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<TITLE>Ethyl Corporation 10-K Report</TITLE>
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<H1 ALIGN=CENTER><FONT SIZE=3>SECURITIES AND EXCHANGE COMMISSION</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>Washington, D.C. 20549</FONT></H1>
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<H1 ALIGN=CENTER><FONT SIZE=4>FORM 10-K</FONT></H1>
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<H1 ALIGN=CENTER><FONT SIZE=3>[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE<BR>SECURITIES EXCHANGE ACT OF 1934</FONT></H1>
<P ALIGN=CENTER><FONT SIZE=3>For the fiscal year ended December 31, 1999</FONT></P>
<P ALIGN=CENTER><FONT SIZE=3>OR</FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE<BR> SECURITIES EXCHANGE ACT OF 1934</FONT></H1>
<HR SIZE=1 WIDTH=15% ALIGN=CENTER>
<P ALIGN=CENTER><FONT SIZE=3>Commission file number 1-5112</FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=4>ETHYL CORPORATION</FONT></H1>
<P ALIGN=CENTER><FONT SIZE=3>Incorporated pursuant to the Laws of the Commonwealth of Virginia</FONT></P>
<HR SIZE=1 WIDTH=15% ALIGN=CENTER>
<P ALIGN=CENTER><FONT SIZE=3>Internal Revenue Service — Employer
Identification No. 54-0118820</FONT></P>
<P ALIGN=CENTER><FONT SIZE=3>330 South Fourth Street, P. O. Box 2189, Richmond, Virginia 23218-2189</FONT></P>
<P ALIGN=CENTER><FONT SIZE=3>(804) 788-5000</FONT></P>
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<P ALIGN=CENTER><FONT SIZE=3> Securities registered pursuant to Section 12(b) of the Act:</font></p>
<br><FONT SIZE=3> Title of each class
Name of each exchange on which registered</font>
COMMON STOCK, $1 Par
NEW YORK STOCK EXCHANGE<BR>
PACIFIC STOCK EXCHANGE
<P><FONT SIZE=3>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 [ ] </FONT></P>
<P><FONT SIZE=3>Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]</FONT></P>
<P><FONT SIZE=3>Aggregate market value of voting stock held by non-affiliates of the registrant
as of January 31, 2000: $237,658,459.00.*</FONT></P>
<P><FONT SIZE=3>Number of shares of Common Stock outstanding as of January 31, 2000:
83,465,460.</font></P>
<P><FONT SIZE=3>*In determining this figure, an aggregate of 21,128,815 shares of Common Stock
reported in the registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders as beneficially owned by Floyd D. Gottwald, Jr., Bruce C. Gottwald,
and the members of their immediate families have been excluded and treated as
shares held by affiliates. See Item 12. The aggregate market value has
been computed on the basis of the closing price in the New York Stock Exchange
Composite Transactions on January 31, 2000, as reported by <I>The Wall Street
Journal.</I></font></P>
<B>DOCUMENTS INCORPORATED BY REFERENCE</B>
<P><FONT SIZE=3>Portions of Ethyl Corporation's definitive Proxy Statement for its 2000
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
(the "Proxy Statement") are incorporated by reference into Part III of this Form
10-K.</FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>TABLE OF CONTENTS</FONT></H2>
<PRE>
Item No. Page
<b>Part I</b>
1. Business..................................................................................................................12-29
2. Properties............................................................................................................21-23, 53
3. Legal Proceedings.........................................................................................................28-29
4. Submission of Matters to a Vote of Security Holders.........................................................................N/A
4a. Executive Officers of the Registrant.........................................................................................52
<b>Part II</b>
5. Market for the Registrant's Common Equity and Related Stockholder Matters....................................................51
6. Selected Financial Data......................................................................................................50
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................................12-30
7a. Quantitative and Qualitative Disclosures about Market Risk................................................................27-28
8. Financial Statements and Supplementary Data........................................................................ See Item 14
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................N/A
<b>Part III</b>
10. Directors and Executive Officers of the Registrant............................................................................*
11. Executive Compensation........................................................................................................*
12. Security Ownership of Certain Beneficial Owners and Management................................................................*
13. Certain Relationships and Related Transactions................................................................................*
<b>Part IV</b>
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(A)(1) Consolidated Statements of Income for each of the three years in the periods ended
December 31, 1999, 1998, and 1997.................................................................................31
Consolidated Balance Sheets as of December 31, 1999 and 1998..........................................................32
Consolidated Statements of Shareholders' Equity for each of the three years in the periods ended
December 31, 1999, 1998, and 1997.................................................................................33
Consolidated Statements of Cash Flows for each of the three years in the periods ended
December 31, 1999, 1998, and 1997.................................................................................34
Notes to Consolidated Financial Statements.........................................................................35-48
Management's Report on the Financial Statements....................................................................29-30
Report of Independent Accountants.....................................................................................49
(A)(2) Financial Statement Schedules....................................................................................... N/A
(A)(3) Exhibits........................................................................................see Index to Exhibits 54
(B) No report on Form 8-K has been filed during 1999.
(C) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this Form 10-K.
*Part III will be incorporated by reference from the registrant's 1999 Proxy Statement pursuant to
instructions G(1) and G(3) of the General Instructions to Form 10-K.
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>2</FONT></H1>
<CENTER><FONT SIZE=3>ETHYL CORPORATION</FONT></CENTER>
<CENTER><FONT SIZE=3>Statement of Differences</FONT></CENTER>
<OL>
<LI> The cover sheet and index presented on pages 48 and 49 of the printed document have been repositioned to the front of the electronic document.
<LI>The index to exhibits on page 50 of the printed document has been repositioned for the electronic document.
<LI> The printed Annual Report and Form 10-K contain numerous graphs and photographs not incorporated into the electronic Form
10-K.
</OL>
<H1 ALIGN=CENTER><FONT SIZE=3>3</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>About The Company</FONT></H2>
<P><FONT SIZE=3>Ethyl Corporation develops, manufactures, blends, and delivers
leading-edge additive technology for fuels and lubricants around the world. Our
products and services provide the chemistry that makes fuels burn cleaner,
engines run smoother, and machines last longer. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=5>Financial Highlights</FONT></H2>
<I>(in thousands of dollars except share and per-share amounts)</I>
<PRE>
-----------------
1999 1998
-----------------
<B>OPERATIONS:</B>
Net Sales:
Petroleum Additives $819,647 $856,910
Tetraethyl Lead (a) 24,076 117,280
------------------
$843,723 $974,190
==================
Income After Income Taxes Before Nonrecurring Items $ 50,851 $51,910
Nonrecurring Income After Income Taxes (b) 4,446 18,669
------------------
Net Income $ 55,297 $70,579
==================
<B>PER COMMON SHARE:</B>
Basic and Diluted Earnings Per Share:
Income After Income Taxes Before Nonrecurring Items $ .61 $ .62
Nonrecurring Income After Income Taxes (b) .05 .23
------------------
Net Income $ .66 $ .85
==================
Shares Used to Compute Basic and Diluted Earnings Per Share 83,465 83,465
==================
(a) In accordance with the TEL marketing agreements with The Associated Octel Company Ltd., effective October 1,
1998, all sales under the agreements are recorded by Octel.
(b) Nonrecurring Income (Loss) After Income Taxes:
Supply Contract Amendment $ 4,446 $ -
Enhanced Retirement Offer and Staff Reduction - (2,540)
Gain on Sales of Nonoperating Assets - 9,487
Tax Settlement with the Internal Revenue Service - 6,071
Settlement with the Canadian Government - 5,651
-----------------
$4,446 $18,669
=================
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>4</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>To Our Fellow Shareholders</FONT></H2>
<P><FONT SIZE=3>Over the past few years, economic and industry factors have
heavily impacted the petroleum additives industry. These conditions continued in
1999 and led to unsatisfactory stock performance for Ethyl Corporation. In 1999,
we remained focused on improving our long-term position by optimizing our
tetraethyl lead (TEL) and petroleum additives operations, generating cash, and
paying down debt. Based on these goals, 1999 was a positive year for Ethyl, one
of steady performance, steady progress, and few surprises. </FONT></P>
<P><FONT SIZE=3>We optimized our TEL alliance with Octel. We held our share in
the fiercely competitive, high-volume crankcase additives market. MMT had a good
year. We expanded our presence in specific world regions and petroleum additives
product areas. During the year, Chemical Week magazine cited Ethyl’s
operations as the most productive in the industry as measured by sales generated
per employee. </FONT></P>
<P><FONT SIZE=3>In accordance with our TEL strategy, we continued to
aggressively reduce costs and efficiently manage the TEL business through the
marketing agreements with Octel. We are well positioned for the continued
decline of this product. Our TEL business remains profitable and continues to be
a significant cash generator. </FONT></P>
<P><FONT SIZE=3>For petroleum additives, again we faced extreme pricing pressure
from the competitive marketplace and the continued industry imbalance of supply
and demand. Annual petroleum additives earnings declined yet volumes remained
relatively consistent. Industry specifications continued to turn over rapidly
and escalate the pace of research. Raw material price increases became more
frequent. </FONT></P>
<P><FONT SIZE=3>Yet, throughout the year, we delivered on our petroleum
additives strategy of targeted growth, value-added service, and innovative
technology. We realized operational efficiencies that allowed us to control
costs while developing numerous new products. We improved our safety, quality,
and environmental performance. We successfully achieved targeted growth in the
lubricant specialties and fuel additives product lines as well as in the Latin
America and Asia Pacific regions. Our innovative approach to global logistics,
integrated marketing, and customer technical service helped to differentiate us
from our competition. </FONT></P>
<P><FONT SIZE=3>In late 1999, our petroleum additives business successfully
attained a price increase, our first global price increase in nearly four years.
While raw material price increases quickly outpaced our own gains, we were very
encouraged that the industry supported a price increase in petroleum additives.
We anticipate further improvement to the balance of supply and demand as
manufacturing capacity is optimized. Overall, the outlook for petroleum
additives seems to be improving. </FONT></P>
<P><FONT SIZE=3>Continued strong cash flow plays a major role in our long-term
corporate strategy. Cash provides the foundation from which we manage our
business segments effectively, invest appropriately, and build meaningful
growth. In 1999, our strong cash position allowed us to reduce our debt another
$86 million, reinvest in the business, and pay a solid dividend. In two years we
have repaid a total of $210 million of debt. We are pleased to see such
significant progress toward our aggressive debt reduction goal. </FONT></P>
<P><FONT SIZE=3>As we evaluate our options for investment and growth, we do so
driven by our responsibility to deliver long-term value to our shareholders. We
are determined to increase our financial flexibility as quickly as possible. So
for the near term, we will continue to apply our cash to pay down debt while
improving our performance in this competitive, challenging industry. </FONT></P>
<P><FONT SIZE=3>The successes we have achieved can be attributed mainly to one
critical factor: the employees of Ethyl Corporation. Throughout 1999, our people
delivered exceptional performance. Our employees prove, time and again, that it
is their dedication, intelligence, and creativity that distinguish us in the
marketplace. They have earned our respect and our most sincere appreciation. </FONT></P>
<B>Bruce C. Gottwald</B><BR><I> Chairman of the Board<BR>Chief Executive
Officer</I><BR><BR>
<B>Thomas E. Gottwald</B><BR><I> President<BR>Chief Operating
Officer</I>
<H1 ALIGN=CENTER><FONT SIZE=3>5</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Operational Excellence</FONT></H2>
<P><FONT SIZE=3>Today, Ethyl covers the globe with three world-class
manufacturing plants supported by an additional five smaller facilities. We
manufacture complex, custom formulated chemical technology at high utilization,
operating some of the most efficient specialty chemical plants in the industry.
We pursue operational excellence by focusing on Responsible Care ®, quality
improvement, asset management, and resource leverage. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Responsible Care</FONT></H2>
<P><FONT SIZE=3>Ethyl is committed to supporting the principles of the Chemical
Manufacturers Association’s (CMA) Responsible Care initiative. While always
a top priority in terms of good practice, our commendable safety record drives
efficient operations. Over the past several years, our employees have improved
Ethyl’s safety and environmental performance. We are proud to be recognized
consistently by CMA for our Responsible Care efforts and we were honored to have
our Natchez and Sauget facilities admitted into the prestigious Voluntary
Protection Program sponsored by the Occupational Safety and Health
Administration (OSHA). </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Quality Improvement</FONT></H2>
<P><FONT SIZE=3>The backbone of our quality improvement initiative has been to
change our manufacturing philosophy from “make-to-specification” to
“make-to-target.” In other words, we tightened our manufacturing
tolerances. By working to improve product quality, we have increased our
percentage of products made “first-time-right” while reducing waste
and manufacturing time. Consequently, we have been able to increase capacity,
reduce inventory, lower product lead times, and improve customer response. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Asset Management</FONT></H2>
<P><FONT SIZE=3>By focusing on asset management, Ethyl has achieved capacity and
operating improvements with minimal capital expense. For example, after an
intensive study of how raw material variability impacted manufacturing
efficiency, we began selecting raw materials based on obtaining optimal process
conditions. We increased production 15% for an individual, high-volume component
in Belgium, and we repeated this process in North America, resulting in a 20%
production increase there. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Resource Leverage</FONT></H2>
<P><FONT SIZE=3>When we optimized our processes through selective raw material
purchase, we did so mindful to maximize our purchasing power. When we improved
delivery performance, we did so assisted by partnerships with leading freight
companies. When we developed supplier managed inventory programs or e-business
systems to support our customers, we did so by combining our internal resources
from operations, logistics, and information technology. </FONT></P>
<P><FONT SIZE=3>The continuing progress we make toward operational excellence
comes from our employees taking the responsibility to improve. By finding new
ways to enhance safety, quality, and productivity, we create the basis of good
customer relationships - value. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>6</FONT></H1>
<P><I><FONT SIZE=3>“At Ethyl, the priorities of operational excellence include
continuous improvement in safety and environmental performance, as well as in
product quality, production capacity, and cost management. By consistently
delivering on these objectives, we strengthen our relationships with suppliers,
customers, and the communities in which we live.” </FONT></I></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>7</FONT></H1>
<P><I><FONT SIZE=3>“At Ethyl, we emphasize building long-term relationships
that support our customers on many different levels. By becoming experts in our
customers’ businesses we provide solutions that bring value,
differentiation, and the potential for growth. We benefit most when we provide
for our customers’ success.” </FONT></I></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>8</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Targeted Growth</FONT></H2>
<P><FONT SIZE=3>Specialty chemicals are not commodity materials. By definition,
specialty chemical companies develop custom compounds that meet very specific
performance requirements, often proprietary to individual customers. In terms of
petroleum additives, while a given product may seem universal, such as crankcase
oil additives, different world regions require distinct performance
characteristics within a given product line, often determined by the variation
of vehicles or equipment available in the region. </FONT></P>
<P><FONT SIZE=3>We work very closely with our customers to develop proprietary
additive chemistry. Therefore, the foundation of our targeted growth strategy is
developing long-term customer relationships. As we determine our growth
potential in petroleum additives, we first look to help our customers enhance or
expand their own product offerings so we can pursue growth opportunities
together. In addition, we target growth in product lines and regions where we
are under-represented. </FONT></P>
<P><FONT SIZE=3>For example, while we currently enjoy a significant presence in
crankcase additives around the world, we identify more significant growth
opportunities from other product lines such as automatic transmission fluids,
gear oil and hydraulic fluid additives, gasoline performance additives, and MMT. </FONT></P>
<P><FONT SIZE=3>We also continue to identify specific world regions as having
good growth potential for Ethyl, including parts of the Far East and Latin
America. After years of establishing relationships and building a business
foundation, Ethyl opened our Beijing regional sales office in May 1999. Also
during the year, we sent one of our most experienced business managers to live
and work in India with the charge of strengthening our network there. And, we
recently added several new sales and technical support representatives to manage
new opportunities in Latin America. </FONT></P>
<P><FONT SIZE=3>By controlling costs on the corporate side, we have been able to
expand in these regions and recruit new people to our talented workforce without
a significant increase in costs. It is important to note that the successes we
are seeing today are the result of over five years of hard work delivering
consistently on our targeted growth strategy. For the past several years,
crankcase volumes have remained stable despite competitive pressure and we have
seen consistent, moderate increases in fuel additives and lubricant specialties.
In addition, customer relationships in the Far East and Latin America are
building and growing stronger. </FONT></P>
<P><FONT SIZE=3>While the growth outlook for the entire petroleum additives
industry remains limited, Ethyl is not limited in terms of finding opportunities
that are new to us. We are a strong global competitor, committed to finding
growth and success in this industry. We are determined to deliver on our
targeted growth strategy, and ultimately return that value to our shareholders. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>9</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Innovation</FONT></H2>
<P><FONT SIZE=3>Historically in the chemical industry, innovation has been
synonymous with research and development (R&D). In the past, new products
were the only way to reach new customers or markets. At Ethyl today and in the
future, while innovation still begins in the lab, our definition of innovation
also includes some of the ways we provide added value for our customers. </FONT></P>
<P><FONT SIZE=3>In 1999, about half of our petroleum additives sales came from
products developed in the last three years. In order to deliver leading-edge
global technology at such a fast pace, product management relies on our 24 hour
customer technical service (CTS) to facilitate the needed interaction among
Ethyl, our customers, and the industry. Ethyl R&D develops products on a
global platform, and we support customer product requirements with regional CTS
teams. By optimizing use of our mechanical testing facilities in Richmond and
Bracknell, in 1999 Ethyl R&D ran more tests at less total cost than the year
before. </FONT></P>
<P><FONT SIZE=3>Another innovative customer approach comes from Ethyl’s
global logistics team, which has been very successful developing supplier
managed inventory (SMI) systems. We have numerous SMI programs that we manage
from a central location. Our global logistics and information technology groups
have developed proprietary means to support SMI by combining the power of our
enterprise resource program with the expansive communications technology of the
Internet. By finding innovative ways to improve the way we do business, we
provide additional value to our customers in terms of inventory, time, and total
cost. </FONT></P>
<P><FONT SIZE=3>Ethyl is also finding success by helping our customers reach new
and existing markets more effectively. By joining forces and understanding our
customers’ marketing focus, we can develop or enhance our technology to
meet their needs. In addition, we provide marketing counsel and creative support
to position Ethyl technology as a means of differentiation for our customers. </FONT></P>
<P><FONT SIZE=3>Innovation is critical to our customer focus. We work hard to
create new practices to enhance technology, communication, and service. Each and
every day, we show our customers that we are committed to delivering more than
just a better product. We are in this for the long haul, and we’re making
it new and exciting along the way. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>10</FONT></H1>
<P><I><FONT SIZE=3>“At Ethyl R&D, we maintain our competitive edge by
focusing on the right issues. We work proactively with our industry to determine
how new hardware or engineering trends will impact fuel and lubricant
performance. By understanding new equipment and by targeting specific issues
during formulation, development, and testing, we help our customers effectively
meet the needs of the end use consumer.” </FONT></I></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>11</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Review of Operations</FONT></H2>
<H2 ALIGN=LEFT><FONT SIZE=3>SAFETY</FONT></H2>
<P><FONT SIZE=3>As a leader in the Chemical Manufacturers Association’s
Responsible Care ® initiative, Ethyl is committed to delivering safety
performance in the top 10% of all CMA companies. In the past five years, we have
improved our overall safety performance for which we have received a number of
awards from CMA, the National Petrochemical and Refiners Association, the
Occupational Safety and Health Administration, and the Canadian Chemical
Producers Association. </FONT></P>
<P><FONT SIZE=3>In keeping with our leading commitment to Responsible Care,
Ethyl was one of the first CMA companies to successfully complete a management
systems verification or MSV. The MSV program is a voluntary process in which we
invite a third party assessment of our status and improvement in the area of
Responsible Care. A community member of the Ethyl verification team stated,
“after participating in those panels, I feel privileged to live near such a
safe and responsible company,” referring to our Houston plant. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<P><FONT SIZE=3>Another important principle of Responsible Care is product
stewardship. In 1999, Ethyl was one of the first in CMA to implement a web-based
product stewardship program. Global representatives from Ethyl’s health,
safety, and environment department teamed up with marketing, communications, and
information technology to provide general risk assessment and handling
guidelines on a global scale. The result is product stewardship information
available from Ethyl 24 hours a day, 7 days a week at www.ethyl.com. </FONT></P>
<P><FONT SIZE=3>In the year 2000, the CMA will announce new Responsible Care
safety goals to which Ethyl will aspire: zero spills involving our products as
well as all chemicals we handle; zero reportable process safety incidents; and
zero recordable injuries. We look forward to the adoption of these new goals and
the challenge of achieving them. </FONT></P>
<P><FONT SIZE=3>Ethyl’s continuing commitment to safety, environmental
excellence, and Responsible Care highlights our goal to remain at the top of CMA
safety performance. Safety and environmental responsibility are among our
corporate values and they will remain a vital component of Ethyl’s
corporate culture. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>BUSINESS SEGMENTS</FONT></H2>
<P><FONT SIZE=3>Ethyl reports our business in two distinct segments, TEL and
petroleum additives. We divide our business this way due to the operational
differences between managing the decline of TEL and realizing our potential in
petroleum additives. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>12</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>Tetraethyl Lead (TEL)</FONT></H2>
<P><FONT SIZE=3>TEL is an octane enhancer used in gasoline. The higher the
octane in gasoline the better the ignition qualities and operating performance
of the fuel. When first introduced in the 1920s, TEL was used to prevent
“engine knock,” a condition of poor combustion timing causing loss of
engine power. In the 1970s, with the implementation of the Clean Air Act,
automakers began including emissions control technology in vehicles. The surface
metal of the catalytic converter was deemed incompatible with lead, and as a
result, unleaded gasoline became the fuel standard in the U.S. with Canada
following shortly thereafter. </FONT></P>
<P><FONT SIZE=3>To effectively manage the TEL business during its anticipated
worldwide decline, in late 1998 Ethyl entered marketing agreements with The
Associated Octel Company Limited (Octel) of London, England, for the marketing
and sale of TEL outside North America and the European Economic Area. These
agreements were fully functional for the entire 1999 year, and we are encouraged
by the first full year’s results of operations. </FONT></P>
<P><FONT SIZE=3>During 1999, we were able to lower our costs and despite a
decrease in volume of almost 12%, we were able to minimize the impact on our
earnings which declined only 6%. TEL remains a profitable product line as well
as a continued strong resource for cash. We anticipate further decline of TEL
volumes at 10-15% annually. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Petroleum Additives</FONT></H2>
<P><FONT SIZE=3>Petroleum additives have two general applications, use in
lubricants or use in fuels. Therefore we separate our product areas in this
fashion, and further delineate individual product lines based on specific
application. </FONT></P>
<P><FONT SIZE=3>Lubricant additives are organic and synthetic chemical
components added to lubricants to enhance wear protection, prevent deposits, and
protect against the hostile operating environment of an engine, transmission,
gear axle, or hydraulic pump. Ethyl lubricant additives are used in oils,
fluids, and greases around the world. Ethyl additives are rigorously tested and
meet or exceed the most stringent oil industry, government, and original
equipment manufacturer (OEM) specifications. </FONT></P>
<P><FONT SIZE=3>Ethyl sells lubricant additives to major oil marketers and
independent lubricant manufacturers around the world. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>13</FONT></H1>
Lubricant additive technology applications include:
<H2 ALIGN=LEFT><FONT SIZE=3>Crankcase</FONT></H2>
passenger car engine oils<BR> light and heavy duty diesel engine oils <BR> railroad and marine, medium-speed diesel
engine oils
<H2 ALIGN=LEFT><FONT SIZE=3>Specialties</FONT></H2>
automatic transmission fluids<BR> automotive and commercial gear oils<BR> hydraulic oils<BR> industrial lubricants<BR><BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=90%><FONT SIZE=3>
The
large volume crankcase business is an important part of our product offering.
While subject to the problems of supply/demand imbalance, our global crankcase
business is important to our customer strategy and our own operational
efficiency. In 1999 we had another good year of progress focusing on select
product and geographic locations. In particular, we were able to grow our
business in lubricant specialties and fuel additives and maintain our market
position in crankcase.</FONT></TD>
</TR>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=90%><FONT SIZE=3>
Fuel
additives are chemical components engineered to improve the refining process and
performance of gasoline, diesel, and other fuels. Refinery benefits associated
with Ethyl fuel additives include an ability to reduce use of crude oil during
refining and improve fuel storage properties. Fuel performance benefits include
improve fuel ignition, emissions reduction, and protection against deposits for
fuel injectors, intake valves and the combustion chamber. In numerous
qualification tests, including those to monitor emissions and fleet test
performance over the road, Ethyl R&D certifies our fuel additives to some of
the most stringent industry, government, and OEM requirements.</FONT></TD>
</TR>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=90%><FONT SIZE=3>
Ethyl
sells fuel additives worldwide to major fuel marketers and refiners, as well as
to independent terminals and other fuel blenders. Fuel additive technology
applications include:</FONT></TD>
</TR>
<BR>
gasolines<BR> diesel fuels<BR> aviation fuels<BR> racing fuels<BR> power generation fuels<BR> heating oils<BR>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>14</FONT></H1>
<P><FONT SIZE=3>The imbalance of supply and demand continued to keep pricing
soft in petroleum additives throughout 1999. We were pleased to implement
successfully a price increase during the fourth quarter, our first in almost
four years. </FONT></P>
<P><FONT SIZE=3>Overall for petroleum additives, 1999 was another year of
progress in a challenging operating environment, capped by an important move in
petroleum additives pricing. Ethyl will continue to work closely with our
customers to keep technology strong and reduce costs. We have a new program in
place to further address crankcase margins. We have a commitment to remain an
industry leader in terms of cost efficiency and asset utilization. We will
continue to pursue our successful strategy of targeted growth. We are determined
to sustain our competitive market position. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>DISCUSSION OF EARNINGS</FONT></H2>
<P><B><FONT SIZE=3>In 1999 we successfully controlled costs, maintained our market
position, and improved various product line profits including MMT. Through our
marketing agreements with Octel we effectively managed the declining TEL
business. Despite these accomplishments, petroleum additives pricing remained
weak and resulted in lower sales and operating profit. </FONT></B></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Net Sales</FONT></H2>
<P><FONT SIZE=3>Consolidated net sales in 1999 declined from both 1998 and 1997.
The table shows our net sales by segment for the last three years. </FONT></P>
<P><FONT SIZE=3>Included in the table are net sales reported by the petroleum
additives segment to Equilon Enterprises LLC, a joint venture of Texaco and
Shell, of $118 million in 1999 or about 14% of total net sales. Also, in 1999
the segment had net sales to Pennzoil-Quaker State Company of $102 million or
approximately 12% of total net sales. In addition, petroleum additives reported
sales to Texaco and its worldwide subsidiaries and affiliates of $143 million in
1998 and $137 million in 1997. Of total net sales, this represented
approximately 15% in 1998 and 13% in 1997. The segment also reported net sales
to Shell and its worldwide subsidiaries and affiliates of approximately $100
million in 1998, representing 10% of total net sales that year. No other
customer accounted for over 10% of Ethyl’s total net sales in any year. </FONT></P>
<P align=center>Net Sales By Segment</P>
<P align=center><I>(in millions of dollars)</I></P>
<PRE>
1999 1998 1997
==== ==== ====
Petroleum additives $820 $857 $ 913
Tetraethyl lead 24 117 151
---- ---- ------
Consolidated net sales $844 $974 $1,064
==== ==== ======
</PRE>
<P><FONT SIZE=3>Net sales for the petroleum additives segment in 1999 were 4%
lower than 1998 and 10% lower than 1997. These reductions included lower sales
of lubricant additives partly offset by stronger sales of fuel additives. While
volumes shipped in 1999 were almost even with both 1998 and 1997, the primary
cause of lower 1999 sales was price erosion. These competitive pricing pressures
reduced our 1999 net sales $45 million compared to 1998 and $111 million
compared to 1997. The combined impact of volumes shipped and favorable product
mix resulted in an increase in net sales of $8 million compared to 1998 and $18
million compared to 1997. </FONT></P>
<P><FONT SIZE=3>Beginning October 1, 1998, all sales under the TEL marketing
agreements with Octel are made by or on behalf of Octel, and therefore are not
recorded as sales by Ethyl. Consequently, our TEL sales in 1999 and the last
quarter of 1998 only include those made by Ethyl in territories not covered by
the agreements with Octel. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>15</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>Segment Operating Profit</FONT></H2>
<P><FONT SIZE=3>Ethyl evaluates the performance of petroleum additives and TEL
based on segment operating profit. Corporate departments and other expenses
outside the control of the segment manager are not allocated to segment
operating profit. Depreciation on segment property, plant, and equipment and
amortization of segment intangible assets are included in the operating profit
of each segment. </FONT></P>
<P><FONT SIZE=3>Our 1999 segment operating profit declined 10% from 1998 levels
and 22% from 1997 amounts. The table below reports operating profit by segment,
as well as reconciliation to income before income taxes for the last three
years. </FONT></P>
<P align=CENTER><B><FONT SIZE=3>Segment Operating Profit</FONT></B></P>
<CENTER><I>(in millions of dollars)</I></CENTER>
<PRE>
1999 1998 1997
================================
Petroleum additives $ 85 $ 97 $ 96
Tetraethyl lead 48 51 75
----- ----- ----
Segment operating profit 133 148 171
Corporate unallocated expense (24) (27) (27)
Interest expense (35) (40) (26)
Other income (expense), net 7 25 (8)
----- ----- ----
Income before income taxes $ 81 $ 106 $110
==== ==== ====
</PRE>
<I><B><FONT SIZE=3>Petroleum Additives Segment</FONT></B></I>
<P><FONT SIZE=3>Petroleum additives operating profit in 1999 included a $7
million benefit from a supply contract amendment, while 1998 operating profit
included a $9 million benefit from the MMT settlement with the Canadian
government. Excluding these nonrecurring items, petroleum additives operating
profit decreased 11% from 1998 and 19% from 1997. Compared to both 1998 and
1997, lower selling prices negatively affected our 1999 operating profit. </FONT></P>
<P><FONT SIZE=3>An increase in fuel additives and lubricant specialties
operating profits in 1999 as compared to 1998 and 1997 partly offset lower
profits in other areas of petroleum additives. In addition, while petroleum
additives volumes were about even in 1999 as compared to the previous two years,
the mix of products sold has improved profits slightly, reflecting the sales of
higher margin products. Operating profit in 1999 also benefited from our
continuing cost controls, including more efficient plant operations. </FONT></P>
<P><FONT SIZE=3>Our raw material cost during 1999 was lower than in 1998 or
1997. However, during the last half of 1999, raw material cost, especially base
oil cost, began to increase significantly. In response, in late 1999 we
initiated a price increase. As raw material prices continue to increase in 2000,
this cost has more than offset the higher selling prices. </FONT></P>
<P><FONT SIZE=3>We continue our strong commitment to control costs. Our selling,
general, and administrative costs (SG&A) increased only $1 million or 2%
when compared to 1998. When compared to 1997, 1999 SG&A costs were $4
million lower. As a percentage of net sales, SG&A and R&D expenses were
14.7% in 1999, 14.0% in 1998, and 14.2% in 1997. Despite lower expenses, the
increase in 1999 reflects the effect of lower sales revenue. </FONT></P>
<P><FONT SIZE=3>Total research, development, and testing expenses (R&D) were
$67 million in 1999, as well as in 1998, and $71 million in 1997. Based on the
technical accounting definition, R&D expenses were $41 million in 1999, $40
million in 1998, and $42 million in 1997. The decreasing trend in R&D
expenses from prior years includes the benefit of running more tests cost
effectively in-house. All of our R&D expenses were related to petroleum
additives. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>16</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<I><B><FONT SIZE=3>TEL Segment</FONT></B></I>
<P><FONT SIZE=3>TEL operating profit decreased 6% when compared to 1998 and 36%
when compared to 1997. These results included operating profit from our
marketing agreements with Octel of $54 million in 1999 and $15 million for the
three months it was effective in 1998. The decreases reflect the continuing
decline of the TEL market. The TEL operating profit also includes our operations
and the costs of certain facilities that are not a part of the marketing
agreements. </FONT></P>
<P><FONT SIZE=3>In addition to the marketing agreements with Octel, Ethyl is
responding to the declining TEL market by controlling costs. We have reduced the
number of our TEL terminals and distribution facilities, as well as reduced
staffing. </FONT></P>
<P><I><FONT SIZE=3>The following discussion references the Consolidated Statements
of Income on page 31. </FONT></I></P>
<H2 ALIGN=LEFT><FONT SIZE=3>DISCUSSION OF INCOME AND EXPENSE</FONT></H2>
<H2 ALIGN=LEFT><FONT SIZE=3>Special Items Income, Net</FONT></H2>
<P><FONT SIZE=3>The special item of $7 million in 1999 was for a supply contract
amendment in petroleum additives. The 1998 amount included income of $9 million,
net of expenses, from the settlement with the Canadian government, as well as a
charge of $4 million for the enhanced retirement offer and elimination of
certain positions. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Interest and Financing Expenses</FONT></H2>
<P><FONT SIZE=3>Interest and financing expenses were $35 million in 1999, $40
million in 1998, and $26 million in 1997. Compared to 1998, the decrease of
about $5 million was primarily the result of lower average debt outstanding.
Higher average debt outstanding caused the increase of $9 million when compared
to 1997 due to the use of long-term debt to fund the October 1997 common stock
repurchase. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Other Income (Expense), Net</FONT></H2>
<P><FONT SIZE=3>Other income, net totaled $600 thousand in 1999. The 1998 total
of $25 million income included a $15 million net gain on the sale of
nonoperating assets, as well as $8 million of interest income from a favorable
tax settlement with the Internal Revenue Service. Other expense, net of $4
million in 1997 was primarily due to $16 million of impairment losses offset by
$10 million of gains on sales of nonoperating assets. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Income Taxes</FONT></H2>
Income taxes were $26 million in 1999, $36 million in 1998, and $33 million in 1997. Of the $10 million
<H1 ALIGN=CENTER><FONT SIZE=3>17</FONT></H1>
<P><FONT SIZE=3>decrease when compared to 1998, $8 million was due primarily to
the 24% reduction in income before income taxes. The remaining $2 million was
the result of a lower effective income tax rate in 1999. The effective tax rate
was 31.8% in 1999 while the rate was 33.6% in 1998. The tax rate in 1999
reflected the recognition of certain income tax benefits, while the 1998 rate
included the benefit of a tax settlement with the Internal Revenue Service. </FONT></P>
<P><FONT SIZE=3>When compared to 1997, a 26% reduction in income before taxes
contributed $9 million to the reduction in income taxes. This was partially
offset by a higher effective tax rate resulting in an additional $2 million of
income taxes. A $4 million tax benefit from the sale of our Gent, Belgium
subsidiary, as well as the resolution of some income tax issues, resulted in the
1997 effective tax rate of 29.5%. </FONT></P>
<P><FONT SIZE=3>See Note 17 in the Notes to Consolidated Financial Statements
for details of the effective income tax rate. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Net Income</FONT></H2>
<P><FONT SIZE=3>Net income was $55 million or $.66 per share in 1999, $71
million or $.85 per share in 1998, and $78 million or $.71 per share in 1997.
Included in net income were nonrecurring items totaling $4 million income or
$.05 per share in 1999, $19 million income or $.23 per share in 1998, and $500
thousand expense in 1997. Excluding the nonrecurring items, net income and
earnings per share were $51 million or $.61 per share in 1999 compared with $52
million or $.62 per share in 1998, and $78 million or $.71 per share in 1997. </FONT></P>
<P><FONT SIZE=3>Reflecting our continuing strategy of cost control, net income
for 1999 includes a reduction in corporate general and administrative expenses
of $3 million when compared to both 1998 and 1997. The earnings per share
results for both 1999 and 1998 reflect the October 1997 repurchase of almost 35
million shares, or about 30%, of Ethyl’s common stock, and therefore
include the benefit of fewer shares outstanding. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>18</FONT></H1>
<CENTER>Selling, General & Administrative Expense</CENTER>
<CENTER>(1997 - 1999)</CENTER>
<CENTER>[GRAPH]</CENTER>
<P><I><FONT SIZE=3>The following discussion references the Consolidated Statements
of Cash Flows on page 34. </FONT></I></P>
<H2 ALIGN=LEFT><FONT SIZE=3>DISCUSSION OF CASH FLOW</FONT></H2>
<P><B><FONT SIZE=3>Ethyl continues to generate strong cash flow. We used our cash
to repay $86 million of debt in 1999 and $124 million in 1998. </FONT></B></P>
<P><FONT SIZE=3>Ethyl generated cash from operating activities of $128 million in
1999, as compared to $130 million in 1998, and $133 million in 1997. In 1999, we
used the cash from operating activities to repay $86 million of long-term debt,
pay dividends of $21 million, fund $14 million of capital expenditures, and
increase our cash balance $7 million. We also invested about $1 million in the
trust covering benefits for certain groups of retired employees. </FONT></P>
<P><FONT SIZE=3>In 1998, we combined $130 million in cash from operating
activities, $10 million cash-on-hand, and $30 million in proceeds from the sale
of nonoperating assets. We used this cash to pay down $124 million on our
long-term debt, pay dividends of $21 million, and fund capital expenditures of
$23 million. We also invested $1 million in a trust, which covers benefits for
certain groups of retired employees. </FONT></P>
<P><FONT SIZE=3>Cash from operating activities totaled $133 million in 1997. We
added $296 million in net additional long-term debt, $10 million from the sale
of a Belgian subsidiary, $6 million from the sale of nonoperating assets, and $2
million from cash-on-hand. We used these funds to repurchase almost 35 million
shares of common stock for $327 million plus related transaction costs of $2
million. In addition, we made dividend payments of $59 million, funded capital
expenditures of $43 million, and invested $15 million in a trust covering
benefits for certain groups of retired employees. </FONT></P>
<P><FONT SIZE=3>Cash dividends per common share were $.25 in both 1999 and 1998,
and $.50 in 1997. At the time of the stock repurchase, Ethyl’s board of
directors reduced the annual dividend from $.50 to $.25 per common share. The
lower dividend was effective January 1, 1998, and together with fewer shares
outstanding, significantly improved our cash flow. </FONT></P>
<P><FONT SIZE=3>Ethyl’s management team expects that cash from operations
will be sufficient to cover our operating expenses. In addition, we expect to
continue reducing our debt in 2000. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>FINANCIAL POSITION AND LIQUIDITY</FONT></H2>
<P><FONT SIZE=3>At December 31, 1999, Ethyl had cash and cash equivalents of
almost $16 million as compared to $8 million at the end of 1998. At year-end,
our working capital was $162 million for 1999 and $214 million for 1998. Working
capital, a measure of liquidity, indicates the amount of current assets
remaining after covering current liabilities. Expressed differently, the current
ratio </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>19</FONT></H1>
<P><FONT SIZE=3>reflects the dollar amount of current assets available to cover
each dollar of current liabilities. For 1999, Ethyl’s current ratio was
1.80 to 1. At year-end 1998, our current ratio was 2.20 to 1. The reduction in
working capital and the current ratio primarily reflect the increase in the
current portion of long-term debt, as well as decreases in accounts receivable
and inventories. A decrease in accounts payable partially offset these negative
impacts. </FONT></P>
<P><FONT SIZE=3>In 1999, our $86 million debt repayment included $20 million on
the term loan, $30 million on the revolving credit agreement, $7 million on
medium-term notes, and $29 million on other debt. This reduction was partially
offset by an increase of $1 million for a capital lease. </FONT></P>
<P><FONT SIZE=3>Similarly, during 1998, Ethyl repaid $40 million on our term
loan, $57 million on the revolving credit agreement, $20 million on the Texaco
note, and another $7 million on a medium-term note. A $5 million capital lease
and the recording of a $37 million accrual on the Texaco note partially offset
the impact of this total $124 million repayment. </FONT></P>
<P><FONT SIZE=3>As a percentage of total capitalization, Ethyl’s long-term
debt, excluding the current portion, decreased from 74% at the end of 1998 to
65% at the end of 1999. Normally, we repay long-term debt with cash from
operations as well as with proceeds from occasional sales of business units,
plant sites, or other assets. </FONT></P>
<P><FONT SIZE=3>We expect capital expenditures will be about $20 million in
2000, up from 1999. Similarly, capital spending for environmental and safety
projects will be slightly higher than 1999. Ethyl will continue to finance
capital spending through cash provided from operations. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>RESEARCH AND DEVELOPMENT</FONT></H2>
<P><FONT SIZE=3>Ethyl’s R&D provides the basis for our global petroleum
additive technology. Through product development and performance testing, Ethyl
R&D provides our customers guidance and support for desired product
performance. In 1999, Ethyl R&D performed more internal bench and rig tests
than ever before, while keeping R&D costs level with 1998 R&D expenses
of $67 million. </FONT></P>
<P><FONT SIZE=3>In keeping with our targeted growth strategy, most new products
in 1999 focused on lubricant specialties and fuel additives, while our crankcase
products kept proper pace with customer performance demand. Highlights from some
new lubricant specialties include exciting developments in automatic
transmission fluids including use in the continuously variable transmission or
CVT, and the move from a commodity-driven gear oil market to one now defining
itself through performance differentiation. </FONT></P>
<P><FONT SIZE=3>As OEMs develop new engine technology, many older mechanical
concepts are improving to incorporate electronic controls or computer-based
monitoring. This is especially true in </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>20</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<P><FONT SIZE=3>reference to fuel additives, where new computer-based emission
control devices can impact everything from exhaust emissions to fuel economy.
Ethyl R&D works very closely with engine and component manufacturers to
fully understand how new engine design and hardware may impact the performance
requirements of lubricants or fuels. </FONT></P>
<P><FONT SIZE=3>One example is Ethyl’s joint research program with a
leading engine component OEM, designed to investigate direct injection gasoline
technology. By partnering with this OEM, we can more quickly and more accurately
direct our customers on how to develop the fuels of the future. And in turn, we
are one step ahead in being able to understand the test requirements that will
ultimately be a part of a future specification. </FONT></P>
<P><FONT SIZE=3>In the petroleum additives industry, R&D remains driven by
OEM demand. Ethyl R&D supports our customers’ approaches to satisfying
the needs of the industry. Ethyl also employs a number of OEM relationship
managers around the world to interact directly with the manufacturers and
petroleum industry at large so we can help drive and manage the implementation
of changing industry trends. </FONT></P>
<P><FONT SIZE=3>Ethyl actively protects its inventions, new technologies, and
product developments. We currently own approximately 900 issued United States
and foreign patents, with a significant number of additional patents pending.
Some of these patents are licensed to others. In addition, Ethyl has acquired
the rights under patents and inventions of others through licenses. Ethyl’s
patent position is strong, aggressively managed, and sufficient for the conduct
of our business. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>PROPERTIES</FONT></H2>
<P><FONT SIZE=3>Ethyl’s principal operating properties are shown below.
Unless indicated, we own the research and development facilities and
manufacturing properties, which primarily support the petroleum additives
business segment. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Research and Development</FONT></H2>
Ashland, Virginia <I>(leased)</I><BR>
Bracknell, England<BR>
Richmond, Virginia<BR>
Tsukuba, Japan <I>(leased)</I>
<H2 ALIGN=LEFT><FONT SIZE=3>Manufacturing</FONT></H2>
Feluy, Belgium<BR>
Houston, Texas (<I>also provides TEL storage and distribution)</I><BR> Natchez, Mississippi<BR>
Orangeburg, South Carolina <I>(leased land)</I><BR> Port
Arthur, Texas<BR>Rio de Janeiro, Brazil<BR>Sarnia, Ontario<BR>Sauget, Illinois
<H1 ALIGN=CENTER><FONT SIZE=3>21</FONT></H1>
<P><FONT SIZE=3>Ethyl is incorporated in Virginia and owns its corporate
headquarters located in Richmond. We generally lease our regional and sales
offices located in a number of areas around the world. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Raw Materials and Product Supply</FONT></H2>
<P><FONT SIZE=3>We believe the sources of chemicals and base oils used in the
manufacture and blending of petroleum additives are adequate for our operations.
We purchase major raw materials under long-term contracts with multi-source
suppliers. We have the following long-term agreements for finished products: </FONT></P>
<UL><LI>DSM Copolymer, Inc. supplies olefin copolymer viscosity index
improvers
<LI> Octel supplies TEL
<LI>Albemarle Corporation supplies MMT and antioxidants
</UL>
<H2 ALIGN=LEFT><FONT SIZE=3>Production Capacity</FONT></H2>
<P><FONT SIZE=3>As part of our supply optimization plan, in 1997 we replaced and
updated some production facilities at Sauget, Natchez, Houston, and Feluy. In
1998, we increased production at the Houston and Sarnia plants. We believe our
plants and supply agreements are sufficient to meet expected sales levels.
Operating rates vary with product mix and normal sales swings. Our facilities
are well maintained and in good operating condition. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Segment Assets</FONT></H2>
<P><FONT SIZE=3>The following table shows asset information by segment and the
reconciliation to consolidated assets. Segment assets consist of accounts
receivable, inventory, and long-lived assets. Long-lived assets include
property, plant, and equipment, net of depreciation and intangible assets, net
of amortization. </FONT></P>
<P align=CENTER><B><FONT SIZE=3>Segment Assets and Related Information</FONT></B></p>
<P ALIGN=CENTER><I>(in millions of dollars)</I></P>
<PRE>
1999 1998 1997
---------------------------------
<B>Segment assets</B>
Petroleum additives $667 $ 720 $ 677
Tetraethyl lead 55 82 95
---- ------ ------
722 802 772
Cash 16 8 18
Other accounts receivable 4 9 25
Deferred income taxes 13 15 18
Prepaid expenses 5 6 4
Other assets and
deferred charges 231 242 243
---- ----- ------
Total assets $991 $1,082 $1,080
============ ==== ====== ======
<B>Additions to long-lived assets</B>
Petroleum additives (a) $ 15 $ 70 $ 54
Tetraethyl lead - - 1
Other long-lived assets 1 - 2
---- ------ ------
Total long-lived assets $ 16 $ 70 $ 57
==== ====== ======
<B>Depreciation and amortization</B>
Petroleum additives $ 58 $ 57 $ 56
Tetraethyl lead 2 2 2
Other long-lived assets 5 4 4
---- ------ ------
Total depreciation and amortization $ 65 $ 63 $ 62
==== ====== ======
</PRE>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10%> </TD>
<TD WIDTH=90%><FONT SIZE=3>
<I>(a)
Petroleum additives additions to long-lived assets include increases in segment
intangibles as a result of the recognition of a portion of the note payable to
Texaco. The amount of this noncash transaction was $43 million in 1998 and $14
million in 1997.</I></FONT></TD>
</TR>
<BR>
<H2 ALIGN=LEFT><FONT SIZE=3> GEOGRAPHIC AREAS</FONT></H2>
<P><FONT SIZE=3>Ethyl has operations in the United States, Europe, Asia, and
Latin America, as well as in Australia and Canada. The economies are stable in
most of the countries where we operate. In those countries with more political
and economic uncertainty, we generally minimize our risk of loss through U.S.
dollar denominated transactions and letters of credit. We also participate in
selective foreign currency forward contracts. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>22</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<P><FONT SIZE=3>Ethyl seeks to transact business in foreign countries where it
is most likely our earnings can be repatriated or returned to the U.S. in cash.
Sales in other areas are normally prepaid or paid through letters of credit. Our
foreign customers mainly consist of financially viable government organizations
and large companies. </FONT></P>
<P><FONT SIZE=3>The table below reports net sales and long-lived assets by
geographic area. No transfers occurred between segments during the three-year
period shown. Except for the United States, no country exceeded 10% of net sales
or long-lived assets in any year. Ethyl allocated revenues to geographic areas
based on the location to which the product was shipped. The reduction in net
sales in 1999 reflected the fact that Ethyl does not record TEL sales made
through the marketing agreements with Octel. </FONT></P>
<P align=CENTER><B><FONT SIZE=3>Geographic Areas</FONT></B></P>
<CENTER><I>(in millions of dollars)</I></CENTER>
<PRE>
1999 1998 1997
---------------------------------
<B>Net sales</B>
United States $399 $440 $ 447
Foreign 445 534 617
---- ---- -----
Total $844 $974 $1,064
==== ==== ======
<B>Long-lived assets</B>
United States $378 $421 $ 421
Foreign 54 70 67
---- ---- -----
Total $432 $491 $ 488
==== ==== =====
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>ENVIRONMENTAL MANAGEMENT</FONT></H2>
<P><FONT SIZE=3>Ethyl operates under policies that comply with federal, state,
local, and foreign requirements regarding the handling, manufacture, and use of
materials. One or more regulatory agencies may classify some of these materials
as hazardous or toxic. Ethyl also complies with all laws, regulations, statutes,
and ordinances protecting the environment, including those related to the
discharge of materials. We expect to continue to comply in every material
respect. </FONT></P>
<P><FONT SIZE=3>Ethyl spent $14 million in 1999 for environmental operating and
clean-up costs, excluding depreciation of previously capitalized expenditures.
We spent $17 million in both 1998 and 1997. The ongoing cost of operations was
about $13 million in 1999 and $15 million in each of 1998 and 1997, with the
balance representing clean-up, or remediation, and monitoring costs. In the next
few years, we expect environmental operating and remediation costs to be
slightly higher than in 1999. </FONT></P>
<P><FONT SIZE=3>On capital expenditures for pollution prevention and safety
projects, including costs assigned to other capital projects, we spent $3
million in 1999 and $7 million per year in 1998 and 1997. Over the next few
years, we expect capital expenditures for these types of projects to be slightly
higher than 1999. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>23</FONT></H1>
<P><FONT SIZE=3>Our estimate of the effects of complying with governmental
pollution prevention and safety regulations is subject to: </FONT></P>
<UL>
<LI> potential changes in applicable statutes and regulations
<LI> uncertainty as to the success of anticipated solutions to pollution
problems
<LI> uncertainty as to whether additional expense may prove necessary
<LI> potential for emerging technology to affect remediation methods and
reduce associated costs
</UL>
<P><FONT SIZE=3>Ethyl is subject to the federal Superfund law and similar state
laws under which we may be designated as a Potentially Responsible Party (PRP).
We may be liable for a share of the costs associated with cleaning up various
hazardous waste sites. In all but three cases where Ethyl has been named a PRP,
we demonstrated that we were either a <I>de minimis</I> participant or a minor
participant. Costs for a <I>de minimis</I> participant are less than $50,000. Costs for
a minor participant are less than $300,000. </FONT></P>
<P><FONT SIZE=3>Almost all Superfund sites, including the two largest, represent
environmental issues that are quite mature. The sites have been investigated,
and in many cases, the remediation methodology and the proportionate shares of
each PRP have been established. The financial viability of the other PRPs is
reasonably assured. Ethyl has previously accrued the estimated expense of the
remediation and monitoring of these sites. While remediation has been completed
at some sites, we expect the remediation and monitoring at other sites,
including one of the largest, to continue for an extended time. </FONT></P>
<P><FONT SIZE=3>In one case, the identification of contaminants and remediation
costs is still in process, as are the identification of PRPs and allocation of
responsibilities. Although allocation has not yet begun, Ethyl expects to be a
minor participant in the ultimate clean-up. </FONT></P>
<P><FONT SIZE=3>In <I>de minimis</I> PRP matters and in some minor PRP matters, Ethyl
generally negotiates a consent decree to pay any apportioned settlement. This
relieves us of any further liability as a PRP, except for remote contingencies.
In all other PRP matters, Ethyl’s records indicate that unresolved
exposures are not material, either individually or collectively, to our
financial position or results of operations. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>24</FONT></H1>
<P><FONT SIZE=3>Ethyl reviews the status of significant existing or potential
environmental issues, including PRP matters. We accrue and expense our
proportionate share of environmental remediation and monitoring costs in
accordance with FASB Statement No. 5 and FASB Interpretation No. 14 as clarified
by the American Institute of Certified Public Accountants Statement of Position
96-1. As necessary, we adjust our accruals based on additional information. </FONT></P>
<P><FONT SIZE=3>Total gross liabilities for environmental issues at year-end
were $38 million for 1999 and $46 million for 1998. We expect to receive
insurance reimbursements for a portion of the amounts. As new technology becomes
available, we expect accrued amounts may be reduced. While future costs could
significantly impact our results of operations, we do not expect these costs to
have a material effect on our financial position or liquidity. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>YEAR 2000 READINESS DISCLOSURE</FONT></H2>
<I>The Year 2000 statement in this communication is being designated a Year 2000 Readiness Disclosure within the
meaning of the United States Year 2000
Information and Readiness Disclosure Act of 1998.</I>
<P><FONT SIZE=3>Our Year 2000 project was a global effort covering information
systems, process control systems, and embedded controllers. Ethyl’s senior
management and board of directors placed a high priority on and approved all of
the necessary funding to complete the Year 2000 compliance effort. Our Year 2000
manager coordinated the initiative and provided senior management with regular
status updates. </FONT></P>
<P><FONT SIZE=3>Ethyl invested thousands of hours to ensure a problem-free
transition to January 1, 2000 and beyond. We tested almost 1,000 systems within
Ethyl to ensure compliance and developed carefully designed plans to manage the
changeover to the new year at all of our locations across the world. </FONT></P>
<P><FONT SIZE=3>Because of our extensive preparations, at January 1, 2000 and
thereafter, all of our information systems, equipment, and facilities were fully
functional and operated accurately. None of our mission critical third parties
had any Year 2000 problems that negatively affected our business operations.
There was no interruption to Ethyl’s business because of a Year 2000 issue. </FONT></P>
<P><FONT SIZE=3>Our Year 2000 effort encompassed both information technology
(IT) and non-IT systems including manufacturing and R&D systems, testing
equipment, desktop computers, and technical infrastructure. The following phases
were part of the initiative: </FONT></P>
<UL>
<LI> inventory - identification of all hardware, software, and processes that are date-aware
<LI>
assessment - determination of Year 2000 compliance of all hardware, software,
and processes<LI> remediation - correction of any areas which are not compliant<LI>
testing - review of all hardware, software, and processes for compliance<LI>
contingency - development of a plan to address our worst case scenarios and risk
factors
</UL>
While
all phases are 100% complete, we are continuing to monitor our systems for
monthly closings and key dates, including the leap year.
<BR><BR>
We
enhanced our Year 2000 readiness when we converted all mainframe systems to
modern client server systems over the last several years. This included
implementation of SAP R/3, PeopleSoft, and other commercial and desktop
software, all of which were represented to be
<BR>
<H1 ALIGN=CENTER><FONT SIZE=3>25</FONT></H1>
<P><FONT SIZE=3>Year 2000 compliant. In addition, during 1999 and 1998 we
contracted with independent third parties to provide assistance with the review
of manufacturing systems and embedded controllers, as well as provide a status
review of our company-wide program. We used these results to enhance and focus
our Year 2000 efforts. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Third Party Readiness</FONT></H2>
<P><FONT SIZE=3>We have relationships with third parties, including customers
and suppliers of materials or services, whose noncompliance could have a
material effect on our business operations and financial condition. Therefore,
our Year 2000 efforts included reviewing the readiness efforts of our mission
critical third parties. Either through a questionnaire or in person, we
contacted all of our mission critical third parties. We received no information
that indicated any of our critical business partners’ Year 2000 results
would have a negative impact on our business. In addition, none reported any
Year 2000 incidences. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Cost</FONT></H2>
<P><FONT SIZE=3>Ethyl’s cost associated with Year 2000 compliance was $2
million for 1999. This brings the total cost incurred since January 1, 1998 to
about $3 million. The annual non-capitalized cost represent less than 5% of the
IT budget. The cost is low because we completed the majority of our compliance
effort through systems implementation over the last several years. Our emphasis
on Year 2000 readiness did not seriously delay any of Ethyl’s other mission
critical programs. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Risks</FONT></H2>
<P><FONT SIZE=3>As part of the assessment phase, we rated the impact of a Year
2000 problem for each mission critical system in terms of probable risk to the
business and successful resolution of the issue. We believed that internal risks
were low and the overall risk of business interruption was minimal. </FONT></P>
<P><FONT SIZE=3>Nonetheless, there was no guarantee that there would not be a
material failure of a critical system or those of a supplier or customer. A
material failure could have had an adverse impact on our business or financial
condition. In consideration of these risks, we determined that the most
reasonably likely worst case scenario was a delay in the distribution of
products or in the receipt of materials. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>26</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<P>We primarily use the railroads to ship product to our customers and receive raw materials
at our production facilities. Our most reasonably likely worst case scenario
involved the potential for railroads to experience problems in tracking and
routing railcars due to the loss of information, as well as problems in
communications between the rail companies. These potential problems could have
resulted in the railroads needing several weeks to identify and route railcars,
therefore affecting our ability to supply our customers and production
facilities. While none of these problems occurred, we had a contingency plan in
place.
<H2 ALIGN=LEFT><FONT SIZE=3>Contingency Plan</FONT></H2>
<P><FONT SIZE=3>As
part of our contingency plan, we addressed this most reasonably likely worst
case scenario. This aspect of the contingency plan was coordinated by our
logistics group and included:</FONT></P>
<UL>
<LI> ensuring enough supply of critical products for key customers at the
usage sites to allow for two weeks of no railroad deliveries
<LI> minimizing materials in transit on the railroads at 1/1/2000
<LI> documenting, just before 1/1/2000, a listing of our railcars and their
location, cargo, and destination
<LI> in December 1999, converting to truck delivery any materials that were
in short supply
<LI> coordinating alternative shipping with our trucking company provider
<LI> assigning trained personnel to be available on 1/1/2000 to address any
problem areas that may occur
</UL>
<P><FONT SIZE=3>In addition to our contingency plan to address our worst case
scenario, we further developed plans to address noncompliance of a critical
system or those of a supplier or customer. These included special staff
training, stockpiling critical raw materials and inventory, obtaining alternate
sources of supply, and scheduling production runs to minimize losses in case of
power outages. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>MARKET RISK</FONT></H2>
<P><FONT SIZE=3>Ethyl is exposed to several market risk factors including
fluctuations in interest and foreign currency rates, and changes in the cost of
raw materials and marketable security prices. These risk factors may affect our
results of operations, cash flows, and financial position. We manage these risks
through regular operating and financing methods, including the use of derivative
financial instruments such as foreign currency forward contracts. Derivative
instruments are with major financial institutions and are not for speculative or
trading purposes. </FONT></P>
<P><FONT SIZE=3>The following analysis presents the effect on Ethyl’s
earnings, cash flows, and financial position as if the hypothetical changes in
market risk factors occurred on December 31, 1999. We analyzed only the
potential impacts of our hypothetical assumptions. This analysis does not
consider other possible effects that could impact Ethyl’s business. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>27</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>Interest Rate Risk</FONT></H2>
<P><FONT SIZE=3>At year-end 1999, we had $474 million of debt, with $455 million
of that total at variable interest rates. Holding all other variables constant,
if interest rates hypothetically increased 10%, the effect on our earnings and
cash flows would be higher interest expense of $3 million. At the end of 1998,
$505 million of our $559 million of total debt was at variable interest rates. A
10% hypothetical increase in interest rates in 1998 would have also resulted in
higher interest expense of $3 million. A hypothetical 10% decrease in interest
rates, holding all other variables constant, would not materially affect the
fair value of outstanding debt at either year-end 1999 or 1998. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Foreign Currency Risk</FONT></H2>
<P><FONT SIZE=3>Ethyl sells to customers in foreign markets through our foreign
operations, as well as through export sales from our plants in the U.S. These
transactions are often denominated in currencies other than the U.S. dollar. Our
primary currency exposures are the Euro, Japanese Yen, Canadian Dollar, and
British Pound Sterling. </FONT></P>
<P><FONT SIZE=3>In the past, Ethyl minimized our foreign currency risk by
matching cash flow exposures in major currencies. However, as we consolidated
manufacturing operations, that became more difficult. Therefore, in 1999 and
1998, Ethyl entered into forward contracts to minimize the risk of foreign
currency denominated sales. </FONT></P>
<P><FONT SIZE=3>At year-end 1999, we had a series of Japanese Yen forward sale
contracts for $24 million to minimize currency exposure from expected cash flows
from foreign operations. These contracts all have maturity dates in 2000. With
all other variables held constant, a hypothetical 10% adverse change in the
December 31, 1999 forward Yen rates would result in about a $3 million negative
impact in the value of our forward contracts. At year-end 1998 we had Yen
forward sale contracts in the amount of $22 million. A 10% hypothetical adverse
change in the December 31, 1998 forward Yen rates would have resulted in a
decrease of over $2 million in the value of these contracts. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Raw Material Price Risk</FONT></H2>
<P><FONT SIZE=3>Ethyl is exposed to the risk of increasing raw material prices.
When raw material prices increase, we attempt to recover these costs by
increasing selling prices. However, if increases in raw material cost outpace
the increase in selling price, these costs will have a negative effect on
operating profit. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Marketable Security Price Risk</FONT></H2>
<P><FONT SIZE=3>We recorded our marketable securities at year-end 1999, as well
as year-end 1998, at a fair value of $20 million, which included net unrealized
gains of $4 million. The estimated loss, for both 1999 and 1998, in the fair
value of the marketable securities resulting from a hypothetical 10% decrease in
price is $2 million. However, since the securities are classified as
“available for sale,” any adjustment to fair value is reported in
accumulated other comprehensive loss, and would not impact our results of
operations or cash flows unless the securities are sold. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>LITIGATION</FONT></H2>
Ethyl has been served as a defendant in two cases filed in the Circuit Court for Baltimore City, Maryland, on
September 22, 1999. Both cases claim damages attributable to lead and have the same 17 defendants. The cases are
<I>Cofield et al. v. Lead Industries Association, Inc., et al.</I> and<I> Smith et al. v. Lead Industries Association, Inc.,
et al.</I>
<H1 ALIGN=CENTER><FONT SIZE=3>28</FONT></H1>
<P><FONT SIZE=3><I>Cofield</I> seeks recovery for property damage from lead paint,
which Ethyl never produced or distributed. <I>Smith</I> is for personal injuries for
six children from lead exposure due to lead paint and dust from tailpipe
emissions due to leaded gasoline. Ethyl has strong defenses and we will
vigorously defend these cases. </FONT></P>
<P><FONT SIZE=3>Ethyl and our subsidiaries are involved in other legal
proceedings. These legal proceedings are incidental to our business and include
administrative or judicial actions seeking remediation under environmental laws
such as Superfund. These actions also include premises asbestos cases and
product liability cases. While it is not possible to predict or determine the
outcome of such pending proceedings, it is our opinion that Ethyl and our
subsidiaries will not experience materially adverse effects on our results of
operations or financial condition. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>FINANCIAL POLICY</FONT></H2>
<H2 ALIGN=LEFT><FONT SIZE=3>Ethyl Corporation’s Financial Standards</FONT></H2>
<P><FONT SIZE=3>Our goal is to present clearly Ethyl’s financial
information to enhance your understanding of our sources of earnings and our
financial condition. We also present certain information to comply with the Form
10-K requirements of the Securities and Exchange Commission. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Management’s Report on the Financial Statements</FONT></H2>
<P><FONT SIZE=3>Ethyl prepared the financial statements and related notes on
pages 31 through 48 to conform to generally accepted accounting principles. In
doing so, management made informed judgments and estimates of the expected
effects of certain events and transactions on the reported amounts of assets and
liabilities at the dates of the financial statements. The same is true for the
reported amounts of revenues and expenses during these reporting periods.
Financial data appearing elsewhere in the annual report is consistent with these
financial statements. However, actual results could differ from the estimates on
which these financial statements are based. </FONT></P>
<P><FONT SIZE=3>We maintain a system of internal controls to provide reasonable,
but not absolute, assurance of the reliability of the financial records and the
protection of assets. Written policies and procedures, careful selection and
training of qualified personnel, and an internal audit program support
Ethyl’s internal control system. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>29</FONT></H1>
<P><FONT SIZE=3>The independent certified public accounting firm,
PricewaterhouseCoopers LLP (PwC), audited these financial statements in
accordance with generally accepted auditing standards. The audit included a
review of Ethyl’s internal accounting controls to the extent considered
necessary to determine audit procedures. </FONT></P>
<P><FONT SIZE=3>The audit committee of the board of directors, composed only of
independent directors, meets with management, internal business assurance, and
PwC to review accounting, auditing, and financial reporting matters. PwC has
informed the committee that it has notified the Securities and Exchange
Commission (SEC) that there was a delay in the transfer from PwC’s control
of certain retirement and other benefits which were due to Ethyl’s Chief
Financial Officer as a former partner of Coopers & Lybrand, a predecessor of
PwC. These transfers, which should have occurred in November 1997, were
completed on February 16, 2000. The SEC has advised Ethyl that because of this
delay, PwC was not in compliance with its auditor independence regulations. The
SEC has further advised Ethyl that it does not intend to take any action against
the company with respect to Ethyl’s financial statements as a result of
PwC’s noncompliance. The audit committee has reviewed this situation and
has concluded, based on its examination, that the delayed transfer of these
benefits did not affect the quality or integrity of PwC’s audits of
Ethyl’s financial statements. On the recommendation of the audit committee,
the board has designated PwC as Ethyl’s independent accountants, subject to
shareholder approval. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>Forward-Looking Comments</FONT></H2>
<P><FONT SIZE=3>Some of the information presented in the introductory message
and review of operations, constitutes forward-looking comments within the
meaning of the Private Securities Litigation Reform Act of 1995. The
forward-looking comments may focus on future objectives or expectations about
future performance and may include statements about trends or anticipated
events. </FONT></P>
<P><FONT SIZE=3>Ethyl believes our forward-looking comments are based on
reasonable expectations and assumptions, within the bounds of what we know about
our business and operations. However, Ethyl offers no assurance that actual
results will not differ materially from our expectations due to uncertainties
and factors that are difficult to predict and beyond our control. </FONT></P>
<P><FONT SIZE=3>These factors include, but are not limited to, timing of sales
orders, gain or loss of significant customers, competition from other
manufacturers, a significant rise in interest rates, or changes in the demand
for Ethyl’s products. Other factors include significant changes in new
product introduction, increases in product cost, the impact of fluctuations in
foreign exchange rates on reported results of operations, changes in various
markets, or the impact of consolidation of the petroleum additives industry. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>[PHOTO]</FONT></H1>
<H1 ALIGN=CENTER><FONT SIZE=3>30</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Consolidated Statements of Income</FONT></H2>
<PRE>
<I>(in thousands of dollars except share and per-share amounts)</I> Ethyl Corporation
& Subsidiaries
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
Net sales $ 843,723 $ 974,190 $ 1,063,615
Cost of goods sold 649,306 725,018 761,660
---------- ---------- -----------
Gross profit 194,417 249,172 301,955
TEL marketing agreements services 53,993 14,944 -
Selling, general, and administrative expenses 72,626 79,387 90,859
Research, development, and testing expenses 66,957 67,363 71,172
Special items income, net 7,200 4,885 -
---------- ---------- -----------
Operating profit 116,027 122,251 139,924
Interest and financing expenses 35,506 40,409 25,668
Other income (expense), net 601 24,519 (4,274)
---------- ---------- -----------
Income before income taxes 81,122 106,361 109,982
Income taxes 25,825 35,782 32,452
---------- ---------- -----------
Net income $ 55,297 $ 70,579 $ 77,530
========== ========== ===========
Basic and diluted earnings per share $ .66 $ .85 $ .71
========== ========== ===========
Shares used to compute basic earnings per share 83,465 83,465 109,793
========== ========== ===========
Shares used to compute diluted earnings per share 83,465 83,465 109,800
========== ========== ===========
Cash dividends declared per share of common stock $ .25 $ .25 $ .44
========== ========== ===========
<I>See accompanying Notes to Consolidated Financial Statements.</I>
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>31</FONT></H1>
<H1 ALIGN=left><FONT SIZE=5>Consolidated Balance Sheets</FONT></H1>
<PRE>
(<I>in thousands of dollars except share amounts)</I> Ethyl Corporation
& Subsidiaries
- ---------------------------------------------------------------------------------------------------------------
December 31 1999 1998
- ---------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 15,846 $ 8,403
Accounts receivable, less allowance for doubtful accounts
($975 in 1999; $1,386 in 1998) 133,291 152,937
Receivable - TEL marketing agreements services 22,655 16,954
Inventories 174,792 191,776
Deferred income taxes 12,575 14,964
Prepaid expenses 5,699 6,394
--------- -----------
Total current assets 364,858 391,428
--------- -----------
Property, plant, and equipment, at cost 769,307 776,452
Less accumulated depreciation and amortization 436,331 400,426
--------- -----------
Net property, plant, and equipment 332,976 376,026
--------- -----------
Other assets and deferred charges 194,383 199,480
Intangible assets, net of amortization 99,163 115,305
--------- -----------
TOTAL ASSETS $ 991,380 $ 1,082,239
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,945 $ 82,369
Accrued expenses 53,304 48,496
Dividends payable 5,217 5,217
Long-term debt, current portion 67,088 26,965
Income taxes payable 12,538 14,519
--------- -----------
Total current liabilities 203,092 177,566
--------- -----------
Long-term debt 407,134 531,859
Other noncurrent liabilities 102,707 115,016
Deferred income taxes 63,238 70,796
Shareholders' equity:
Common stock ($1 par value):
Issued - 83,465,460 in 1999 and 1998 83,465 83,465
Accumulated other comprehensive loss (11,828) (5,604)
Retained earnings 143,572 109,141
--------- -----------
215,209 187,002
--------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 991,380 $ 1,082,239
========= ===========
<I>See accompanying Notes to Consolidated Financial Statements.</I>
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>32</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Consolidated Statements of Shareholders’ Equity</FONT></H2>
<PRE>
<I>(in thousands of dollars except share amounts)</I> Ethyl
Corporation & Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Other Total
-------------------------- Paid-in Comprehensive Retained Shareholders'
Shares Amounts Capital (Loss)Income Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 118,443,835 $ 118,444 $ 2,799 $ (1,888) $ 320,545 $ 439,900
Comprehensive income:
Net income 77,530 77,530
Foreign currency translation adjustments (6,231) (6,231)
Unrealized gain on marketable securities 9,824 9,824
-----------
Total comprehensive income 81,123
-----------
Cash dividends declared ($.4375 per share) (49,633) (49,633)
Issuance of restricted stock 21,620 21 178 199
Stock purchased and retired (34,999,995) (35,000) (2,977) (289,014) (326,991)
-------------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 1997 83,465,460 83,465 - 1,705 59,428 144,598
Comprehensive income:
Net income 70,579 70,579
Foreign currency translation adjustments 2,361 2,361
Unrealized gain on marketable
securities adjustments (7,003) (7,003)
Minimum pension liability adjustments (2,667) (2,667)
-----------
Total comprehensive income 63,270
-----------
Cash dividends declared ($.25 per share) (20,866) (20,866)
-------------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 1998 83,465,460 83,465 - (5,604) 109,141 187,002
Comprehensive income:
Net income 55,297 55,297
Foreign currency translation adjustments (6,779) (6,779)
Unrealized gain on marketable
securities adjustments (213) (213)
Minimum pension liability adjustments 2,667 2,667
Unrealized loss on derivative instruments (1,899) (1,899)
-----------
Total comprehensive income 49,073
-----------
Cash dividends declared ($.25 per share) (20,866) (20,866)
-------------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 1999 83,465,460 $ 83,465 $ - $(11,828) $ 143,572 $ 215,209
============== =========== =========== ============ =========== ===========
<I>See accompanying Notes to Consolidated Financial Statements.</I>
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>33</FONT></H1>
<H1 ALIGN=left><FONT SIZE=5>Consolidated Statements of Cash Flows</FONT></H1>
<PRE>
<I>(in thousands of dollars) </I> Ethyl Corporation & Subsidiaries
- -----------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR $ 8,403 $18,162 $20,148
----------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 55,297 70,579 77,530
Adjustments to reconcile income to cash flows from
operating activities:
Depreciation and amortization 65,125 63,310 61,752
Prepaid pension cost (12,186) (5,281) (6,930)
Net (gain) loss on sales and impairments of assets (125) (15,682) 5,724
Deferred income taxes 2,084 17,202 (2,572)
Provision for enhanced retirement offer - 3,986 -
Change in assets and liabilities:
Accounts receivable 18,280 (6,416) 20,362
TEL marketing agreements services (5,701) (16,954) -
Inventories 13,459 6,501 3,227
Prepaid expenses 730 (2,243) (1,392)
Accounts payable and accrued expenses (10,167) 11,877 (6,637)
Income taxes payable (2,160) 3,197 (8,912)
Other, net 3,164 (366) (9,557)
----------- ------------ ------------
Cash provided from operating activities 127,800 129,710 132,595
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (13,793) (22,738) (43,496)
Proceeds from sale of subsidiary - - 10,048
Proceeds from sale of certain assets 2,650 29,852 5,596
Rabbi trust funding (713) (1,434) (15,192)
Other, net (57) (333) 158
----------- ------------ ------------
Cash (used in) provided from investing activities (11,913) 5,347 (42,886)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (86,311) (123,750) (256,750)
Additional long-term debt - - 553,000
Cash dividends paid (20,866) (20,866) (59,222)
Repurchases of common stock - - (326,991)
Other, net (1,267) (200) (1,732)
----------- ------------ ------------
Cash used in financing activities (108,444) (144,816) (91,695)
----------- ------------ ------------
Increase (decrease) in cash and cash equivalents 7,443 (9,759) (1,986)
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $15,846 $ 8,403 $18,162
=========== ============ ============
<I>See accompanying Notes to Consolidated Financial Statements</I>
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>34</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Ethyl Corporation 1999 Annual Report<br>Notes to Consolidated Financial Statements</FONT></H2>
<I>(tabular amounts in thousands of dollars, except share and per-share amounts)</I>
<H2 ALIGN=LEFT><FONT SIZE=3>1. Summary of Significant Accounting Policies</FONT></H2>
<P><B>Consolidation</B> - Our consolidated financial statements include the accounts of Ethyl Corporation and
subsidiaries (Ethyl). All significant intercompany transactions are eliminated upon consolidation.
<P><B>Foreign Currency Translation</B> - We translate the balance sheets of our foreign subsidiaries into U.S. dollars
based on the current exchange rate at the end of each period. We translate the statements of income using the
average exchange rate for the year. Ethyl includes translation adjustments in the balance sheet as part of
accumulated other comprehensive loss and transaction adjustments in net income.
<P><B>Inventories</B> - Ethyl values inventories at the lower of cost or market, with cost primarily determined on the
last-in, first-out (LIFO) basis. For remaining inventories, we use weighted-average cost. Inventory cost includes
raw materials, direct labor, and manufacturing overhead.
<P><B>Property, Plant, and Equipment</B> - We state property, plant, and equipment at cost and compute depreciation
primarily by the straight-line method based on the estimated useful lives of the assets. Ethyl capitalizes
expenditures for significant improvements. We expense repairs and maintenance as incurred. When property is sold or
retired, we remove the cost and accumulated depreciation from the accounts and any related gain or loss is included
in income.
<P>Our policy on capital leases is to record the asset at the lower of fair value at lease inception or the
present value of the total minimum lease payments. We compute amortization by the straight-line method based on the
estimated economic life of the asset.
<P><B>Impairment of Long-Lived Assets</B> - When significant events or circumstances occur that might impair the value of
long-lived assets, we evaluate recoverability of the recorded cost of these assets. If we determine an asset is
impaired and its recorded cost is higher than fair market value based on discounted cash flows, we adjust the asset
to fair market value.
<P><B>Environmental Costs</B> - Ethyl capitalizes environmental compliance costs if they extend the useful life of the
related property or prevent future contamination. Environmental compliance costs also include maintenance and
operation of pollution prevention and control facilities. We expense these costs as incurred.<br><br>
Accrued environmental remediation and monitoring costs relate to an existing condition caused by past
operations. Ethyl accrues these costs when it is probable that we have incurred a liability and the amount can be
reasonably estimated. Amounts accrued exclude claims for recoveries from insurance companies, which we record
separately in other assets. We expense ongoing environmental remediation costs in current operations.
<P><B>Intangible Assets </B>- Intangible assets include identifiable intangibles and goodwill. Identifiable intangibles
include the cost of favorable contracts, patents, and formulas. We assign a value to identifiable intangibles based
on independent appraisals and internal estimates. Goodwill arises from the excess of cost over net assets of
businesses acquired. Goodwill represents the residual purchase price after allocation to all identifiable net
assets. Ethyl generally amortizes intangibles using the straight-line method over the estimated economic life of the
intangible.
<P><B>Employee Savings Plan</B> - Most of our full-time salaried and hourly employees may participate in defined
contribution savings plans. Employees who are covered by collective bargaining agreements may also participate in a
savings plan according to the terms of their bargaining agreements. Employees, as well as Ethyl, contribute to the
plans. We spent $3 million in each of 1999, 1998, and 1997 related to these plans.
<P><B>Research, Development, and Testing Expenses</B> - Ethyl expenses as incurred all research, development, and testing
costs. <P><B>Income Taxes</B> - We recognize deferred income taxes for temporary differences between the financial reporting
basis and the income tax basis of assets and liabilities. We also adjust for changes in tax rates and laws at the
time the changes are enacted.
<P><B>Derivative Financial Instruments</B> - We use derivative financial instruments to manage the risk of foreign
currency exchange. Ethyl does not enter into derivative financial instruments for trading or speculative purposes.
We record realized gains and losses in current income and unrealized gains and losses in accumulated other
comprehensive loss.
<H1 ALIGN=CENTER><FONT SIZE=3>35</FONT></H1>
<P><B>Earnings Per Share</B> - Basic earnings per share reflects reported earnings divided by the weighted-average number
of common shares outstanding. Diluted earnings per share includes the effect of dilutive stock options outstanding
during the year.
<P><B>Stock-Based Compensation</B> - We account for the stock-based compensation plan using the intrinsic-value method.
Under this method, we do not record compensation cost unless the quoted market price of the stock at grant date or
other measurement date exceeds the amount the employee must pay to exercise the stock option.
<P><B>Segment Reporting</B> - Ethyl operates and manages separately two distinct strategic business segments, petroleum
additives and tetraethyl lead (TEL). The segment tables and table notes on pages 15 through 23 are audited while the
discussion of segment information on these pages is unaudited.
<P><B>Estimates</B> - The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
<P><B>Reclassifications</B> - We reclassified some amounts in the consolidated financial statements and the related notes
to conform to the current presentation.
<H2 ALIGN=LEFT><FONT SIZE=3>2. TEL Marketing Agreements Services</FONT></H2>
<P>On October 1, 1998, Ethyl entered agreements with The Associated Octel Company Limited (Octel) to market and
sell TEL in all world areas except for North America and the European Economic Area. Sales made under the agreements
are in the name of Octel. We provide bulk distribution, marketing, and other services related to sales made under
these agreements. Octel produces the TEL marketed under this arrangement and also provides marketing and other
services.
<P>Under these agreements, net proceeds for services are distributed to both Ethyl and Octel, of which we receive
approximately one-third. As part of the arrangement, Octel will purchase most of Ethyl's remaining TEL inventory and
use this inventory for sales under the agreements. Sales of inventory to Octel are included in our net sales and
cost of sales in the Consolidated Statements of Income.
<P>Summary financial information related to this alliance is presented below:
<PRE>
Twelve Months Three Months
Ended Ended
December 31, December 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------
Territory sales $341,100 $92,070
Contractual cost of sales 155,985 40,720
-------- -------
185,115 51,350
Selling, general, and
administrative expenses 20,589 6,605
-------- -------
Net proceeds for services $164,526 $44,745
======== =======
</PRE>
<P>Assets under this alliance consisted of a receivable due from Octel of $109 million at year-end 1999 and $54
million at year-end 1998.
<P>Liabilities under this alliance included amounts due to Octel of $86 million at year-end 1999 and $37 million
at year-end 1998. Amounts due to Ethyl were $23 million at year-end 1999 and $17 million at year-end 1998. These
liabilities include undistributed proceeds of $66 million for Octel and $22 million for Ethyl at year-end 1999. The
undistributed proceeds at year-end 1998 were $30 million for Octel and $14 million for Ethyl.
<P>We record our net proceeds for services in the Consolidated Statements of Income under "TEL marketing agreements
services." Under these agreements, we provided bulk distribution, marketing, and other services amounting to $9
million in 1999 and $2 million in 1998. We received cash proceeds from these agreements of $47 million in 1999.
<H2 ALIGN=LEFT><FONT SIZE=3>3. <I>Pro Forma</I> Information (Unaudited)</FONT></H2>
<P>On October 2, 1997, Ethyl repurchased almost 35 million shares of our common stock at $9.25 per share, with the
purchase price and related costs totaling about $329 million. We financed the purchase under our Competitive
Advance, Revolving Credit Facility and Term Loan Agreement.
<H1 ALIGN=CENTER><FONT SIZE=3>36</FONT></H1>
<P>Our financial statements only include the effects of the repurchase since October 2, 1997. The following
selected <I>pro forma</I> information presents a summary of our results of operations as if the purchase had occurred as of
January 1, 1997. The <I>pro forma</I> information reflects the impact of higher interest expense net of the related tax
impact, as well as the reduction in shares outstanding. <I>Pro forma</I> data is for informational purposes only and may
not necessarily reflect the financial position or results of operations of Ethyl had the purchase of shares occurred
on January 1, 1997.
<PRE>
Year Ended
December 31, 1997
- ------------------------------------------------------------------------------------------
Net income $67,555
Basic and diluted earnings per share $ .81
Shares used to compute basic
earnings per share 83,449
Shares used to compute
diluted earnings per share 83,456
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>4. Supplemental Cash Flow Information</FONT></H2>
<PRE>
Years Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<B>Cash paid during the year for</B>
Income taxes $6,834 $15,487 $48,875
Interest and financing
expenses (net of
capitalization) 33,678 38,733 22,477
<B>Supplemental investing and financing noncash transactions</B>
Leased asset addition and
related obligation 1,600 4,676 -
Increase in intangible
assets related to a portion
of the note payable to
Texaco (including deferred
interest cost of $5,347
in 1998 and $1,284
in 1997) - 43,276 13,784
Recognition of contingent
note payable to Texaco - 37,929 12,500
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>5. Cash and Cash Equivalents</FONT></H2>
<PRE>
December 31 1999 1998
- -------------------------------------------------------------------------------------------
Cash and time deposits $14,763 $7,687
Short-term securities 1,083 716
------- ------
$15,846 $8,403
======= ======
Our short-term securities are generally commercial paper maturing in less than
90 days. We state these securities at cost plus accrued income, which approximates market value.
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>6. Inventories</FONT></H2>
<PRE>
December 31 1999 1998
- -------------------------------------------------------------------------------------------
Finished goods and work-in-process $145,557 $161,480
Raw materials 21,094 21,328
Stores, supplies, and other 8,141 8,968
-------- --------
$174,792 $191,776
======== ========
Our inventories stated on the LIFO basis amounted to $133 million at year-end 1999
which was below replacement cost by approximately $15 million. At year-end 1998, LIFO
basis inventories were $154 million, about $16 million below replacement cost.
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>7. Property, Plant, and Equipment, at Cost</FONT></H2>
<PRE>
December 31 1999 1998
- ----------------------------------------------------------------------------------------------------
Land $ 44,268 $ 44,707
Land improvements 30,510 31,225
Buildings 96,889 97,463
Machinery and equipment 575,054 571,472
Capitalized interest 19,249 20,544
Construction in progress 3,337 11,041
-------- --------
$769,307 $776,452
======== ========
</PRE>
<P>We depreciate the cost of property, plant, and equipment primarily by the straight-line method, over the following
useful lives:
<PRE>
Land improvements 5 - 30 years
Buildings 10 - 40 years
Machinery and equipment 3 - 25 years
</PRE>
<P>Interest capitalized was $100 thousand in 1999, $200 thousand in 1998, and
$1 million in 1997. Amortization of capitalized interest, which
is included in depreciation expense, was $2 million in each of 1999, 1998, and
1997.
<H1 ALIGN=CENTER><FONT SIZE=3>37</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>8. Intangible Assets, Net of Amortization</FONT></H2>
<PRE>
December 31 1999 1998
- -------------------------------------------------------------------------------
Identifiable intangibles $91,767 $104,869
Minimum pension liability 1,616 4,120
Goodwill 5,780 6,316
------- --------
$99,163 $115,305
======= ========
</PRE>
<P><FONT SIZE=3>We amortize the
cost of intangible assets by the straight-line method over the following
economic lives: </FONT></P>
<PRE>
Identifiable intangibles 5-20 years
Goodwill 10 years
</PRE>
<P><FONT SIZE=3>Goodwill of $2
million acquired prior to November 1, 1970 and the minimum pension liability are
not amortized. Accumulated amortization was $48 million at year-end 1999 and $34
million at year-end 1998. The amortization expense amounted to $14 million in
1999, $12 million in 1998, and $9 million in 1997. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>9. Accrued Expenses</FONT></H2>
<PRE>
December 31 1999 1998
- --------------------------------------------------------------------------
Employee benefits, payroll,
and related taxes $13,149 $12,831
Other 40,155 35,665
------- -------
$53,304 $48,496
======= =======
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>10. Long-Term Debt</FONT></H2>
<PRE>
December 31 1999 1998
- ----------------------------------------------------------------------------
Revolving credit agreement $215,000 $245,000
Term loan agreement 240,000 260,000
Medium-term notes 13,500 20,250
Capital lease obligations 5,823 4,476
Texaco note payable - 29,308
-------- --------
474,323 559,034
Unamortized discount (101) (210)
-------- --------
474,222 558,824
Current maturities, net of
unamortized discount (67,088) (26,965)
-------- --------
$407,134 $531,859
======== ========
</PRE>
<P>In 1997, Ethyl entered an unsecured Amended and Restated Competitive
Advance, Revolving Credit Facility and Term Loan Agreement under which we
were originally able to borrow up to $750 million.
<P>Under the revolving credit agreement portion of this facility, we can
borrow up to $450 million at variable interest rates. We pay an annual fee of
0.175% on this amount. The outstanding balance matures on August 28, 2002.
<P>The term loan portion of this credit agreement, which originally amounted
to $300 million, also has variable interest rates. We are repaying this loan in
installments with the final payment due on August 28, 2002.
<P>The revolving credit agreement and term loan are with a group of banks. The
average interest rate on these bank loans was 5.8% in 1999 and 6.2% in 1998.
These agreements contain covenants, representations, and events of default
typical of a credit agreement of this nature. We were in compliance with these
provisions at December 31, 1999 and December 31, 1998. Financial covenants
related to consolidated debt include:
<UL>
<LI> maximum consolidated leverage ratio
<LI> minimum consolidated fixed charge coverage ratio
<LI> minimum consolidated net worth
</ul>
<P>We have two medium-term notes of almost $7 million each. The first, due
December 15, 2000, has an interest rate of 8.8%. The remaining note is due on
December 15, 2001 and has an interest rate of 8.86%.
<P>In mid-February 1999, Texaco assigned our $29 million note payable to a
syndicate of investors. We repaid this note on November 22, 1999. The average
interest rate was 7.2% in 1999 and 5.99% in 1998.
<P>We record the capital lease obligations at the fair market value of the
related asset at the inception of the lease. Capital lease obligations are
approximately $500 thousand each year for the next twelve years. The future
minimum lease payments in excess of the capital lease obligations are included
in the noncancelable future lease payments discussed in Note 14.
<H1 ALIGN=CENTER><FONT SIZE=3>38</FONT></H1>
<P>The annual maturities of long-term debt, excluding capital lease
obligations, are:
<UL>
<LI> 2000 $ 67 million
<LI> 2001 $ 87 million
<LI> 2002 $315 million
</UL>
<H2 ALIGN=LEFT><FONT SIZE=3>11. Other Noncurrent Liabilities</FONT></H2>
<PRE>
December 31 1999 1998
- -----------------------------------------------------------------------------
Provision for environmental
remediation and future
shutdown costs $ 47,400 $ 54,361
Employee benefits 54,743 60,655
Other 564 -
-------- --------
$102,707 $115,016
======== ========
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>12. Common Stock and Stock Options</FONT></H2>
<P><B>Stock Repurchase</B> - On October 2, 1997, Ethyl repurchased almost
35 million shares of our common stock, discussed further in Note 3.
<P><B>Stock Option Plan</B> - Officers and other key employees may be
granted incentive stock options, as well as nonqualifying stock options, to
purchase a specified number of shares of common stock. We issue these options
with an exercise price of fair market value on the date of grant and for a
maximum term of ten years. Some currently granted options become exercisable
when the market price of our common stock reaches specified levels or when our
earnings meet designated objectives. The remaining options were exercisable one
year after the grant date. We may also grant a stock appreciation right (SAR)
along with an option. We generally grant SARs for the same number of shares as
the related options.
<P>The maximum number of shares issuable under the incentive stock option
plan is 11.9 million, with an annual limit of 200 thousand shares per
individual.
<P>A summary of Ethyl's stock option plan is presented below in whole
shares:
<PRE>
1999 1998 1997
------------------------- -------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at January 1 2,893,767 $11.85 3,175,133 $11.88 3,464,929 $12.11
Granted - - - - 200,000 9.25
Lapsed (253,171) 12.45 (281,366) 12.13 (489,796) 12.45
--------- ------ --------- ------ --------- ------
Outstanding at December 31 2,640,596 $11.80 2,893,767 $11.85 3,175,133 $11.88
========= ====== ========= ====== ========= ======
Exercisable at December 31 579,796 644,167 749,533
========= ========= =========
Available for grant at
December 31 6,789,258 6,536,087 6,254,721
========= ========= =========
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>39</FONT></H1>
<P>We granted no options in 1999 or 1998. Based on the following assumptions, the stock options granted in 1997 had an
estimated average value of $2.10 per share at the grant date, although the stock price is currently well below the
option price. We estimated the fair value of the options granted in 1997 using an option pricing model similar to
Black-Scholes. We used the following assumptions in valuing the options granted:
<PRE>
1997
- --------------------------------------------------------------
Dividend yield 2.8%
Expected volatility 17.5%
Risk-free interest rate 5.7%
Expected life 7 years
</PRE>
<P>We continue to use the intrinsic value method to account for our stock option plan. Accordingly, we have recognized
no compensation cost. However, had we accounted for the plan using the fair value method, our net income in 1999,
1998, and 1997 would have been reduced $175 thousand each year. In addition, basic and diluted earnings per share
would have been unchanged in 1999, $.84 in 1998, and $.70 in 1997.
<P>The following table summarizes information in whole shares about the stock options outstanding or exercisable at
December 31, 1999:
<PRE>
Options Outstanding Options Exercisable
----------------------------------------- ------------------------
Weighted Average Weighted
Range of Remaining Average
Exercise Contractual Exercise Exercise
Prices Shares Life Price Shares Price
- -----------------------------------------------------------------------------------------------------------------------
$8.88 280,000 6.9 years $ 8.88 - $ 8.88
9.25 to 9.86 231,774 6.8 9.33 31,774 9.86
11.54 to 11.71 123,142 1.9 11.54 123,142 11.54
12.50 to 12.83 2,005,680 4.2 12.50 424,880 12.52
- -----------------------------------------------------------------------------------------------------------------------
$8.88 to 12.83 2,640,596 4.6 $11.80 579,796 $12.17
=======================================================================================================================
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>40</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>13. Gains and Losses on Foreign Currency</FONT></H2>
<P>Foreign currency transaction adjustments resulted in net gains of $2
million in 1999 and $4 million in 1998, and a net loss of $6 million in 1997.
<H2 ALIGN=LEFT><FONT SIZE=3>14. Contractual Commitments and Contingencies</FONT></H2>
<P>Ethyl has operating lease agreements primarily for office space,
transportation equipment, and storage facilities. Rental expense was $20 million
in 1999, $19 million in 1998, and $16 million in 1997. Future lease payments for
all noncancelable operating leases and the future minimum lease payments in
excess of the capital lease obligations as of December 31, 1999 are:
<UL>
<LI> 2000 $14 million
<LI> 2001 $ 6 million
<LI> 2002 $ 4 million
<LI> 2003 $ 2 million
<LI> 2004 $ 1 million
<LI> After 2004 $ 4 million
</UL>
<P>Contractual obligations for construction of assets, as well as purchases
of property and equipment, amounted to approximately $1 million at December 31,
1999.
<P>At several adjacent operating sites, Ethyl and Albemarle Corporation
(Albemarle) have agreements to coordinate certain facilities and services,
including the production of manganese-based compounds. Albemarle billed us
approximately $29 million in 1999, $31 million in 1998, and $29 million in 1997
in connection with these agreements. In addition, the two companies have
agreements that determine when Albemarle reimburses Ethyl for certain tax
liabilities. <P>From time to time, we become involved in routine litigation that is
incidental to our business. We are not a party to any pending litigation
proceedings that are expected to have a materially adverse effect on our results
of operations or financial condition. <P>Ethyl has been served as a defendant in
two cases filed in the Circuit Court for Baltimore City, Maryland, on September
22, 1999. Both cases claim damages attributable to lead and have the same 17
defendants. The cases are <I>Cofield et al. v. Lead Industries Association, Inc.,
et al.</I> and <I>Smith et al. v. Lead Industries Association, Inc., et al. Cofield</I>
seeks recovery for property damage from lead paint, which Ethyl never produced
or distributed. <I>Smith</I> is for personal injuries for six children from lead
exposure due to lead paint and dust from tailpipe emissions due to leaded
gasoline. Ethyl has strong defenses and we will vigorously defend these cases.
<P>At December 31, our accruals for environmental liabilities were $38 million in
1999 and $46 million in 1998. We accrue for environmental remediation and
monitoring activities for which costs can be reasonably estimated. These
estimates are based on an assessment of the site, available clean-up methods,
and prior experience in handling remediation. While future costs could
significantly impact our results of operations, we do not expect these costs to
have a material effect on our financial position or liquidity. <P>When significant
events or circumstances occur that might impair the value of nonoperating
receivables, we evaluate recoverability of the recorded amounts. If we determine
an asset is impaired, we adjust the asset to net realizable value.
<H1 ALIGN=CENTER><FONT SIZE=3>41</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>15. Pension Plans and Other Post-Retirement Benefits</FONT></H2>
<P><B>U.S. Retirement Plans</B> - Ethyl sponsors pension plans for most U.S. employees that offer a benefit based primarily on
years of service and compensation. Employees do not contribute to these pension plans. Plan assets are held and
distributed by trusts and consist principally of common stock, U.S. government and corporate obligations, and group
annuity contracts.
<P>We also offer unfunded, nonqualified supplemental pension plans. These plans restore a part of
the pension benefits from our regular pension plans that would have been payable to designated participants if it
were not for limitations imposed by income tax regulations.
<P>We maintain a rabbi trust for the retired beneficiaries
of the nonqualified plans. Ethyl invests an amount equivalent to
the accumulated benefit obligation for these retirees. At December 31, assets in
the rabbi trust were valued at $18 million in 1999 and $16 million in 1998. The
assets of the rabbi trust are not included in the table below.
<P>We also provide post-retirement health care benefits and life insurance to eligible retired employees. Ethyl and
retirees share in the cost of post-retirement health care benefits. Ethyl pays the insurance contract that holds
plan assets for retiree life insurance benefits. Pension income and post-retirement benefit cost are shown below:
<PRE>
Pension Benefits Post-Retirement Benefits
------------------------------------ --------------------------------
Years Ended December 31 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Service cost $ 4,412 $ 4,275 $ 4,368 $ 1,056 $ 1,014 $ 912
Interest cost 21,917 22,249 21,561 3,779 3,653 3,430
Expected return on plan assets (39,747) (36,380) (33,638) (1,829) (1,791) (2,317)
Amortization of prior service cost 2,541 2,648 2,265 (29) (29) (28)
Amortization of transition asset (4,264) (4,277) (4,277) - - -
Amortization of net loss 386 425 419 - - -
Special termination benefits 161 3,592 - 85 461 -
---------------------------------------------------------------------------
Net periodic benefit (income) cost $(14,594) $(7,468) $ (9,302) $ 3,062 $ 3,308 $1,997
===========================================================================
</PRE>
<P><FONT SIZE=3>The special termination benefits in 1998 are associated with the
enhanced retirement offer made in that year. </FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>42</FONT></H1>
<P>Changes in the plans' benefit obligations and assets, as well as a
reconciliation of the funded status, follow. Other assets and deferred charges
includes prepaid pension cost. Other noncurrent liabilities includes the accrued
pension cost and accrued post-retirement benefit cost.
<PRE>
Pension Benefits Post-Retirement Benefits
-------------------------- ---------------------------
Years Ended December 31 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<B>Change in benefit obligation</B>
Benefit obligation at beginning of year $329,973 $320,071 $54,954 $ 51,573
Service cost 4,412 4,275 1,056 1,014
Interest cost 21,917 22,249 3,779 3,653
Plan amendments 161 1,827 85 -
Actuarial net (gain)/loss (16,216) 11,185 (2,584) 1,828
Benefits paid (29,145) (29,634) (3,503) (3,114)
--------------------------------------------------------------
Benefit obligation at end of year $311,102 $329,973 $53,787 $ 54,954
--------------------------------------------------------------
<B>Change in plan assets</B>
Fair value of plan assets at beginning of year $517,669 $483,309 $27,132 $ 26,450
Actual return on plan assets 56,080 61,616 2,110 1,841
Employer contribution 1,778 2,378 1,854 1,955
Benefits paid (29,145) (29,634) (3,503) (3,114)
--------------------------------------------------------------
Fair value of plan assets at end of year $546,382 $517,669 $27,593 $ 27,132
--------------------------------------------------------------
<B>Reconciliation of funded status</B>
Funded status $235,280 $187,696 $(26,194) $(27,822)
Unrecognized net actuarial gain (132,513) (99,579) (4,751) (1,887)
Unrecognized transition asset (9,489) (13,753) - -
Unrecognized prior service cost 14,169 17,141 (221) (249)
--------------------------------------------------------------
Prepaid (accrued) benefit cost $107,447 $91,505 $(31,166) $(29,958)
==============================================================
<B>Additional year-end information for
pension plans with benefit obligations
in excess of plan assets</B>
Benefit obligation $21,640 $28,177
Fair value of plan assets $ - $ 5,785
<B>Additional year-end information for
pension plans with accumulated benefit
obligations in excess of plan assets</B>
Accumulated benefit obligation $21,640 $27,486
Fair value of plan assets $ - $ 5,785
</PRE>
<P>At December 31, the prepaid pension benefit cost in the table above is net of an accrued pension liability of $17
million in 1999 and $16 million in 1998.
<H1 ALIGN=CENTER><FONT SIZE=3>43</FONT></H1>
<P>We used the following assumptions to calculate the results of our retirement plans:
<PRE>
Pension Benefits Post-Retirement Benefits
------------------------- --------------------------
December 31 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Discount rate 7.5% 7% 7% 7.5% 7% 7%
Rate of projected
compensation increase 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%
Expected long-term rate
of return on plan assets 9% 9% 9% 7% 7% 7%
</PRE>
<P>Throughout 1997, the expected long-term rate of return on plan assets
used in determining the net periodic post-retirement benefit cost was 9%. For
2000, the assumption for the health care cost trend rate will be 7% and will
remain at that level thereafter. The trend rate for managed care costs is now at
6% where it will remain. A one percent change in the assumed health care cost
trend rate would have the following effects:
<PRE>
1% 1%
Increase Decrease
- -----------------------------------------------------------------------------
Effect on accumulated
post-retirement
benefit obligation
as of December 31, 1999 $4,446 $(3,619)
Effect on net periodic
post-retirement benefit
cost in 1999 $ 556 $ (437)
</PRE>
<P><B>Foreign Pension Plans</B> - For most employees of our foreign subsidiaries, Ethyl has pension plans that offer benefits
based primarily on years of service and compensation. We also offer defined benefit pension plans for other
employees. Ethyl contributes to investment trusts and insurance policies to provide for these plans. Pension cost
for these plans was $3 million in 1999 and $2 million in both 1998 and 1997. At December 31, the actuarial present
value of accumulated benefits was $34 million in 1999 and $36 million in 1998, substantially all of which was
vested. Net assets available for pension benefits at December 31, were $34 million in 1999 and $29 million in 1998.
<P>Because the accumulated benefit obligation exceeded plan assets for two foreign plans, Ethyl recognized a minimum
pension liability. At December 31, we had liabilities of $2 million in 1999 and $8 million in 1998.
<P><B>Consolidated </B> - The net pension income for U.S. and foreign plans was $12 million in 1999, $5 million in 1998, and $7
million in 1997.
<P><B>Other Information</B> - In February 2000, we made an election regarding certain contracts in our pension plan. This
election will result in the settlement of some liabilities and the recognition of a significant gain related to our
pension assets in the first quarter 2000 earnings. The settlement gain has no cash effect nor will any retiree
benefits change.
<H1 ALIGN=CENTER><FONT SIZE=3>44</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>16. Other Income (Expense), Net</FONT></H2>
<P>Other income, net totaled $600 thousand in 1999. In 1998, other income, net included a $15 million net gain on the
sale of nonoperating assets, comprised primarily of realized gains on marketable securities and $8 million of
interest income related to the settlement of a federal income tax audit. The sales of nonoperating assets generated
cash of $24 million, of which $7 million related to a transaction in the previous year.
<P>In 1997, other expense, net included $16 million of impairment losses offset by $10 million of gains on sales of
nonoperating assets. The sale of these nonoperating assets generated cash of $6 million in 1997 .
<H2 ALIGN=LEFT><FONT SIZE=3>17. Income Taxes</FONT></H2>
<PRE>
Our income before taxes and the provision for taxes follow:
Years Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<B>Income before income taxes</B>
Domestic $58,778 $80,502 $82,235
Foreign 22,344 25,859 27,747
--------------------------------------------------------------
$81,122 $106,361 $109,982
==============================================================
<B>Current income taxes</B>
Federal $12,719 $8,328 $ 21,100
State 414 1,866 2,034
Foreign 10,608 8,386 11,890
--------------------------------------------------------------
23,741 18,580 35,024
--------------------------------------------------------------
<B>Deferred income taxes</B>
Federal 6,016 14,848 452
State (124) 1,440 (1,298)
Foreign (3,808) 914 (1,726)
--------------------------------------------------------------
2,084 17,202 (2,572)
--------------------------------------------------------------
$25,825 $35,782 $ 32,452
==============================================================
</PRE>
<P>Our deferred income tax assets and liabilities follow:
<PRE>
December 31 1999 1998
- ----------------------------------------------------------------------------------------------------
<B>Deferred income tax assets</B>
Environmental and future
shutdown reserves $14,479 $15,558
Foreign currency
translation adjustments 5,378 1,478
Future employee benefits 4,299 4,153
Undistributed earnings of
foreign subsidiaries 4,193 4,642
Intercompany profit
in inventories 3,779 4,845
Inventory capitalization 1,654 1,366
Unrealized loss on
derivative instruments 1,082 -
Other 6,401 3,359
------- -------
41,265 35,401
------- -------
<B>Deferred income tax liabilities</B>
Depreciation 43,665 44,928
Future employee benefits 28,037 20,758
Intangibles 15,195 18,126
Capitalization of interest 1,866 2,853
Unrealized gain on
marketable securities 1,486 1,608
Other 1,679 2,960
------- -------
91,928 91,233
------- -------
Net deferred income tax liabilities $50,663 $55,832
======= =======
<B>Reconciliation to financial statements </B>
Deferred income tax assets - current $12,575 $14,964
Deferred income tax liabilities - noncurrent 63,238 70,796
------- -------
Net deferred income tax liabilities $50,663 $55,832
======= =======
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>45</FONT></H1>
<P>The reconciliation of the U.S. federal statutory rate to the effective income tax rate follows:
<PRE>
% of Income
Before Income Taxes
1999 1998 1997
- ----------------------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal
tax benefit 1.7 2.3 2.0
Foreign sales corporation benefit (0.8) (0.4) (0.6)
Research tax credit (0.6) (0.7) (0.4)
Favorable tax settlements
and adjustments (3.9) (2.8) (3.5)
Sale of Belgian subsidiary - - (3.4)
Other items, net 0.4 0.2 0.4
------------------------------
Effective income tax rate 31.8% 33.6% 29.5%
==============================
</PRE>
<P>Based on available foreign tax credits and current U.S. income tax rates, no additional U.S. taxes would be incurred
if a foreign subsidiary returned its earnings in cash to Ethyl.
<H2 ALIGN=LEFT><FONT SIZE=3>18. Financial Instruments</FONT></H2>
<P><B>Fair Value</B> - We determine the fair value of our outstanding financial instruments as
follows: <P><I>Cash and Cash Equivalents</I> - The carrying value approximates fair value.
<P><I>Investments in Marketable Securities</I> - We classify these investments as
“available for sale” and record them
at fair value with the unrealized gains, net of tax, included in accumulated other comprehensive loss. See
Note 19.
<P><I>Long-Term Debt</I> - Ethyl estimates the fair value of our long-term debt based on current rates available to us
for debt of the same remaining duration.
<P><I>Foreign Currency Forward Contracts</I> - We adopted FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective January 1, 1999. Accordingly, we record the foreign currency
forward contracts at fair value in our consolidated balance sheet. The fair value is based on the forward
rates provided by First Chicago Bank. We include the unrealized gains and losses, net of tax, in accumulated
other comprehensive loss.
<P>Prior to the adoption of FASB Statement No. 133, we recorded the foreign currency forward contract under FASB
Statement No. 52, "Foreign Currency Translation." We have not restated the carrying value or fair value of
the forward contracts for 1998. The effect of adopting FASB Statement No. 133 was to include the $2 million
unrealized after tax loss at December 31, 1999, on our forward contracts in accumulated other comprehensive
income.
<P>The estimated fair values of our financial instruments are:
<PRE>
1999 1998
---------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 15,846 $ 15,846 $ 8,403 $ 8,403
Investments in marketable securities $ 20,078 $ 20,078 $ 19,663 $ 19,663
Long-term debt including current maturities $(474,222) $(474,205) $(558,824) $(559,342)
Foreign currency forward contracts $ (2,981) $ (2,981) $ (360) $ (886)
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>46</FONT></H1>
<P>D<B>erivatives</B> - As part of our strategy to minimize the risk of foreign currency exposure, Ethyl uses foreign currency
forward contracts to hedge the risk on forecasted intercompany sales transactions denominated in Japanese Yen.
<P>During 1999, Ethyl used derivative instruments with maturity dates throughout the year to hedge the foreign currency
exposure of approximately $22 million of Japanese Yen denominated intercompany sales. These cash flow hedges were
highly effective since a foreign currency rate change on the forward contract is offset by a corresponding change in
the value of the hedged Yen intercompany sale.
<P>At December 31, 1999, Ethyl had foreign currency forward contracts for the sale of $24 million of Japanese Yen.
These contracts are at a fixed price and have maturity dates throughout 2000. We recorded unrealized losses of $2
million, net of tax, in accumulated other comprehensive loss on these forward contracts. We expect to recognize
these losses in net income over the next twelve months when the related intercompany sales transaction takes place.
<P>For the year 1999, Ethyl recognized a $500 thousand loss on the contracts. A corresponding increase in the U.S.
dollar value of the Japanese Yen intercompany sales, which we made during 1999, offset all of the loss. Ethyl
includes foreign currency gains and losses in cost of sales.
<H2 ALIGN=LEFT><FONT SIZE=3>19. Comprehensive Income</FONT></H2>
<P>The pre-tax, tax, and after-tax effects related to the adjustments in accumulated other comprehensive loss follow:
<PRE>
Foreign Gain on Minimum Unrealized Accumulated
Currency Marketable Pension Loss on Other
Translation Securities Liability Derivative Comprehensive
Adjustments Adjustments Adjustments Instruments (Loss)Income
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1996 $ (1,888) $ - $ - $ - $ (1,888)
============================================================================================================================
Adjustments (16,340) 15,422 - -
Reclassification adjustment for
the loss included in net income
resulting from the sale
of a foreign subsidiary 6,326 - - -
Tax benefit (expense) 3,783 (5,598) - -
----------------------------------------------------------
Other comprehensive income (loss) (6,231) 9,824 - - 3,593
----------------------------------------------------------------------------
December 31, 1997 (8,119) 9,824 - - 1,705
============================================================================
Adjustments 3,780 3,899 (3,865) -
Reclassification adjustment for the
gain included in net income resulting
from the sale of securities - (14,891) - -
Tax (expense) benefit (1,419) 3,989 1,198 -
----------------------------------------------------------
Other comprehensive income (loss) 2,361 (7,003) (2,667) - (7,309)
----------------------------------------------------------------------------
December 31, 1998 (5,758) 2,821 (2,667) - (5,604)
============================================================================
Adjustments (10,719) (334) 3,865 (2,981)
Tax benefit (expense) 3,940 121 (1,198) 1,082
----------------------------------------------------------
Other comprehensive income (loss) (6,779) (213) 2,667 (1,899) (6,224)
----------------------------------------------------------------------------
December 31, 1999 $(12,537) $2,608 $ - $(1,899) $(11,828)
============================================================================
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>47</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>20. Special Items Income, Net</FONT></H2>
<P>In 1999, special item income consisted of $7 million, or $4 million after taxes ($.05 per share), from a supply
contract amendment.
<P>In 1998, special items consisted of a benefit due to the settlement with the Canadian government of $9 million, net
of related expenses, or $6 million after taxes ($.07 per share). This settlement reimbursed us for a portion of our
legal costs and lost profits during the now repealed 1997-1998 ban on the import and interprovincial trade of MMT.
<P>Additionally, special items in 1998 included a charge of $4 million, or $3 million after taxes ($.03 per share), for
an enhanced retirement offer. This offer covered a voluntary early retirement program and severance and termination
benefits affecting 40 employees. The positions eliminated were administrative and support functions. We paid
approximately $300 thousand during 1998 for severance, vacation, and termination benefits. The remainder will be
paid over an extended period for retirement and health insurance benefits.
<H2 ALIGN=LEFT><FONT SIZE=3>21. Selected Quarterly Consolidated Financial Data (unaudited)</FONT></H2>
<PRE>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------
Net sales $205,326 $206,230 $216,637 $215,530
Gross profit $ 43,446 $ 48,668 $ 52,717 $ 49,586
Special item income, net $ 7,200 $ - $ - $ -
Net income $ 15,304 $ 13,248 $ 16,692 $ 10,053
Basic and diluted earnings per share $ .18 $ .16 $ .20 $ .12
Shares used to compute basic and
diluted earnings per share 83,465 83,465 83,465 83,465
1998
- --------------------------------------------------------------------------------------------------------
Net sales $226,932 $244,252 $285,282 $217,724
Gross profit $ 53,449 $ 67,216 $ 85,026 $ 43,481
Special items (expense) income, net $ (419) $ (4,513) $ 9,817 $ -
Net income $ 13,079 $ 16,780 $ 30,798 $ 9,922
Basic and diluted earnings per share $ .16 $ .20 $ .37 $ .12
Shares used to compute basic and
diluted earnings per share 83,465 83,465 83,465 83,465
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>48</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>Report of Independent Accountants</FONT></H2>
<H2 ALIGN=LEFT><FONT SIZE=3>[LOGO OF PRICEWATERHOUSECOOPERS]</FONT></H2>
<PRE>
<B>PricewaterhouseCoopers LLP</B>
Riverfront Plaza West
901 East Byrd Street
Suite 1200
Richmond VA 23219-4071
Telephone (804) 697 1900
Facsimile (804) 697 1999
</PRE>
<B>To the Board of Directors and Shareholders of
Ethyl Corporation</B><BR><BR>
In
our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders’ equity and cash flows
present fairly, in all material respects, the financial position of Ethyl
Corporation and its subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
<BR>
As
discussed in Note 18 to the consolidated financial statements, in 1999 the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 133, “Accounting for Derivative Instruments and Hedging
Activities.”
<BR><BR><BR>
<FONT SIZE=3>/s/ PricewaterhouseCoopers LLP</FONT><BR>
<P>February 3, 2000 except as to<BR>
"Other Information" in Note 15, for<BR>
which the date is February 10, 2000.
<H1 ALIGN=CENTER><FONT SIZE=3>49</FONT></H1>
EXHIBIT 99
<H2 ALIGN=LEFT><FONT SIZE=5>FIVE YEAR SUMMARY</FONT></H2>
<PRE>
<B>Introduction to the Five Year Summary:</B> The following Five Year Summary includes the results of the worldwide lubricant additives
business of Texaco, since its acquisition on February 29, 1996. The financial position and other data after that date reflect the
impact of this acquisition.
Ethyl Corporation & Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
<I>(in thousands of dollars except share and per-share amounts)</I>
Years Ended December 31 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
<B>RESULTS OF OPERATIONS</B>
Net sales $ 843,723 $ 974,190 $1,063,615 $1,149,651 $ 960,450
Costs and expenses 788,889 871,768 923,691 979,972 813,271
TEL marketing agreements services 53,993 14,944 - - -
Special items income (expense), net (1) 7,200 4,885 - - (4,750)
------------ ------------ ------------ ------------ ------------
Operating profit 116,027 122,251 139,924 169,679 142,429
Interest and financing expenses 35,506 40,409 25,668 24,268 26,833
Other income (expense), net (2) 601 24,519 (4,274) 361 580
------------ ------------ ------------ ------------ ------------
Income before income taxes 81,122 106,361 109,982 145,772 116,176
Income taxes 25,825 35,782 32,452 52,800 42,213
------------ ------------ ------------ ------------ ------------
Net income $ 55,297 $ 70,579 $ 77,530 $ 92,972 $ 73,963
============ ============ ============ ============ ============
<B>FINANCIAL POSITION AND OTHER DATA</B>
Total assets $ 991,380 $1,082,239 $1,080,472 $1,106,905 $ 994,238
Operations:
Working capital $ 161,766 $ 213,862 $ 218,686 $ 246,254 $ 242,742
Current ratio 1.80 to 1 2.20 to 1 2.21 to 1 2.36 to 1 2.67 to 1
Depreciation and amortization $ 65,125 $ 63,310 $ 61,752 $ 61,919 $ 49,224
Capital expenditures 13,793 22,738 43,496 29,403 44,831
Acquisitions of businesses - - - 133,032 -
Gross margin as a % of net sales 23.0 25.6 28.4 30.0 33.8
Research, development and testing expenses (3) $ 66,957 $ 67,363 $ 71,172 $ 71,723 $ 77,153
Long-term debt (4) 407,134 531,859 594,429 325,480 302,973
Common and other shareholders' equity (4) 215,209 187,002 144,598 439,900 410,128
Long-term debt as a % of total capitalization (4) 65.4 74.0 80.4 42.5 42.5
Net income as a % of average shareholders' equity 27.5 42.6 21.5 21.9 18.5
<B>COMMON STOCK</B>
Basic and diluted earnings per share (5) $ .66 $ .85 $ .71 $ .78 $ .62
Shares used to compute basic earnings per share 83,465 83,465 109,793 118,444 118,436
Shares used to compute diluted earnings per share 83,465 83,465 109,800 118,448 118,447
Cash dividends declared per share (6) $ .25 $ .25 $ .44 $ .50 $ .50
Equity per share (4) $ 2.58 $ 2.24 $ 1.73 $ 3.71 $ 3.46
</PRE>
<HR SIZE=3 NOSHADE>
<PRE>
<I>(1) The special item in 1999 consists of a supply contract amendment ($4 million after income taxes). The special items in 1998
consist of a benefit of $9 million, net of related expenses, ($6 million after income taxes) due to a settlement with the
Canadian government partially offset by a charge related to an enhanced retirement offer of $4 million ($3 million after income
taxes). The special charge in 1995 consists of a provision for a legal settlement ($4 million after income taxes).
(2) Other income (expense), net for 1998 includes a $15 million gain on the sale of a nonoperating asset ($9 million after income
taxes) and $8 million income related to the settlement of a federal income tax audit ($6 million after income taxes). Other
expense for 1997 includes a charge related to nonoperating assets of about $6 million ($3 million after income taxes) resulting
from impairment losses of $16 million offset by gains on sales of $10 million.
(3) Research and development expenses, based on the technical accounting definition, were $41 million for 1999, $40 million for
1998, $42 million for 1997, $47 million for 1996, and $54 million for 1995.
(4) In 1997, the increase in long-term debt and long-term debt as a percentage of total capitalization, as well as the decrease in
shareholders' equity and equity per share, reflect the effects of the stock buy-back that took place on October 2, 1997. Ethyl
acquired about 35 million shares of our common stock in accordance with the stock buy-back offer. We financed the total
transaction cost of about $329 million under our loan agreement. We base equity per share on the number of common shares
outstanding at the end of each year.
(5) We restated the earnings per share figures and number of shares used to compute earnings per share in accordance with FASB
Statement No. 128, adopted effective December 31, 1997.
(6) The decrease in cash dividends declared in 1997 reflects the reduction of the annual cash dividend rate to $.25 per share from
$.50 per share effective for the dividend declared on October 30, 1997 and paid on January 1, 1998.</I>
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>50</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=3>MARKET INFORMATION</FONT></H2>
<P><FONT SIZE=3>Ethyl’s common stock is traded on the New York and Pacific
stock exchanges under the symbol EY. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>DESCRIPTION OF COMMON STOCK</FONT></H2>
<P><FONT SIZE=3>A total of 400 million shares of common stock is authorized, of which
83,465,460 shares were outstanding as of December 31, 1999. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=3>NUMBER OF REGISTERED SHAREHOLDERS</FONT></H2>
1999 12,453<BR>
1998 13,070
<H2 ALIGN=LEFT><FONT SIZE=3>COMMON STOCK MARKET
PRICE RANGE AND DIVIDENDS PER SHARE</FONT></H2>
<PRE>
1999
-----------------------------------------------
Quarter 1st 2nd 3rd 4th
- ----------------------------------------------------------------------------------------
High $ 6.69 $ 6.00 $ 6.00 $ 5.13
Low $ 4.19 $ 4.13 $ 3.88 $ 3.50
Dividends per Share $.0625 $.0625 $.0625 $.0625
1998
------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ----------------------------------------------------------------------------------------
High $ 8.50 $ 8.38 $ 6.75 $ 6.50
Low $ 7.00 $ 5.50 $ 3.88 $ 3.44
Dividends per Share $.0625 $.0625 $.0625 $.0625
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>SIGNATURES</FONT></H2>
<P>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.</P>
<H2 ALIGN=LEFT><FONT SIZE=3>ETHYL CORPORATION</FONT></H2>
By: /s/ Bruce C. Gottwald<BR>
(Bruce C. Gottwald, Chairman of the Board)<BR>
Dated: March 10, 2000<BR>
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 indicated as of March 10, 2000.
<PRE>
<B>Signature</B> <B>Title</B>
<B>---------</B> <B>-----</B>
/s/ Bruce C. Gottwald Chairman of the Board, Chairman of the
(Bruce C. Gottwald) Executive Committee, Chief Executive
Officer, and Director
(Principal Executive Officer)
/s/ Thomas E. Gottwald President, Chief Operating Officer, and
(Thomas E. Gottwald) Director
/s/ J. Robert Mooney Senior Vice President and Chief Financial
(J. Robert Mooney) Officer (Principal Financial Officer)
/s/ Wayne C. Drinkwater Controller (Principal Accounting Officer)
(Wayne C. Drinkwater)
/s/ William W. Berry Director
(William W. Berry)
/s/ Phyllis Cothran Director
(Phyllis L. Cothran)
/s/ Gilbert M. Grosvenor Director
(Gilbert M. Grosvenor)
/s/ S. B. Scott Director
(Sidney Buford Scott)
/s/ Charles B. Walker Director
(Charles B. Walker)
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>51</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Directors</FONT></H2>
<PRE>
<B>*Bruce C. Gottwald</B>
Chairman of the Board
Ethyl Corporation
Richmond, Virginia
<B>*Thomas E. Gottwald</B>
President
Ethyl Corporation
Richmond, Virginia
<B>*William W. Berry</B>
Retired Chairman
of the Board
Dominion Resources
Richmond, Virginia
<B>*Sidney Buford Scott</B>
Chairman of the Board
Scott & Stringfellow, Inc.
Richmond, Virginia
<B>Phyllis L. Cothran</B>
Retired President and
Chief Operating Officer
Trigon Blue
Cross Blue Shield
Richmond, Virginia
<B>Gilbert M. Grosvenor</B>
Chairman of the Board
National Geographic Society
Washington, D.C.
<B>Charles B. Walker</B>
Vice Chairman of the Board
Chief Financial Officer
Albemarle Corporation
Richmond, Virginia
<I>* Member of the Executive Committee</I>
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=5>Officers and Staff</FONT></H2>
<PRE>
<B>Bruce C. Gottwald (66)**</B>
Chairman of the Board
Chief Executive Officer
Chairman, Executive Committee
<B>Thomas E. Gottwald (39)**</B>
President
Chief Operating Officer
<B>J. Robert Mooney (55)**</B>
Senior Vice President
Chief Financial Officer
<B>David A. Fiorenza (50)**</B>
Vice President
Treasurer
<B>Barbara A. Little (43)**</B>
Vice President,
Government Relations
<B>Steven M. Mayer (56)**</B>
Vice President,
General Counsel
<B>Henry C. Page, Jr. (61)**</B>
Vice President, Human Resources & External Affairs
<B>Ann M. Pettigrew (45)**</B>
Vice President, Health,
Safety & Environment
<B>Wayne C. Drinkwater (53)**</B>
Controller
<B>Michael L. McKeever (59)**</B>
Assistant Treasurer
<B>M. Rudolph West (44)**</B>
Secretary
<B>John S. Patton (65)</B>
Director, Strategic Planning
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>ANTIKNOCKS</FONT></H2>
<PRE>
<B>Newton A. Perry (57)**</B>
Senior Vice President, Antiknocks
<B>Donald R. Lynam (61)**</B>
Vice President,
Air Conservation
<B>Roger H. Venable (53)**</B>
Vice President, Antiknocks
<B>Robert A. Yondola (51)</B>
Vice President
Sales, Worldwide Antiknocks
<B>Richard M. Mendel (37)</B>
Vice President
Worldwide MMT Marketing
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>SENIOR ETHYL REPRESENTATIVES ASSIGNED TO ETHYL/OCTEL ALLIANCE</FONT></H2>
<PRE>
<B>Alvin M. Conn, Jr. (53)</B>
<B>Ramon V. Martinez (59)</B>
<B>Photis G. Stephanides (56)</B>
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>PETROLEUM ADDITIVES</FONT></H2>
<PRE>
<B>Alexander McLean (43)**</B>
Senior Vice President,
Petroleum Additives
<B>Daniel J. Bradley (51)**</B>
Vice President,
Petroleum Additives, Americas
<B>Anthony F. Fagan (50)</B>
Managing Director, Europe
<B>Russell L. Gottwald, Jr. (48)**</B>
Vice President,
Product Supply
<B>C. S. Warren Huang (50)**</B>
Vice President, Managing Director, Asia Pacific
<B>Ronald E. Kollman (53)**</B>
Vice President,
Research & Development
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>GLOBAL BUSINESS MANAGEMENT</FONT></H2>
<PRE>
<B>Aubrey L. Burrows (46)</B>
Business Director,
Worldwide Lubricants
<B>Kimberly M. Flinn (41)</B>
Business Director,
Worldwide Fuels
<I>Age as of March 10, 2000 indicated in parentheses.</I><BR>
<I>** Executive Officers</I>
</PRE>
<H2 ALIGN=LEFT><I><FONT SIZE=3>Additional Information - Officers of the Company</FONT></I></H2>
<P><I><FONT SIZE=3>Term of office is until the meeting of the board of directors
following the next annual shareholders’ meeting (May 25, 2000). All
officers have been employed with Ethyl for at least the last five years with the
exception of J. Robert Mooney, who joined Ethyl on October 1, 1997 after 21
years as a partner with PricewaterhouseCoopers LLP, independent certified public
accountants. </FONT></I></P>
<H1 ALIGN=CENTER><FONT SIZE=3>52</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Other Information</FONT></H2>
<H2 ALIGN=LEFT><FONT SIZE=3>CORPORATE HEADQUARTERS</FONT></H2>
330 South Fourth Street<BR>
Post Office Box 2189<BR>
Richmond, Virginia 23218-2189<BR>
(804) 788-5000<BR><BR>
<B><FONT SIZE=3>WEB SITE</FONT></B><BR>
www.ethyl.com
<H2 ALIGN=LEFT><FONT SIZE=5>Shareholder Information</FONT></H2>
Ticker Symbol: EY
<P><FONT SIZE=3>A dividend reinvestment and stock purchase plan is available to
shareholders of Ethyl Corporation. For information about this plan, contact: </FONT></P>
Harris Trust & Savings Bank <BR>
Attention: Dividend Reinvestment<BR> Post Office Box A-3309 <BR> Chicago, Illinois 60690-3309
<P><FONT SIZE=3>All other
inquiries should be directed to Ethyl’s toll-free Shareholder Information
Line at (800) 625-5191. </FONT></P>
<H2 ALIGN=LEFT><FONT SIZE=5>Annual Meeting</FONT></H2>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=95%><FONT SIZE=3>
All
shareholders are invited to attend the Ethyl Corporation annual
shareholders’ meeting currently scheduled for Thursday, May 25, 2000, starting at 11 a.m.
Eastern Daylight Time. The meeting will be held at the restored Tredegar Iron
Works gun foundry building, 500 Tredegar Street, located near Ethyl’s
corporate headquarters in Richmond, Virginia. Formal notices of the annual
meeting, proxies, and proxy statements will be mailed to shareholders.</FONT></TD>
</TR>
<BR>
<H5 ALIGN=LEFT><FONT SIZE=5>Locations</FONT></H5>
<B>RESEARCH & DEVELOPMENT</B><BR>
Ashland, Virginia<BR>Bracknell, England<BR>Richmond,
Virginia<BR>Tsukuba, Japan
<H2 ALIGN=LEFT><FONT SIZE=3>MANUFACTURING</FONT></H2>
Feluy, Belgium<BR>Houston, Texas<BR>
Natchez, Mississippi<BR>
Orangeburg, South Carolina<BR>
Port Arthur, Texas<BR>
Rio de Janeiro, Brazil<BR>
Sarnia, Ontario<BR>
Sauget, Illinois<BR>
<H2 ALIGN=LEFT><FONT SIZE=3>REGIONAL OFFICES</FONT></H2>
Beijing, China<BR>Bombay, India<BR>Bracknell, England<BR>Brussels,
Belgium<BR>
Bueuos Aires, Argentina<BR> Burlington, Ontario<BR> Coral Gables,
Florida<BR> Detroit, Michigan<BR> Hamburg, Germany<BR> Houston, Texas<BR> Moscow, Russia<BR> Paris,
France<BR> Richmond, Virginia<BR> Rio de Janeiro, Brazil<BR> Singapore<BR> Sydney, Australia<BR>
Tokyo, Japan <BR>Washington, D.C.
<H1 ALIGN=CENTER><FONT SIZE=3>53</FONT></H1>
<H2 ALIGN=LEFT><FONT SIZE=5>Index to Exhibits</FONT></H2>
<H2 ALIGN=LEFT><FONT SIZE=3>Description</FONT></H2>
<P><FONT SIZE=3>(3.1) Amended and Restated Articles of Incorporation (incorporated by reference as Exhibit 3.1 to Form 10-Q filed
on November 4, 1996)</FONT></P>
<P><FONT SIZE=3>(3.2) By-laws of the registrant (incorporated by reference as Exhibit 3.2 to Form 10-K filed March 29, 1996)</FONT></P>
<P><FONT SIZE=3>(4.1) $750 million Credit Agreement, dated as of November 14, 1997 (incorporated by reference as Exhibit 4.1 to
Form 10-Q filed on November 14, 1997)</FONT></P>
<P><FONT SIZE=3>(10.1) Bonus Plan of the registrant (incorporated by reference as Exhibit 10.1 to Form 10-K filed on February 25,
1993)</FONT></P>
<P><FONT SIZE=3>(10.2) Incentive Stock Option Plan (incorporated by reference as
Exhibit 10 to Form 10-Q filed on May 12, 1994) </FONT></P>
<P><FONT SIZE=3>(10.3) Non-Employee Directors’ Stock Acquisition Plan
(incorporated by reference as Exhibit A to the registrant’s Proxy
Statement for the Annual Meeting of Shareholders filed on March 17,
1993) </FONT></P>
<P><FONT SIZE=3>(10.4) Excess Benefit Plan (incorporated by reference as Exhibit
10.4 to Form 10-K filed on February 25, 1993) </FONT></P>
<P><FONT SIZE=3>(10.5) Supply Agreement, dated as of December 22, 1993, between
Ethyl Corporation and The Associated Octel Company Limited (incorporated by
reference as Exhibit 99 to Form 8-K filed on February 17, 1994) </FONT></P>
<P><FONT SIZE=3>(10.6) Employment and Severance Benefits Agreement dated October 1, 1997, with J. Robert Mooney (incorporated by
reference as Exhibit 10.7 to Form 10-K filed March 24, 1998)</FONT></P>
<P><FONT SIZE=3>(10.7) Antiknock Marketing and Sales Agreement, dated October 1,
1998, between Ethyl Corporation and The Associated Octel Company Limited
(incorporated by reference as Exhibit 10 to Form 10-Q filed on November 10,
1998) </FONT></P>
<P><FONT SIZE=3>(10.8) Trust Agreement between Ethyl Corporation and Merrill Lynch Trust Company of America (incorporated by
reference as Exhibit 4.5 to Form S-8, filed on August 7, 1998)</FONT></P>
<P><FONT SIZE=3>(11.1) Computation of Basic and Diluted Earnings
Per Share.........................................................................................................................55</FONT></P>
<P><FONT SIZE=3>(11.2) Computation of <I>Pro Forma</I> Basic and Diluted Earnings Per Share (Stock Repurchase 1997).........................................................56</FONT></P>
<P><FONT SIZE=3>(21) Subsidiaries of the registrant.....................................................................................................................................................................57</FONT></P>
<P><FONT SIZE=3>(23) Consent of PricewaterhouseCoopers LLP..................................................................................................................................................58</FONT></P>
<P><FONT SIZE=3>(27) Financial Data Schedule...........................................................................................................................................................................59</FONT></P>
<P><FONT SIZE=3>(99) Five Year Summary...................................................................................................................................................................................50</FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>54</FONT></H1>
EXHIBIT 11.1<BR>
<CENTER>ETHYL CORPORATION AND SUBSIDIARIES</CENTER>
<CENTER>COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE</CENTER>
<CENTER>for the years ended December 31, 1999, 1998 and 1997</CENTER>
<CENTER>(In thousands except per share amounts)</CENTER>
<PRE>
1999 1998 1997
------- ------- -------
Net income applicable to common stock (1) $55,297 $70,579 $77,530
======= ======= =======
Average number of shares of common stock
outstanding (2,3) 83,465 83,465 109,793
======= ======= =======
Basic and diluted earnings per share $0.66 $0.85 $0.71
======= ======= =======
</PRE>
Notes:<BR><BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>(1) </FONT></TD>
<TD WIDTH=95%><FONT SIZE=3>
In the periods presented, Ethyl had only one class of common stock
outstanding.</FONT></TD>
</TR>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>(2) </FONT></TD>
<TD WIDTH=95%><FONT SIZE=3>
To determine the average number of shares of common stock and common stock
equivalents, the average number of common shares and common stock equivalents
outstanding (actual or assumed for equivalents) during each month were added
together and the sum was then divided by 12.</FONT></TD>
</TR>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>(3) </FONT></TD>
<TD WIDTH=95%><FONT SIZE=3>
For diluted earnings per share, the shares issuable upon the assumed exercise
of outstanding stock options would be 0, 0, and 7 in 1999, 1998 and 1997, respectively, and the shares of common stock
equivalents would have been 83,465, 83,465 and 109,800, respectively.</FONT></TD>
</TR>
<BR>
<H1 ALIGN=CENTER><FONT SIZE=3>55</FONT></H1>
EXHIBIT 11.2<BR>
<CENTER>ETHYL CORPORATION AND SUBSIDIARIES</CENTER>
<CENTER>COMPUTATION OF <I>PRO FORMA</I> BASIC AND DILUTED EARNINGS PER SHARE</CENTER>
<CENTER>for the years ended December 31, 1999, 1998 and 1997</CENTER>
<CENTER>(In thousands except per share amounts)</CENTER>
<P> On October 2, 1997, Ethyl completed the repurchase of 34,999,995 shares of the our outstanding common stock
with the purchase price and related costs totalling about $328.9 million. Our financial statements only include the effects of the
repurchase since October 2, 1997. The following selected <I>pro forma</I> information presents a summary of our results of operations as
if the purchase had occurred as of January 1, 1997. The <I>pro forma</I> information reflects the impact of higher interest expense net
of the related tax impact, as well as the reduction in shares outstanding. <I>Pro forma</I> data is for informational purposes only and
may not necessarily reflect the financial position or results of operations of Ethyl had the purchase of shares occurred on
January 1, 1997.
<PRE>
1997
<I>Pro forma</I> net income (1) $67,555
=======
Average number of shares of common stock outstanding (2,3) 83,449
=======
<I>Pro forma</I> basic and diluted earnings per share $0.81
=======
</PRE>
Notes:<BR><BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>(1) </FONT></TD>
<TD WIDTH=95%><FONT SIZE=3>
In the periods presented, Ethyl had only one class of common stock
outstanding.</FONT></TD>
</TR>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>(2) </FONT></TD>
<TD WIDTH=95%><FONT SIZE=3>
To determine the average number of shares of common stock and common stock
equivalents, the average number of common shares and common stock equivalents
outstanding (actual or assumed for equivalents) during each month were added
together and the sum was then divided by 12.</FONT></TD>
</TR>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>(3) </FONT></TD>
<TD WIDTH=95%><FONT SIZE=3>
For diluted earnings per share, the shares issuable upon the assumed exercise
of outstanding stock options would be 7 in 1997 and the shares of common stock equivalents would have been 83,456.</FONT></TD>
</TR>
<BR>
<H1 ALIGN=CENTER><FONT SIZE=3>56</FONT></H1>
EXHIBIT 21
<PRE>
The following is a list of the significant subsidiaries of the
registrant as of March 10, 2000. Each such subsidiary does business under its
corporate name.
LIST OF SUBSIDIARIES
Jurisdiction of
Subsidiary Incorporation
EID Corporation Liberia
Ethyl Asia Pacific Company Virginia
Ethyl Brasil Aditivos S.A. Brazil
Ethyl Canada Inc. Province of Ontario, Canada
Ethyl Europe S.A. Belgium
Ethyl Foreign Sales Corporation U.S. Virgin Islands
Ethyl Interamerica Corporation Delaware
Ethyl Japan Corporation Japan
Ethyl Korea Limited Korea
Ethyl Mineraloel-Additive GmbH Germany
Ethyl Petroleum Additives, Inc. Delaware
Ethyl Petroleum Additives Limited United Kingdom
Ethyl Services Limited United Kingdom
Ethyl Shipping Company Limited United Kingdom
</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>57</FONT></H1>
EXHIBIT 23<BR>
<H2 ALIGN=LEFT><FONT SIZE=3>CONSENT OF INDEPENDENT ACCOUNTANTS</FONT></H2>
<P><FONT SIZE=3>We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (File Nos. 2-78933 and 333-60889) and on
Form S-3 (Fine No. 33-57243) of Ethyl Corporation of our report dated February
3, 2000, except as to “Other Information” in Note 15, for which the
date is February 10, 2000 relating to the financial statements, which appears in
this Form 10-K. </FONT></P>
/s/ PricewaterhouseCoopers LL
P<BR>
<P><FONT SIZE=3>Richmond, Virginia<BR>March 9, 2000</FONT></P>
<H1 ALIGN=CENTER><FONT SIZE=3>58</FONT></H1>
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