows:
(In thousands) March 31, December 31,
2002 2001
Finished goods $ 348,063 $ 377,463
Work in process 16,873 22,110
Raw materials and supplies 94,621 92,120
$ 459,557 $ 491,693
EARNINGS PER COMMON SHARE
The computation of basic earnings per common share is based on
the weighted average number of common shares outstanding. The
computation of diluted earnings per common share is based on the
weighted average number of common and common equivalent shares
outstanding. The following is a reconciliation of the shares used
in the computations:
(In thousands) First quarter ended
2002 2001
Weighted average common shares
outstanding 113,274 112,969
Effect of dilutive stock options and
other equivalents 2,527 3,211
Weighted average common and common
equivalent shares outstanding 115,801 116,180
COMPREHENSIVE INCOME (LOSS)
An analysis of the Company's comprehensive income (loss) follows:
(In thousands) First quarter ended
2002 2001
Net earnings $ 6,755 $ 15,770
Other comprehensive income (expense):
Foreign currency translation
adjustments (9,670) (21,464)
Change in fair value of derivatives
and other 7,062 (302)
Comprehensive income (loss) $ 4,147 $ (5,996)
The components of accumulated other comprehensive loss at March
31, 2002 and December 31, 2001 are as follows:
(In thousands) March 31, December 31,
2002 2001
Foreign currency translation
adjustments $ (115,541) $(105,871)
Minimum pension liability adjustment (39,403) (39,403)
Fair value of derivatives and other 497 (6,565)
Accumulated other comprehensive loss $ (154,447) $(151,839)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted FASB Statement No.
133, "Accounting for Derivative Instruments and Hedging
Activities," and Statement No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" (the
"Statements"). In accordance with the Statements, the Company
recognizes changes in the fair value of all derivatives
designated as fair value hedging instruments in earnings, and
recognizes changes in the fair value of all derivatives
designated as cash flow hedging instruments as a component of
accumulated other comprehensive loss (AOCL).
For the quarter ended March 31, 2001, the Company recorded a pre-
tax gain of $546,000 to other (income) expense related to its
fair value hedges. The Company also recorded a loss of $590,000
as a component of AOCL in the first quarter of 2001 related to
its interest rate swap cash flow hedges. These amounts include
the implementation impact of the Statements.
For the quarter ended March 31, 2002, the change in the fair
value of the Company's fair value hedges was not significant.
The change in the fair value of the Company's interest rate swap
cash flow hedges resulted in a gain of $462,000 recorded as a
component of AOCL. The change in the fair value of the Company's
equity cash flow hedge resulted in a deferred gain of $6.1
million recorded as a component of AOCL. This deferred equity
gain is subject to changes in the Company's stock price and will
be amortized ratably to earnings over the remaining service
periods of the hedged long-term incentive plans.
During the first quarter of 2002, the Company entered into
Japanese Yen (JPY) denominated foreign currency forward contracts
as hedges of its exposure to variability in expected future cash
flows attributable to changes in foreign exchange rates. These
contracts are designated as cash flow hedges of forecasted JPY
denominated sales. Changes in the fair value of these forward
contracts will be recorded on the balance sheet with the
effective portion deferred as a component of AOCL and the
ineffective portion recognized in earnings. The component
deferred to AOCL will be recognized in earnings in the same
period in which the forecasted transactions are recognized.
Accordingly, the Company deferred a gain of $379,000 as a component
of AOCL as of March 31, 2002 to recognize the fair value of these
contracts.
BUSINESS SEGMENT DATA
On April 12, 2002, the Company announced certain modifications
within its financial reporting segments to reflect the current
management and operating structure in its portfolio of
businesses. First, a reclassification of Petroleum Additives
from the "Other" category to the Polymer Additives segment. This
change reflects the similarity of product and product enhancing
characteristics of these additives, as well as shared
manufacturing processes and facilities. Second, a
reclassification of divestiture candidate Industrial Specialties
from the Crop Protection segment to the "Other" category, where
it joins Crompton's other main divestment property, Refined
Products. Third, a reclassification of Glycerine and Fatty Acids
from the "Other" category into plastic additives (included in the
Polymer Additives segment). This change recognizes that
glycerine and fatty acids are a by-product of in-house production
for use in the plastic additives business. Fourth, a
reclassification of trilene (a minor product line with less than
$3.4 million in annual sales) from petroleum additives (included
in the Polymer Additives segment) to EPDM (included in the
Polymers segment). The former classification was predicated on
the product's use in lubricant applications, while the new
designation is consistent with the chemistry of trilene, which is
a liquid form of EPDM. The following segment information
reflects these modifications.
(In thousands) First quarter ended
2002 2001
Net Sales
Polymer Products
Polymer Additives $ 267,235 $ 308,939
Polymers 67,480 82,262
Polymer Processing Equipment 49,805 58,746
Eliminations (3,319) (3,924)
381,201 446,023
Specialty Products
OrganoSilicones 113,756 111,890
Crop Protection 52,472 60,074
Other 97,409 119,949
263,637 291,913
Total net sales $ 644,838 $ 737,936
Operating Profit
Polymer Products
Polymer Additives $ 11,631 $ 18,701
Polymers 8,649 14,289
Polymer Processing Equipment 80 1,057
20,360 34,047
Specialty Products
OrganoSilicones 7,051 11,370
Crop Protection 14,470 25,891
Other 3,481 3,693
25,002 40,954
General corporate expense,
including amortization (12,629) (19,792)
Total operating profit $ 32,733 $ 55,209
As a result of the modifications to the Company's reportable
segments, the asset information by segment reported in the
Company's 2001 annual report has been restated as follows:
(In thousands)
Assets Year Ended 2001
Polymer Products
Polymer Additives $ 723,510
Polymers 155,485
Polymer Processing Equipment 101,498
980,493
Specialty Products
OrganoSilicones 381,609
Crop Protection 153,907
Other 234,584
770,100
Corporate 1,481,595
Total assets $3,232,188
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER RESULTS
Overview
Consolidated net sales of $644.8 million for the first quarter of
2002 decreased 13% from the comparable period in 2001. The
decrease was primarily the result of the weak domestic economy
(including an 8% decline in unit volume and 2% lower pricing),
the 2001 divestiture of the industrial colors business (2%
negative) and foreign currency translation (1% negative).
International sales, including U.S. exports, were 50% of total
sales, up slightly from 49% in the first quarter of 2001.
Gross margin as a percentage of sales was 28.8% for the first
quarter of 2002 as compared to 30.3% for the first quarter of
2001. The decrease was primarily due to the impact of reduced
selling prices and higher manufacturing costs attributable to
reduced plant throughput, partially offset by lower raw material
and energy costs.
Consolidated operating profit was $32.7 million as compared to
operating profit of $55.2 million for the first quarter of 2001.
Net earnings for the first quarter were $6.8 million, or $0.06
per common share, as compared to net earnings of $15.8 million,
or $0.14 per common share, in the first quarter of 2001. The
decreases in net earnings and operating profit were primarily due
to the decrease in gross margin, partially offset by the impact
of the Company's cost savings initiatives and the implementation
of the goodwill non-amortization provision of FASB Statement No.
142.
Polymer Products
Polymer additives sales of $267.2 million were down 13% from the
prior year due to a reduction in unit volume of 9%, lower prices
of 3% and foreign currency translation of 1%. Plastic and
urethane additives sales decreased 11% and 18%, respectively, due
primarily to much stronger economic conditions in the prior year.
Rubber additives sales were down 24% due mainly to lower unit
volume resulting from a weak automotive market and business lost
following a price increase in the third quarter of 2001.
Petroleum additives sales declined 3% due equally to lower
volume, price and foreign currency translation. Operating profit
of $11.6 million was down 38% from the first quarter of 2001
mainly as a result of lower pricing, reduced demand and higher
manufacturing costs attributable to reduced plant throughput,
partially offset by lower raw material and energy costs.
Polymer sales of $67.5 million were down 18% from the prior year
as a result of a 13% decline in unit volume and a 5% decrease in
prices. EPDM sales declined 20% as industry overcapacity
resulted in lower unit volume and reduced selling prices.
Urethanes sales were down 15% due primarily to much stronger
economic conditions in the prior year. Operating profit of $8.6
million decreased 39% from the prior year due primarily to lower
unit volume, reduced EPDM selling prices and higher manufacturing
costs attributable to reduced plant throughput, partially offset
by lower raw material and energy costs.
Polymer processing equipment sales of $49.8 million declined 15%
from the prior year due mainly to lower unit volume resulting
from a dramatic decline in domestic demand for capital equipment.
Operating profit of $0.1 million was $1.0 million less than the
first quarter of 2001 as the impact of lower sales more than
offset significant cost savings attributable to a reduction in
workforce and plant consolidation. Backlog at the end of March
was $77 million, down $6 million from the end of 2001.
Specialty Products
OrganoSilicones sales of $113.8 million were up 2% from the first
quarter of 2001 as a 7% increase in unit volume (primarily sulfur
silanes in Europe) offset lower pricing of 3% and unfavorable
foreign currency translation of 2%. Despite higher sales,
operating profit of $7.1 million was down 38% from the prior year
mainly as a result of lower selling prices, an unfavorable sales
mix and start-up costs associated with the plant expansion in
Italy.
Crop protection sales of $52.5 million were down 13% from the
prior year due to a decline in unit volume of 10%, lower pricing
of 1% and lower foreign currency translation of 2%. Unit volume
was down mainly as a result of unusually strong prior year demand
in Europe, and high distributor inventories and new competitor
registrations in Canada. Operating profit of $14.5 million was
44% lower than the prior year due mainly to lower unit volume, a
prior year non-recurring pension gain of $4.7 million and lower
joint venture equity income of $4.3 million.
Other sales of $97.4 million declined 19% from the first quarter
of 2001 with 9% due to the colors divestment and the remainder
due primarily to lower unit volume in the remaining businesses.
Refined products and industrial specialties sales were down 10%
and 11%, respectively, versus the much stronger economic period
last year. Operating profit of $3.5 million was down 6% from the
prior year due primarily to the impact of the colors divestment
and lower unit volume, offset in part by lower operating expenses
including a reduction in raw material and energy costs.
Other
Selling, general and administrative expenses of $97.2 million
decreased 9% versus the first quarter of 2001. This decrease was
primarily due to lower sales activity, the Company's cost savings
initiatives and the 2001 divestiture of the industrial colors
business. Depreciation and amortization decreased 19% primarily
due to the implementation of the goodwill non-amortization
provision of FASB Statement No. 142 and reduced depreciation
expense resulting from the fourth quarter 2001 impairment charge
related to the rubber additives and trilene businesses. Research
and development costs decreased 2%, but increased as a percentage
of sales to 3.1% from 2.8%. Interest expense of $26.1 million
decreased 9% mainly due to lower interest rates on the Company's
borrowings and a decrease in the debt balance outstanding. The
effective tax rate decreased to 24% from 36% in the comparable
quarter of 2001 primarily due to the impact of the goodwill non-
amortization provision of FASB Statement No. 142.
LIQUIDITY AND CAPITAL RESOURCES
The March 31, 2002 working capital balance of $207.7 million
increased $75.2 million from the year-end 2001 balance of $132.5
million, and the current ratio increased to 1.3 from 1.2. The
higher level of working capital was due primarily to the net
effect of increases in accounts receivable, other current assets
and accounts payable, and decreases in accrued expenses, income
taxes payable and inventory. Days sales in receivables decreased
to 29 days for the first three months of 2002, versus 41 days for
the first three months of 2001, primarily due to improved
collection efforts and the impact of accounts receivable
securitization programs. Excluding the accounts receivable
securitization programs, days sales in receivables decreased to
62 days from 68 days in the first quarter of 2001. Inventory
turnover increased to 3.8 from 3.6 for the same period of 2001
primarily as a result of the Company's ongoing efforts to reduce
its inventory investment.
Net cash used in operations was $9.9 million for the first three
months of 2002, as compared to net cash provided by operations of
$56.5 million for the first three months of 2001. The decrease
was primarily the result of an increase in accounts receivable
and a decrease in accounts payable, partially offset by a
decrease in inventory. The Company's debt to total book capital
ratio was 72%, unchanged from year-end 2001. The Company's
future liquidity needs are expected to be financed from
operations.
The Company has a 364-day senior unsecured revolving credit
facility of $125 million available through September 2002 and a
five-year senior unsecured credit facility of $400 million
available through October 2004. Borrowings on these facilities
are at various rate options to be determined on the date of
borrowing. Borrowings under these agreements amounted to $175
million at March 31, 2002 and carried a weighted average interest
rate of 3.74%.
In addition, the Company has an accounts receivable
securitization program to sell up to $200 million of domestic
accounts receivable to agent banks. As of March 31, 2002, $144
million of domestic accounts receivable had been sold under these
programs. In addition, the Company's European subsidiaries have
two separate agreements to sell up to $109 million of accounts
receivable to agent banks. As of March 31, 2002, $108 million of
international accounts receivable had been sold under these
programs.
The Company is on schedule to relocate its corporate headquarters
from Greenwich to Middlebury, CT during the second half of 2002
and to sublease the Greenwich facility. The Company estimates
pre-tax charges of approximately $10 to $12 million relating to
the move (approximately 50% non-cash), and expects to have pre-
tax savings of $8 to $10 million per year.
The Company is continuing work on the divestitures of both its
Refined Products and Industrial Specialties businesses. The
Company anticipates that the Industrial Specialties divestiture
will be completed during the second quarter of 2002 and the
Refined Products divestiture will be completed during the third
quarter of 2002, with proceeds used to pay down debt.
Capital expenditures for the first three months of 2002 amounted
to $16.8 million as compared to $36.6 million during the same
period of 2001. The decrease is primarily due to a reduction in
spending and the completion in 2001 of OrganoSilicones facility
expansions in Sistersville, West Virginia and Termoli, Italy.
Capital expenditures are expected to approximate $110 million in
2002, primarily for the Company's replacement needs and
improvement of domestic and foreign facilities.
ACCOUNTING DEVELOPMENTS
Effective January 1, 2002, the Company adopted the provisions of
Financial Accounting Standards Board (FASB) Statement No. 141,
"Business Combinations" and Statement No. 142, "Goodwill and
Other Intangible Assets." The Company has implemented Statement
No. 141 and the goodwill non-amortization provisions of Statement
No. 142. The Company is in the process of evaluating its
goodwill for impairment in accordance with Statement No. 142 and
should be completed with the process by the end of the second
quarter of 2002. For further details, see the Goodwill and
Intangible Assets footnote included in the Notes to Consolidated
Financial Statements (Unaudited) section of this Form 10Q.
In August 2001, the FASB issued Statement No. 143, "Accounting
for Asset Retirement Obligations." Statement No. 143 requires
companies to record a liability for asset retirement obligations
associated with the retirement of long-lived assets. Such
liabilities should be recorded at fair value in the period in
which a legal obligation is created. The provisions of Statement
No. 143 are effective for fiscal years beginning after June 15,
2002. The Company is in the process of reviewing the provisions
of Statement No. 143 and does not expect it to have a material
impact on its earnings and financial position.
Effective January 1, 2002, the Company adopted the provisions of
Statement No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." The Company reviewed the provisions of
Statement No. 144 and concluded that it is in compliance with the
provisions of this Statement and there is no implementation
impact.
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.
The Company continually 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 March 31,
2002, the Company's reserves for environmental remediation
activities totaled $140.4 million. It is 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 the Company's consolidated results of operations in any given
year if a significant number of these matters are resolved
unfavorably.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-Q 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, expected
restructuring activities and cost reductions, 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 this Form 10-Q was issued and such information will not
necessarily be updated by the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Refer to the Market Risk & Risk Management Policies section of
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Derivative Instruments and Hedging
Activities Note to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended
December 31, 2001. Also refer to the Derivative Instruments and
Hedging Activities Note to Consolidated Financial Statements
(Unaudited) included in this Form 10-Q.
The fair market value of long-term debt is subject to interest
rate risk. The Company's long-term debt amounted to $1,412
million at March 31, 2002. The fair market value of such debt
was $1,379 million which has been determined primarily based on
quoted market prices.
There have been no other significant changes in market risk since
December 31, 2001.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Stockholders was held on
April 30, 2002.
(b) Proxies for the Annual Meeting were solicited pursuant
to Regulation 14 under the Securities Exchange Act of
1934; there was no solicitation in opposition to the
nominee for the Board of Directors as listed in the
Proxy Statement; and such nominee was elected.
(c) A brief description of each matter voted upon at the
Annual Meeting, and the results of voting, are as follows:
1. Election of Class II director to serve
for a term expiring in 2005:
FOR WITHHELD
Robert A. Fox 94,890,536 shares 2,973,132 shares
2. Approval of the selection by the Board of Directors
of KPMG LLP as independent auditors for 2002:
FOR AGAINST ABSTAINED
92,786,839 shares 4,976,251 shares 100,578 shares
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
10.1 Form of 2002-2004 Long-Term Incentive Award
Agreement, dated as of March 26, 2002, by and
between the Registrant and various of its
executive officers (filed herewith).
10.2 Crompton Corporation Benefit Equalization Plan,
amended as of April 30, 2002 (filed herewith).
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
CROMPTON CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CROMPTON CORPORATION
(Registrant)
Date: May 13, 2002 Peter Barna
Senior Vice President
and Chief Financial Officer
Date: May 13, 2002 Barry J. Shainman
Secretary