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Page 1 of 17 Pages
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Transition Period from to
For Quarter Ended June 30, 1994 Commission File Number 1-5112
ETHYL CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0118820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 SOUTH FOURTH STREET
P. O. BOX 2189
RICHMOND, VIRGINIA 23217
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (804) 788-5000
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
Number of shares of common stock, $1 par value, outstanding as of July 31,
1994: 118,434,401.
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ETHYL CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - June 30, 1994, and
December 31, 1993 3 - 4
Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 1994 and 1993 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1994 and 1993 6
Notes to Financial Statements 7 - 10
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11 - 16
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 17
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3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30
1994 December 31
ASSETS (unaudited) 1993
----------- -----------
Current assets:
Cash and cash equivalents $ 11,111 $ 48,201
Accounts receivable, less allowance for doubtful
accounts (1994 - $3,507; 1993 - $4,189) 229,114 345,160
Inventories:
Finished goods 136,687 219,001
Work-in-process 7,438 12,419
Raw materials 11,684 32,173
Stores, supplies and other 5,850 27,221
--------- ---------
161,659 290,814
Deferred income taxes and prepaid expenses 25,262 49,522
--------- ---------
Total current assets 427,146 733,697
--------- ---------
Property, plant and equipment, at cost 654,848 1,908,630
Less accumulated depreciation and amortization (239,813) (910,360)
--------- ---------
Net property, plant and equipment 415,035 998,270
--------- ---------
Other assets and deferred charges 120,710 164,382
Goodwill and other intangibles - net of amortization 74,803 112,849
--------- ---------
Total assets $ 1,037,694 $ 2,009,198
========== ==========
<FN>
See accompanying notes to financial statements.
3
4
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
June 30
1994 December 31
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 1993
--------- -----------
Current liabilities:
Accounts payable $ 104,804 $ 154,971
Accrued expenses 59,262 125,704
Cash dividends payable 14,807 17,764
Long-term debt, current portion 10 14,056
Income taxes payable 17,192 14,020
---------- ----------
Total current liabilities 196,075 326,515
---------- ----------
Long-term debt 380,180 686,986
Other noncurrent liabilities 60,207 99,240
Deferred income taxes 28,048 143,676
Redeemable preferred stock:
Cumulative First Preferred
($100 par value) 6% Series A 200 200
Shareholders' equity:
Common stock ($1 par value)
Issued - 118,434,401 in 1994 and
118,405,287 in 1993 118,434 118,405
Additional paid-in capital 2,706 2,450
Foreign currency translation adjustments (2,711) (1,757)
Retained earnings 254,555 633,483
---------- ----------
372,984 752,581
---------- ----------
Total liabilities and shareholders' equity $ 1,037,694 $ 2,009,198
========== ==========
<FN>
See accompanying notes to financial statements.
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5
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
1994 1993 1994 1993
-------- -------- -------- --------
Net sales $ 276,083 $ 495,038 $ 665,165 $ 964,866
Cost of goods sold 168,320 354,552 441,861 693,372
-------- -------- -------- --------
Gross profit 107,763 140,486 223,304 271,494
Selling, general and administrative expenses 43,633 70,055 103,466 132,482
Research and development expenses 11,003 17,856 25,725 35,292
-------- -------- -------- --------
Operating profit 53,127 52,575 94,113 103,720
Interest and financing expenses 4,744 11,900 12,766 23,159
Gain on sale of subsidiary - (5,871) - (5,871)
Other expense (income), net 12 (947) (78) (2,368)
-------- -------- -------- --------
Income from continuing operations before income taxes 48,371 47,493 81,425 88,800
Income taxes 17,993 16,668 30,783 31,646
-------- -------- -------- --------
Income from continuing operations 30,378 30,825 50,642 57,154
Income from discontinued insurance operation
(see note 6 on page 10) - 44,947 - 90,483
-------- -------- -------- --------
Net income 30,378 75,772 50,642 147,637
Preferred stock dividends (3) (3) (6) (6)
-------- -------- -------- --------
Net income applicable to common stock $ 30,375 $ 75,769 $ 50,636 $ 147,631
======== ======== ======== ========
Earnings per share:
Income from continuing operations $ .26 $ .26 $ .43 $ .48
Income from discontinued insurance operation - .38 - .77
-------- -------- -------- --------
Net income $ .26 $ .64 $ .43 $ 1.25
======== ======== ======== ========
Shares used to compute earnings per share 118,454 118,436 118,458 118,432
======== ======== ======== ========
Cash dividends per share of common stock $ .125 $ .15 $ .275 $ .30
======== ======== ======== ========
<FN>
See accompanying notes to financial statements.
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6
ETHYL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Six Months Ended
June 30
----------------------
1994 1993
-------- --------
Cash and cash equivalents at beginning of year $ 48,201 $ 162,988
-------- --------
Cash flows from operating activities:
Income from continuing operations 50,642 57,154
Adjustments to reconcile income to cash flows from
operating activities:
Depreciation and amortization 33,084 62,924
Working capital increases excluding cash and cash equivalents:
Income tax payment on 1992 gain on sale of approximately
20% of First Colony Corporation - (60,552)
Other working capital increases (29,570) (45,371)
Other, net (393) (7,199)
-------- --------
Net cash provided from continuing operating activities 53,763 6,956
-------- --------
Cash flows from investing activities:
Capital expenditures (106,827) (83,113)
Acquisitions of businesses (net of $5,369 cash acquired) - (125,431)
Other, net (586) (424)
-------- --------
Net cash used in investing activities of continuing operations (107,413) (208,968)
-------- --------
Cash flows from financing activities:
Additional long-term debt 77,900 222,000
Repayment of long-term debt - (100,000)
Cash dividends paid (32,269) (35,514)
Cash and cash equivalents of Albemarle Corporation spun off as a
dividend on February 28, 1994 (29,332) -
Other, net 261 476
Net cash provided from financing activities -------- --------
of continuing operations 16,560 86,962
-------- --------
Net cash used in continuing operations (37,090) (115,050)
Cash provided by discontinued insurance operation - 2,574
-------- --------
Decrease in cash and cash equivalents (37,090) (112,476)
-------- --------
Cash and cash equivalents at end of period $ 11,111 $ 50,512
======== ========
<FN>
See accompanying notes to financial statements.
6
7
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Ethyl Corporation and Subsidiaries (the "Company") contain
all adjustments necessary to present fairly, in all material respects,
the Company's consolidated financial position as of June 30, 1994, and
the consolidated results of operations for the three and six-month
periods ended June 30, 1994 and 1993 and the consolidated cash flows for
the six-month periods ended June 30, 1994 and 1993. All adjustments are
of a normal, recurring nature. These financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto included in the December 31, 1993 Annual Report. The year-end
consolidated balance sheet data was derived from audited financial
statements but does not include all disclosures required by generally
accepted accounting principles. The results of operations for the
six-month period ended June 30, 1994 are not necessarily indicative
of the results to be expected for the full year.
2. At the close of business on February 28, 1994, the Company completed the
distribution to its common shareholders of all of the outstanding shares
of its wholly owned subsidiary Albemarle Corporation ("Albemarle"), a
Virginia corporation. Following the distribution, Albemarle owned,
directly or indirectly, the olefins and derivatives, bromine chemicals
and specialty chemical businesses formerly owned directly or indirectly
by the Company. The distribution was made in the form of a tax-free
spin-off to shareholders of record at the close of business on February
28, 1994. One share of Albemarle common stock was distributed to Ethyl
common shareholders for every two shares of Ethyl common stock held.
Under U.S. federal tax rules, on the record date, 65.0081% of basis
should be allocated to common stock of the Company and 34.9919% should
be allocated to common stock of Albemarle. Fractional share equivalents,
which may be taxable to the recipients, were purchased by Albemarle, and
shareholders received $6.60 if they were entitled to one-half of a share.
The operating results of the predecessor businesses to what is now
Albemarle are included in the Consolidated Statements of Income and the
Condensed Consolidated Statements of Cash Flows for the first two months
in 1994 and the second quarter and first six months in 1993.
The June 30, 1994 consolidated balance sheet reflects the impact of the
$399,957 reduction in retained earnings and a $4,143 foreign currency
translation adjustment in connection with the distribution of the
Albemarle stock. The following non-cash supplemental information is
provided regarding the accounts of Albemarle spun off as a stock dividend,
which aggregated $404,100 (including cash and cash equivalents of $29,332)
on February 28, 1994:
Working capital, net of cash and cash equivalents $ 174,847
Net property, plant and equipment 663,505
Other assets and deferred charges 49,480
Goodwill and other intangibles 33,132
Long-term debt (384,924)
Other non-current liabilities (40,996)
Deferred income taxes (120,276)
--------
Non-cash portion of businesses spun off $ 374,768
========
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8
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
3. Previously reported financial statements for 1993 have been reclassified
to conform to the current presentation.
4. On February 16, 1994, the Company entered into a new, five-year,
$1-billion unsecured credit facility to replace its existing $700-million
credit agreement. The credit facility was automatically split into two
separate $500-million facilities upon the spin-off of Albemarle. Fees
of up to 3/8 of 1% per annum are assessed on the unused portion of the
commitment. The credit facility permits borrowing for the next five
years at various interest rate options. The facility contains a number
of covenants, representations and events of default typical of a credit
facility agreement of this size and nature, including financial covenants
requiring the Company to maintain consolidated indebtedness (as defined)
of not more than 60% of the sum of shareholders' equity (as defined) and
consolidated indebtedness and maintenance of minimum shareholders' equity
after the spin-off of at least $250 million.
Long-term debt consists of the following:
CAPTION>
June 30 December 31
1994 1993
------- -----------
Variable rate bank loans (average effective rates were
4.0% for the six-month period ended June 30, 1994
and 3.6% for the year 1993) $147,500 $373,000
9.8% Notes due 1998 200,000 200,000
Foreign bank borrowing (3.3 billion Belgian Francs,
effective interest rate 6.96%) due through 2000 - 92,116
8.6% to 8.86% Medium-Term Notes due through 2001 33,750 33,750
Other 28 3,368
------- -------
Total long-term debt 381,278 702,234
Less unamortized discount (1,088) (1,192)
------- -------
Net long-term debt 380,190 701,042
Less current portion (10) (14,056)
------- -------
$380,180 $686,986
======= =======
A portion of the variable rate bank debt and the foreign bank borrowing
was included in the accounts of Albemarle as part of the spin-off.
8
9
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
5. The Company is providing the following pro forma information to enable
the reader to obtain a meaningful understanding of the Company's results
of operations. The pro forma condensed statements of income presented
are for informational purposes only to illustrate the estimated effects
of the distribution of Albemarle as if it had occurred on January 1,
1993.
Condensed Statements of Income
(In thousands except earnings per share)
Second Quarter Ended June 30
1993
--------------------------------------
Historical Adjustments(i) Pro Forma
--------------------------------------
Net sales $495,038 $(226,610) $268,428
Cost of goods sold 354,552 (182,362) 172,190
------- ------- -------
Gross profit 140,486 (44,248) 96,238
Selling, general and administrative
expenses 70,055 (25,825) 44,230
Research and development expenses 17,856 (7,050) 10,806
------- ------- -------
Operating profit 52,575 (11,373) 41,202
Interest and financing expenses 11,900 (4,671)(ii) 7,229
Gain on sale of subsidiary (5,871) - (5,871)
Other (income), net (947) 591 (356)
------- ------- -------
Income from continuing operations
before income taxes 47,493 (7,293) 40,200
Income taxes 16,668 (3,242)(iii) 13,426
------- ------- -------
Income from continuing operations $ 30,825 $ (4,051) $ 26,774
======= ======= =======
Earnings per share based on income
from continuing operations (iv) $ .26 $ .22
======= =======
Six Months Ended June 30
------------------------------------------------------------------------------------
1994 1993
---------------------------------------- --------------------------------------
Historical Adjustments(i) Pro Forma Historical Adjustments(i) Pro Forma
---------------------------------------- --------------------------------------
Net sales $665,165 $(155,064) $510,101 $964,866 $(442,487) $522,379
Cost of goods sold 441,861 (119,086) 322,775 693,372 (354,212) 339,160
------- -------- ------- ------- -------- -------
Gross profit 223,304 (35,978) 187,326 271,494 (88,275) 183,219
Selling, general and administrative
expenses 103,466 (19,046) 84,420 132,482 (48,202) 84,280
Research and development expenses 25,725 (4,087) 21,638 35,292 (14,522) 20,770
------- -------- ------- ------- -------- -------
Operating profit 94,113 (12,845) 81,268 103,720 (25,551) 78,169
Interest and financing expenses 12,766 (2,873)(ii) 9,893 23,159 (8,819)(ii) 14,340
Gain on sale of subsidiary - - - (5,871) - (5,871)
Other (income) expense, net (78) 543 465 (2,368) 645 (1,723)
------- -------- ------- ------- -------- -------
Income from continuing operations
before income taxes 81,425 (10,515) 70,910 88,800 (17,377) 71,423
Income taxes 30,783 (4,239)(iii) 26,544 31,646 (8,012)(iii) 23,634
------- -------- ------- ------- -------- -------
Income from continuing operations $ 50,642 $ (6,276) $ 44,366 $ 57,154 $ (9,365) $ 47,789
======= ======== ======= ======= ======== =======
Earnings per share based on income
from continuing operations (iv) $ .43 $ .38 $ .48 $ .40
======= ======== ======= ======= ======== =======
Introduction to Notes: Notes (i), (ii) and (iii) reflect a summary of the pro forma adjustments made to the historial
condensed statements of income.
Notes:
(i) To eliminate the historical income and expenses of Albemarle for the respective periods presented, as if the
distribution had occurred on January 1, 1993.
9
10
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
5. Continued
(ii) To eliminate interest expense (net of capitalized interest) that would
have been incurred by Albemarle on debt transferred to Albemarle (as if
the distribution had occurred on January 1, 1993).
(iii) Includes the estimated income tax effects of the pro forma adjustments
described in Notes (i) and (ii).
(iv) Historical and pro forma earnings per share are computed after deducting
applicable preferred stock dividends using the weighted-average number
of shares of common stock and common stock equivalents outstanding for
the periods presented.
6. The 1993 financial statements reflect the Company's then approximately
80-percent interest in First Colony Corporation stock, which was
spun-off on July 1, 1993. Accordingly, the results of First Colony
Corporation prior to the spin-off are reported in the financial
statements as a discontinued insurance operation.
Income from discontinued insurance operation included in the accompany-
ing Consolidated Statements of Income consists of the following:
Second Quarter Six Months
1993 1993
-------------- --------
Revenues $377,936 $737,137
Benefits and expenses 289,637 560,785
Interest and financing expenses 2,709 5,389
------- -------
Income before income taxes 85,590 170,963
Income taxes 29,633 58,316
------- -------
Net income 55,957 112,647
Less provision for minority interest 11,010 22,164
------- -------
Income from discontinued insurance operation $ 44,947 $ 90,483
======= =======
7. On February 8, 1993, the Company completed the acquisition of Potasse et
Produits Chimiques (PPC) from Rhone-Poulenc S.A., the Paris-based multi-
national chemical and pharmaceutical company. The transaction was
financed with additional long-term debt of $122 million under the
Company's revolving credit agreement.
8. At the end of the second quarter 1993, Ethyl's financial-services
subsidiary, The Barclay Group, Inc., was sold for $10 million resulting
in a gain of $5,871 before income taxes.
10
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is management's discussion and analysis of
certain significant factors affecting the Company's results of
operations during the periods included in the accompanying
consolidated statements of income and changes in the Company's
financial condition since year-end 1993.
At the close of business on February 28, 1994, the Company
completed the tax-free spin-off of its wholly-owned subsidiary,
Albemarle Corporation (Albemarle). Consequently, Albemarle's
results of operations are included in the Consolidated Statements
of Income and the Condensed Consolidated Statements of Cash Flows
for the first two months of 1994 and the second quarter and first
six months of 1993. The Company's remaining businesses after the
spin-off consist of petroleum additives and pharmaceutical
products.
Therefore, pro forma condensed statements of income are
provided for the six month period ended June 30, 1994, and the
second quarter and six months periods ended June 30, 1993, in
Note 5 of Notes to Financial Statements for informational
purposes to illustrate the estimated effects of the distribution
of Albemarle stock assuming the distribution had occurred as of
January 1, 1993. The pro forma income statements include
interest charges resulting from an assumed debt structure. The
pro forma information presented is not necessarily indicative of
the future results of operations of the Company or what the
results of operations would have been had Albemarle operated as a
separate independent company during the periods presented.
On July 1, 1993, the Company completed the spin-off of its
approximately 80% interest in First Colony Corporation (First
Colony), which included the operations of First Colony Life
Insurance Company and subsidiaries. Consequently, the results of
operations of First Colony are reported in the 1993 financial
statements as a discontinued insurance operation.
Results of Operations
Second Quarter 1994 Compared with Second Quarter 1993
Net sales for the second quarter of 1994 amounted to $276.1
million, down $218.9 million (44%) from $495.0 million in 1993.
The reduction in aggregate net sales was due to the absence of
Albemarle sales in the 1994 quarter versus the inclusion of
$226.6 million of Albemarle sales in the 1993 quarter. Combined
net sales of petroleum additives and pharmaceutical products for
the second quarter 1994 increased $7.7 million (3%) from second
quarter 1993 sales primarily due to an increase in fuel additives
sales resulting from higher shipments partially offset by lower
prices. Sales of antiknocks and lubricant additives were also
higher, primarily reflecting higher prices, partially offset by
lower shipments. Pharmaceutical products sales decreased
slightly due to lower shipments, partially offset by higher
prices.
11
12
Cost of goods sold of $168.3 million in 1994 decreased
$186.2 million (53%) from $354.5 million in the 1993 quarter.
The decline in aggregate cost of goods sold occurred primarily
because of the absence of Albemarle cost of goods sold in 1994
versus $182.4 million of Albemarle cost of goods sold in the
three months of 1993. Combined petroleum additives and
pharmaceutical products cost of goods sold for the 1994 quarter
decreased $3.8 million (2%) from the 1993 quarter due mainly to
lower lubricant additives shipments and costs and lower costs of
lead antiknocks, partially offset by higher shipments of fuel
additives.
Selling, general and administrative expenses, combined with
research and development expenses, amounted to $54.6 million in
the second quarter 1994, a decrease of $33.3 million (38%) from
$87.9 million in the 1993 quarter. The reduction in aggregate
expenses occurred primarily because of the absence of Albemarle
expenses in the 1994 period versus Albemarle expenses of $32.9
million in the 1993 period. Selling, general and administrative
expenses, including research and development expenses, for
petroleum additives and pharmaceutical products in 1994 decreased
$0.4 million (1%) from the 1993 quarter. The decrease reflects
the effect of the work-force-reduction program implemented at the
end of 1993, discontinuance of the pharmaceutical research
operations of Whitby Research, Inc. at the end of 1993, and lower
charges related to the relocation of the research laboratory from
St. Louis, Missouri, to Richmond, Virginia, largely offset by
higher research and development expenses for fuel additives and
higher employee-related expenses in other areas.
Operating profit in the 1994 second quarter, which did not
include any operating profit from Albemarle, increased 1% from
the 1993 second quarter, which included $11.4 million of
operating profit of Albemarle. Operating profit for the combined
petroleum additives and pharmaceutical products businesses in the
1994 quarter increased 29% from the 1993 quarter. Most of the
increase resulted from higher selling prices of lead antiknocks
and domestic lubricant additives, the impact of higher shipments
of other fuel additives net of higher research and development
expenses, and from higher profit in pharmaceutical products,
reflecting the year-end 1993 shutdown of Whitby Research, Inc.
Partial offsets were the effects of lower shipments of lubricant
additives and lead antiknocks.
Interest and financing expenses in the 1994 quarter
decreased 60% from the 1993 period. The reduction in aggregate
interest expense occurred primarily because of the absence in the
1994 quarter of any interest on debt assigned to Albemarle versus
the inclusion in the 1993 quarter of interest on such debt
assigned to Albemarle. Interest expense amounted to $4.7 million
in the 1994 quarter which was 34% lower than $7.2 million of
interest and financing expenses in the 1993 quarter, assuming the
spin-off occurred on January 1, 1993. The decline reflects a
higher amount of interest capitalized in 1994, and a lower
average interest rate in 1994 reflecting the effect of the early
redemption of the Company's 9-3/8% sinking fund debentures in
December 1993, partially offset by higher average debt
outstanding during the 1994 period.
12
13
Other expense (income), net, was $12 thousand of expense,
net, in 1994 compared with other income, net, of $947 thousand in
1993. The decline in other income reflects mainly the absence of
Albemarle income in the 1994 period versus $591 thousand in the
1993 quarter, as well as less interest income in the 1994 period.
Income Taxes
Income taxes in the 1994 quarter increased 8% compared to
the 1993 quarter, due to a 2% increase in pretax income from
continuing operations, and a higher effective tax rate (37.2% in
1994 versus 35.1% in 1993). The 1994 effective tax rate
reflected a higher Federal income tax rate in 1994 and other
changes resulting from the 1993 Federal income tax legislation
which was not enacted until after June 30, 1993 while the 1993
tax rate included a low tax rate on the 1993 gain on the sale of
a financial services subsidiary due to a higher tax basis than
book basis.
Discontinued Operation - Insurance
The Company spun off its approximately 80% interest in First
Colony on July 1, 1993, and accordingly no income from the
insurance operation was reported in the 1994 second quarter,
whereas $44.9 million was reported in the 1993 quarter.
Results of Operations
Six Months 1994 Compared with Six Months 1993
Total net sales for the six months of 1994 amounted to
$665.2 million, down 31% from $964.9 million in 1993. The
reduction in net sales primarily resulted from two months of
Albemarle sales being included in 1994 versus six months of
Albemarle sales in 1993.
On a pro forma basis, assuming the distribution occurred on
January 1, 1993, net sales for the first six months of 1994 would
have been $510.1 million, a decrease of 2% from the first six
months of 1993 sales of $522.4 million. The decrease was due to
lower shipments in lubricant additives and lead antiknocks,
partly offset by higher selling prices of lead antiknocks and
domestic lubricant additives. Lower selling prices of other fuel
additives were largely offset by higher shipments, while
shipments and prices of pharmaceutical products were slightly
higher.
Cost of goods sold in 1994 decreased 36% from the 1993
period. The decline in aggregate cost of goods sold occurred
primarily because of the inclusion of two months of Albemarle
costs of goods sold in 1994 versus six months in 1993.
On a pro forma basis, cost of goods sold would have been
$322.8 million in 1994, down 5% from $339.2 million in the 1993
period. The decrease was due to lower costs for lubricant
additives and lead antiknocks, as well as the effect of lower
shipments. The net result of a 2% decrease in net sales and a 5%
decrease in cost of goods sold was that the gross profit margin
on a pro forma basis increased to 36.7% in the 1994 period from
35.1% in the 1993 period.
13
14
Selling, general and administrative expenses, combined with
research and development expenses, amounted to $129.2 million in
the first six months of 1994, a decrease of 23% from $167.8
million in the 1993 period. The reduction in aggregate expenses
occurred, primarily because of the inclusion of two months of
Albemarle expenses in 1994 versus six months in 1993.
On a pro forma basis, selling, general and administrative
expenses, including research and development expenses, would have
been $106.1 million in the 1994 period, up 1% from $105.1 million
in the 1993 period. The increase primarily consists of higher
research and development expenses for fuel additives, higher
employee-related expenses partially offset by the effect of the
work-force-reduction program implemented at the end of 1993 and
the discontinuance of the pharmaceutical research operations of
Whitby Research, Inc. at the end of 1993, as well as lower
charges related to relocation of research and development
operations to Richmond, Virginia. As a percentage of net sales,
selling, general and administrative expenses, including research
and development expenses, increased to 20.8% in 1994 from 20.1%
in the 1993 period.
Operating profit in the 1994 period decreased 9% from the
1993 period, but included two months' operating profit of
Albemarle ($12.8 million) in 1994 compared with six months'
operating profit of Albemarle ($25.6 million) in 1993.
On a pro forma basis, operating profit in the 1994 period
would have increased 4% from the 1993 period. Most of the
increase came from higher profit in lubricant additives
reflecting lower costs and expenses, as well as higher
pharmaceuticals profit reflecting the year-end 1993 shutdown of
Whitby Research, Inc., partially offset by lower fuel additives
profit due to lower margins and higher research and development
expenses. Lead antiknock profits were about the same, as the
benefit of lower costs offset the impact of lower shipments.
Interest and financing expenses in 1994 decreased 45% from
the 1993 period which reflects the inclusion of interest on debt
transferred to Albemarle for two months in 1994 versus the
inclusion of such interest for six months in 1993. On a pro
forma basis, interest and financing expenses would have been $4.4
million (31%) lower than in 1993 due to a higher amount of
interest capitalized in 1994 and a lower average interest rate in
1994 versus 1993 due to early redemption of the Company's 9-3/8%
sinking fund debentures in December 1993, partially offset by
higher average debt outstanding during the 1994 period.
Other expense (income), net, decreased to income of $0.1
million in 1994 from income of $2.4 million in 1993. On a pro
forma basis, other expense (income), net, in 1994 would have
been expense, net, of $0.5 million compared with $1.7 in other
income, net, in 1993 primarily reflecting less interest income in
the 1994 period.
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Gain on Sale of Subsidiary
The Company realized a pretax gain of about $5.9 million on
the sale of a financial services subsidiary in the second quarter
of 1993.
Income Taxes
Income taxes in the 1994 period decreased 3% compared to the
1993 period, reflecting an 8% decrease in pretax income from
continuing operations partially offset by a higher 1994 effective
tax rate (37.8% in 1994 versus 35.6% in 1993). On a pro forma
basis, income taxes in 1994 would have shown an increase of 12%
from the 1993 period despite a 1% reduction in pretax income due
to a higher effective income tax rate in the 1994 period (37.4%
in 1994 versus 33.1% in 1993). The 1994 effective tax rate
reflects a higher Federal income tax rate in 1994 as well as
other changes resulting from the 1993 Federal income tax
legislation which was not enacted until after June 30, 1993,
while the 1993 tax rate included a low tax rate on the 1993 gain
on the sale of a financial services subsidiary due to a higher
tax basis than book basis.
Discontinued Operation - Insurance
The Company spun off its approximately 80% interest in First
Colony on July 1, 1993, and accordingly no income from the
insurance operation was reported in the 1994 six months whereas
$90.5 million was reported in the six months 1993.
Financial Condition and Liquidity
Cash and cash equivalents at June 30, 1994, were about $11.1
million which represents a decrease of about $37.1 million from
$48.2 million at year-end 1993. The decline primarily reflects
the effect of the spin-off of Albemarle at the close of business
on February 28, 1994, whereby $29.3 million in cash and cash
equivalents was included as part of the dividend.
Cash flows were more than sufficient to cover operating
activities in the six months of 1994, including a working capital
increase of $29.6 million.
Cash flows from operating activities of $53.8 million,
together with $77.9 million in additional long-term debt and $7.4
million of the cash on hand at the beginning of the year were used
to cover capital expenditures of $106.8 million and cash dividends
to shareholders of $32.3 million. A further reduction of $29.3
million in cash and cash equivalents occurred as part of the
spin-off of Albemarle on February 28, 1994. Management
anticipates that cash provided from operations in the future will
be sufficient to cover the Company's operating expenses, service
debt obligations and make dividend payments to shareholders.
The non-current portion of the Company's long-term debt
amounted to $380.2 million at June 30, 1994, compared to $687
million at the end of 1993. The decrease reflects $384.9
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million of debt transferred in connection with the spin-off of
Albemarle Corporation, partially offset by $77.9 million of
additional borrowing in the first six months of 1994 by Ethyl.
The long-term debt to total capitalization ratio was 50.5% on
June 30, 1994, versus 47.7% at December 31, 1993, prior to the
spin-off of Albemarle.
The Company's capital expenditures in 1994 are expected to
be at a lower level than in 1993 reflecting mainly the effect of
the spin-off of Albemarle. The 1994 capital expenditures are
expected to be at a much lower rate in the last half of 1994 than
in the first half, reflecting the completion of one major
construction project and the near completion of another. The
capital spending will be financed with a combination of cash flow
from operations and additional long-term debt. The amount and
timing of additional borrowing will depend on the Company's
specific cash requirements.
Recent Developments
On July 14, 1994, the Company filed an appeal of the U.S.
Environmental Protection Agency's (EPA) denial on July 13 of
Ethyl's request for a waiver to use a manganese-based fuel
additive in unleaded gasoline. The appeal was filed with the
U.S. Court of Appeals for the District of Columbia Circuit.
The EPA's denial of the waiver request will not adversely
impact the Company's financial position.
Ethyl has submitted a series of waiver applications for
HiTEC 3000 performance additive over the past several years. In
November 1993, the EPA determined that emissions data from
Ethyl's extensive test fleets satisfied all Clean Air Act
standards for approval. Ethyl and the EPA then agreed to an
additional 180 days for EPA to resolve the remaining issue of
manganese and health. In late May, Ethyl reached further
agreement with the EPA to provide an additional six weeks for the
EPA to review results of Canadian government data showing
manganese air levels in 13 major Canadian cities to be extremely
low. HiTEC 3000 performance additive has been used in Canadian
gasoline for some 17 years.
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PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ETHYL CORPORATION
(Registrant)
Date: August 8, 1994 By: s/ C. B. Walker
Vice Chairman of the Board,
Chief Financial Officer
and Treasurer
(Principal Financial Officer)
Date: August 8, 1994 By: s/David A. Fiorenza
Vice President,
Finance and Controller
(Principal Accounting Officer)
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