Item 1 Business
General
Octel Corp., a Delaware corporation (the "Company") is a major manufacturer and distributor of fuel additives and other specialty chemicals. Its primary manufacturing operation is located at Ellesmere Port, South Wirral, United Kingdom. The Company's products are sold globally, primarily to oil refineries. Principal product lines are lead alkyl antiknock compound ("TEL"), other petroleum additives and performance chemicals.
Until May 22, 1998, the Company was a wholly owned subsidiary of Great Lakes Chemical Corporation, a Delaware corporation ("GLCC"). On May 22, 1998, GLCC consummated the spin-off of its petroleum additives business by distributing shares in the Company to the stockholders of GLCC in a ratio of one Company share for every four GLCC shares held. In connection with the spin-off the Company issued 14,762,417 shares of common stock on May 26, 1998. A further 969 shares were subsequently issued in respect of late notified changes in GLCC stockholders at the record date of the spin-off issue.
The term "Octel" as used herein means Octel Corp. and its subsidiaries unless the context indicates otherwise.
Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 14 through 19 of the 2000 Annual Report to Stockholders (the "Report") are incorporated herein by reference.
Segmental Information
The Company presently has one dominant industry segment, petroleum additives. Note 2 on the Financial Statements included in the Report (the "Financial Statements") on pages 29 and 30 of the Report, is incorporated herein by reference.
Description of the Business
Management's Discussion and Analysis of Financial Condition and Results of Operations, on pages 14 through 19 of the Report, is incorporated herein by reference.
Overview - --------
The Company is an international chemical company specialising in the manufacture, distribution and marketing of fuel additives and specialty chemicals. The Company is organised into two business units for reporting purposes - TEL and Specialty Chemicals.
TEL - ---
TEL, the most significant of the Company's products, accounted for approximately 71% of the Company's 2000 sales. TEL was first developed in 1928 and introduced into the European market for internal combustion engines to boost octane levels in gasoline, allowing it to burn more efficiently and eliminating engine knock. It also acts as a lubricity aid, reducing engine wear.
Worldwide use of TEL has declined since 1973 following the enactment of the US Clean Air Act of 1970 and similar legislation in other countries, and management believes that volumes will continue to fall by some 15% per annum.
The Company intends to manage the decline safely and effectively and to maximize the cash flow through the decline. Continuous cost improvement measures have been, and will continue to be, taken to respond to declining market demand.
Specialty Chemicals - -------------------
The Specialty Chemicals Business Unit comprises two developing business areas - Petroleum Specialties and Performance Chemicals.
The Petroleum Specialties business develops, produces and markets a range of specialty products used as fuel additives built on the TEL operations. The Company has developed a range of products and customized blends to meet market demand for cleaner-burning and more efficient fuels. The Refinery Services unit supplies a growing list of products and services that improve operational efficiencies and product performance at the refinery. Collaborative ventures with Hi-Mar, joint ventures such as Valvemaster(R) Limited and Octel Starreon LLC, and acquisitions such as Octel Deutschland GmbH are part of an ongoing program of growth through mergers and acquisitions.
The Performance Chemicals focus going forward is to develop high performance and particularly environmentally friendly products from its technology base. The major current line is the Octaquest(R) family, developed for the detergent market but now addressing new markets in personal care, paper and photographics.
Raw Materials - -------------
Raw material purchases account for a substantial portion of the Company's manufacturing costs. The major purchases are lead, sodium, ethyl chloride and dibromoethane. These materials are available readily from more than one source, and the Company uses long term contracts to enhance the security of supply and manage the risk of price escalation.
Patents and Intellectual Property - ---------------------------------
The Company has a portfolio of trademarks and patents, granted and in the application stage, covering products and processes. These trademarks and patents relate primarily to the Petroleum Specialties and the Performance Chemicals businesses, in which intellectual property forms a significant part of the Company's competitive strengths. The majority of these patents were developed by the Company. Most patents have more than ten years life remaining. The Company also holds a license for the manufacture of fuel detergents. The Company has trademark registrations for the use of the name Octel(R) and for the Octagon device in Classes 1 and 4 of the "International Classification of Goods and Services for the Purposes of the Registration of Marks" in all countries in which it has a significant market presence except for the US in respect of which the appropriate applications have been made. Octel also has trademark registrations for Octaquest(R). The Company has application in progress for a number of other trademark registrations in several jurisdictions.
Octel America Inc., a subsidiary of the Company, has trademarks for Stadis(R), an aviation and ground fuel conductivity improver, Ortholeum(R), a lube oil additive antioxidant and metal deactivator, Ocenol(R), an antifoam for refinery use, and Valvemaster(R), a valve seat recession additive. The Company does not consider its business as a whole to be dependent on any one trademark, patent or licence.
Customers - ---------
TEL sales are made principally to the retail refinery market which comprises independent, state or major oil company-owned refineries located throughout the world. Within this market, refineries owned by British Petroleum, Mobil Oil and Texaco Oil are entitled to profit participation payments, based on their ongoing purchases from the Company, by virtue of their former partnership interest in Octel Associates, an Octel Corp. subsidiary. Selling prices to major customers are negotiated under long-term supply agreements, with varying prices and terms of payment.
The customers of the Specialty Chemicals business are multinational oil companies and fuel retailers. Traditionally, a large portion of the total market was captive to oil companies which had fuel additives divisions providing supplies directly to their respective refinery customers. As a result of corporate restructurings and various mergers, joint ventures and other collaborative arrangements involving downstream refining and marketing operations, the tied supply arrangements between oil companies and their captive fuel additive divisions have been weakened and many refineries are increasingly looking to purchase their fuel additive requirements on the open market. This trend is creating new opportunities for independent additive marketers such as the Company.
Competition - -----------
The world-wide market for the Company's primary product, TEL, is highly competitive. In this market Octel competes not only with other sellers of TEL but with marketers of products and processes providing alternative ways of enhancing octane performance in automotive gasoline. Government regulations have restricted or eliminated the use of TEL as an automotive gasoline additive in many of the largest and developed markets such as the US. As a result, worldwide demand for TEL is progressively shrinking as the use of unleaded gasoline becomes more widespread. On a worldwide basis Octel remains the largest TEL marketer.
The Company's Specialty Chemicals business operates in a competitive environment, with its main competitors being large oil and chemical companies. No one company holds a dominant market share. The Company considers its competitive strengths are its strong technical development capacity, independence from major oil companies and its strong long-term relationships with refinery customers in the TEL market which provide synergies with the petroleum additives business.
Ethyl Agreements - ----------------
Effective October 1, 1998 the Company's UK subsidiary The Associated Octel Company Limited ("Associated Octel") signed agreements with Ethyl to market and sell TEL in areas of the world excluding North America and European Union. Under the agreements, all marketing and sales efforts made to customers are managed by and made in the name of Associated Octel. Ethyl provides bulk transportation services in support of the agreements while Octel continues to produce all TEL marketed under these agreements. Depending upon cost, performance and flexibility, one or both companies provide other TEL services.
Effective January 1, 2000, OBOAdler entered into sales and marketing agreements with Ethyl similar to those in place with Associated Octel.
Octel supplies Ethyl on a wholesale basis with TEL for resale to customers in the United States and European union under two separate long term supply agreements at prices adjusted annually through agreed formulas.
Technology - ----------
The Company's research and development facilities are located at Ellesmere Port, UK, while its advanced fuel testing facility to support the TEL and Petroleum Specialties businesses is located at Bletchley, UK. The Company's research and development activity has been, and will continue to be, focused on the development of new products and formulations for the Petroleum Specialties and the Performance Chemicals businesses. Technical customer support is also provided for the TEL business. Expenditures to support research, product/application development and technical support services to customers were $3.1 million, $3.9 million and $3.1 million in 2000, 1999 and 1998, respectively. The Company considers that its strong technical capability provides it with a significant competitive advantage. In the last three years, the Petroleum Specialties business has developed new detergent, lubricity and combustion improver products, in addition to the introduction of several new cost effective fuel additive packages. A patented process for manufacturing Octaquest(R) has enabled the Company to enter into a new market in the performance chemicals area.
Health, Safety and Environmental Matters - ----------------------------------------
The Company is subject to Environmental Laws in all of the countries in which it does business. The principal Environmental Laws to which the Company is subject in the UK are the Environmental Protection Act 1990, the Water Resources Act 1991, the Health and Safety at Work Act 1974 and regulations and amendments thereto. Management believes that the Company is in material compliance with all applicable Environmental Laws, and has made appropriate provision for the continued costs of compliance with Environmental Laws. Nevertheless, there can be no assurance that changes in existing Environmental Laws, or the discovery of additional liabilities associated with the Company's current or former operations, will not have a material adverse effect on the Company's business, results of operations or financial condition.
Human Resources - ---------------
The Company's workforce at December 31, 2000 consisted of 860 employees, of which 552 were in the UK. Approximately 60% of the Company's employees in the UK are represented by unions, including the Transport and General Workers Union and the Amalgamated Engineering and Electrical Union.
The Company has in place an employee communication program to help its employees understand the business issues surrounding the Company, the TEL business and the corporate downsizing program that has been implemented to respond to declining TEL demand. Regular briefings are conducted by line managers where Company-wide and departmental issues are discussed. More formal communication takes place with the trade unions which the Company recognizes for negotiating and consultative purposes.
Management believes that the communication program has been highly successful and has contributed to achieving a significant reduction in the Company's UK workforce in recent years. The Company has
implemented an extensive retraining program which will enable further improvements in the productivity and flexibility of the Company's UK workforce.
Item 2
Item 2 Properties
A summary of the Company's principal facilities is shown in the following table. Each of these properties is owned by the Company, except where otherwise noted:-
Location Principal Operations - -------- --------------------
Newark, Delaware, US/(1)/ Octel Corp. Headquarters; Petroleum Specialties regional office Manchester, (UK)/(1)/ Octel Corp. European Headquarters Ellesmere Port, UK Associated Octel Headquarters; Business Team; Manufacturing; Research & Development; Administration Bletchley, UK Fuel Technology Center Herne, Germany/(1)/ Octel Deutschland GmbH; Manufacturing and Administration Doberitz, Germany Novoktan GmbH; Manufacturing and Administration
/(1)/ Leased property
The group's TEL manufacturing sites are at Ellesmere Port and Novoktan. Ellesmere Port's TEL manufacturing capacity is currently 30,000 metric tons (mt) per annum, and that of Novoktan is 9,600 mt per annum. Actual annual operating levels are under review as part of management's response to the decline in TEL markets. There is also a chlorine plant (46,000 mt per annum) at Ellesmere Port which is owned by the Company but operated on behalf of a third party.
The group's Specialty Chemicals manufacturing capacity at Ellesmere Port comprises a detergent plant (6,000 mt per annum) and an EDDS plant (3,000 mt per annum) for the manufacture of Octaquest(R).
Item 3
Item 3 Legal Proceedings
There are no material pending legal proceedings involving the Company, its subsidiaries or any of its properties. Furthermore, no director, officer or affiliate of the Company or any associate of any director or officer is involved, or has a material interest in, any proceedings which would have a material adverse effect on the Company.
Item 103 of Regulation S-K requires disclosure of administrative or judicial proceedings arising under any federal, state or local provisions dealing with protection of the environment, if the monetary sanctions might exceed $100,000. There are currently no such proceedings.
Item 4
Item 4 Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the quarter ended December 31, 2000.
PART II - -------
Item 5
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is listed on the New York Stock Exchange. As of February 28, 2001 there were approximately 2,107 registered holders of the common stock.
Quarterly stock prices on page 40 of the Report are incorporated herein by reference.
The borrowings entered into by the Company in relation to the spin-off from GLCC and the acquisition of OBOAdler restrict the Company's ability to pay dividends or buy back stock to a maximum of $15 million per annum in aggregate.
Item 6
Item 6 Selected Financial Data
The Financial Highlights on page 11 of the Report and the Quarterly Summary on page 40 of the Report are incorporated herein by reference.
Item 7
Item 7 Management's Discussion and Analysis of Results of Operation and Financial Condition
The discussion on pages 14 through 19 of the Report is incorporated herein by reference.
Item 7a
Item 7a Quantitative and Qualitative Disclosure About Market Risk
Information relating to the Company's exposure to market risk on page 39 of the Report is incorporated herein by reference.
Item 8
Item 8 Financial Statements and Supplementary Data
The consolidated financial statements, together with the report of PricewaterhouseCoopers dated February 8, 2001 and quarterly financial information, which are on pages 14 through 40 of the Report, are incorporated herein by reference. The Financial Highlights on page 11 of the Report are also incorporated herein by reference.
Item 9
Item 9 Changes In and Disagreement with Accountants on Accounting and Financial Disclosures
Until May 22, 1998 the Company was a subsidiary of GLCC. Accordingly the Combined Financial Statements for the period ended December 31, 1997 were audited by Ernst & Young LLP, auditors of GLCC. The Company's management sought independent advice from PricewaterhouseCoopers on certain aspects of the spin- off from Great Lakes. Following the consummation of the spin-off and the creation of Octel as a group independent of GLCC, the Board of Directors believed that it was appropriate to appoint PricewaterhouseCoopers as the auditors of Octel Corp., and all its UK and US subsidiaries. PricewaterhouseCoopers were duly appointed on August 11, 1998. Ernst & Young were never appointed as auditors of Octel Corp., so their resignation was not required.
PART III - --------
Item 10
Item 10 Directors and Executive Officers of the Registrant
Information under the heading "Management" set out in the proxy statement relating to the 2001 Annual Meeting of Stockholders dated May 8, 2001 ("The Proxy Statement") is incorporated herein by reference.
Item 11
Item 11 Executive Compensation
The information under the heading "Executive Compensation and Other Information" in The Proxy Statement is incorporated herein by reference.
Item 12
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information under the heading "Security Ownership of Certain Beneficial Owners and Management" in The Proxy Statement is incorporated herein by reference.
Item 13
Item 13 Certain Relationships and Related Transactions
There were no transactions which require disclosure.
PART IV
Item 14
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The Consolidated Financial Statements of Octel Corp. and its subsidiaries and related notes thereto, together with the report thereon of PricewaterhouseCoopers dated February 8, 2001 appearing on pages 14 through 40 of the 2000 Annual Report to Stockholders, are incorporated by reference in Item 8.
(2) Financial Statement Schedules
All financial statement schedules have been omitted since the information required to be submitted has been included in the financial statements or because they are either not applicable or not required under the Rules of Regulations S-X.
(3) Exhibits
2.1 Transfer and Distribution Agreement, dated as of April 24, 1998, between Great Lakes Chemical Corporation ("GLCC") and the Registrant. (3) 3.1 Amended and Restated Certificate of Incorporation of the Registrant. (1) 3.2 Amended and Restated By-laws of the Registrant. (1) 4.1 Form of Common Stock Certificate. (2) 4.2 Form of Rights Agreement between the Registrant and First Chicago Trust Company of New York, as Rights Agent. (2) 4.3 Form of Certificate of Designations, Rights and Preferences of Series A Junior Participating Preferred Stock of the Registrant. (2) 4.4 Indenture dated as of May 1, 1998 among the Registrant, Octel Developments PLC and the IBJ Schroder Bank and Trust Company, as trustee. (4) 4.5 Form of 10% Senior Notes (contained in Exhibit 4.4 as Exhibit A). (4) 4.6 Registration Rights Agreement dated as of April 30, 1998 among the Registrant, Octel Developments PLC and the initial purchasers. (1) 4.7 Purchase Agreement dated as of April 30, 1998 among the Initial Purchasers, Octel Developments PLC and the Registrant. (4) 7.1 Share purchase agreement between OBOAdler Holdings Limited and The Associated Octel Company Limited relating to the sale and purchase of the whole of the issued share capital of OBOAdler Company Limited, dated June 1, 1999. (6). 7.2 $100,000,000 term loan agreement between Octel Corp., Octel Associates, Barclays Capital, Barclays Bank plc and others, dated June 3, 1999 (6). 10.1 Tax Disaffiliation Agreement between GLCC and the Registrant. (1) 10.2 Corporate Services Transition Agreement between GLCC and the Registrant. (1) 10.3 Supply Agreement between GLCC and the Registrant for the supply of ethylene dibromide. (1) 10.4 Supply Agreement between GLCC and the Registrant for the Supply of anhydrous hydrogen bromide. (1) 10.5 Supply Agreement for the Supply of 10% sodium hydroxide solution. (1)
10.6 Ethyl Corporation Market and Sales Agreement. (4) 10.7 Octel Corp. Non Employee Directors Stock Option Plan. (4) 10.8 Employment Agreement between Associated Octel Limited and Steve W Williams, Geoff J Hignett, Graham M Leathes and Robert A Lee. (1) 10.9 Employment Agreement between Associated Octel Limited and Dennis J Kerrison. (1) 10.10 Agreement between GLCC and the Registrant for the Toll Manufacturing of Stadis Product. (4) 10.11 Octel Corp. Time Restricted Stock Option Plan. (3) 10.12 Octel Corp. Performance Related Stock Option Plan. (3) 10.13 Associated Octel Savings-Related Stock Option Plan. (3) 10.14 Form of Octel Corp. Approved Company Share Option Plan. (8) 10.15 Form of Octel Corp. Profit Sharing Share Scheme. (8) 10.16 Employment Agreement between The Associated Octel Company Limited and Alan G Jarvis. (9) 10.17 Employment offer letter from The Associated Octel Company Limited to John P Tayler. (9) 10.18 Consultancy Agreement between Octel Corp. and Robert E Bew. (9) 10.19 Employment offer letter from the The Associated Octel Company Limited to Ian A Watling. 10.20 Employment offer letter from The Associated Octel Company Limited to Philip J Boon. 12.1 Statement Regarding Computation of Financial Ratios. 13.1 2000 Annual Report of Octel Corp. 13.2 Opinion of Ernst & Young LLP on 1997 Combined Financial Statements. (9) 21.1 Subsidiaries of the Registrant. 24.1 Powers of Attorney of Directors and Officers of the Registrant (4). 27.1 Consolidated Financial Data Schedule. 99.1 Consolidated Financial Statements of OBOAdler Company Limited as of June 30, 1999 and for the year then ended (7).
(1) Incorporated by reference to the Company's amendment dated April 21, 1998, to a previously filed Form 10-/A. (2) Incorporated by reference to the Company's Form 10-/A previously filed on April 10, 1998. (3) Incorporated by reference to the Company's amendment dated May 4, 1998 to a previously filed form 10-/A. (4) Incorporated by reference to the Company's form S-4 previously filed on October 1, 1998. (5) Filed with the Company's form 10Q on November 10, 1998. (6) Filed with the Company's form 8-K on November 12, 1999. (7) Filed with the Company's form 8-K/A on January 20, 2000. (8) Filed with the Company's form 10-K on March 26, 1999. (9) Filed with the Company's form 10-K on March 27, 2000.
(b) Reports on Form 8-K
A Form 8-K was filed on November 12, 1999 announcing the November 9, 1999 acquisition of OBOAdler Company Limited. A Form 8-K/A was filed on January 29, 2000 which provided audited financial statements and proforma financial statements related to the acquired business and the combined company respectively.
On July 21, 2000 a Form 8-K was filed announcing an amendment of the Company's Rights Plan, raising the threshold of its acquiring person provision from 15% to 22%.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OCTEL CORP. By: /s/ Dennis J Kerrison (Registrant) DENNIS J KERRISON Date: President, Chief Executive Officer and March 20, 2001 Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
March 20, 2001 /s/ Alan G Jarvis ---------------------------------------- Alan G Jarvis, Vice President and Chief Financial Officer
March 20, 2001 /s/ Robert E Bew ---------------------------------------- Dr Robert E Bew, Chairman and Director
March 20, 2001 /s/ Dennis J Kerrison ---------------------------------------- Dennis J Kerrison, President, Chief Executive Officer and Director
March 20, 2001 /s/ Martin M Hale ---------------------------------------- Martin M Hale, Director
March 20, 2001 /s/ Thomas M Fulton ---------------------------------------- Thomas M Fulton, Director
March 20, 2001 /s/ James Puckridge ---------------------------------------- James Puckridge, Director
March 20, 2001 /s/ Benito Fiore ---------------------------------------- Dr Benito Fiore, Director
March 20, 2001 /s/ Charles M Hale ---------------------------------------- Charles M Hale, Director
March 20, 2001 /s/ H Alan Hanslip ---------------------------------------- H Alan Hanslip, Vice President, Human Resources
March 20, 2001 /s/ Geoffrey J Hignett ---------------------------------------- Dr Geoffrey J Hignett, Director of Corporate Development
March 20, 2001 /s/ John P Tayler ---------------------------------------- Corporate Secretary and General Counsel
March 20, 2001 /s/ Philip J Boon --------------------------------- Philip J Boon, Business Director, Petroleum Specialties
March 20, 2001 /s/ Ian A Watling --------------------------------- Ian A Watling, Business Director, Performance Chemicals