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Page 1 of 20 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 September 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 October
31, 1994: 118,434,401.
2
ETHYL CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - September 30, 1994, and
December 31, 1993 3 - 4
Consolidated Statements of Income - Three Months
and Nine Months Ended September 30, 1994 and 1993 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 6
Notes to Financial Statements 7 - 11
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 12 - 18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 19
ITEM 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30
1994 December 31
ASSETS (unaudited) 1993
------------ ----------
Current assets:
Cash and cash equivalents $ 25,958 $ 48,201
Accounts receivable, less allowance for doubtful
accounts (1994 - $2,484; 1993 - $4,189) 195,204 345,160
Inventories:
Finished goods 126,634 219,001
Work-in-process 7,232 12,419
Raw materials 11,419 32,173
Stores, supplies and other 5,951 27,221
-------- ---------
151,236 290,814
Deferred income taxes and prepaid expenses 31,306 49,522
-------- ---------
Total current assets 403,704 733,697
-------- ---------
Property, plant and equipment, at cost 677,484 1,908,630
Less accumulated depreciation and amortization (243,663) (910,360)
Net property, plant and equipment 433,821 998,270
-------- ---------
Other assets and deferred charges 126,989 164,382
Goodwill and other intangibles - net of amortization 21,348 112,849
-------- ---------
Total assets $ 985,862 $ 2,009,198
======== =========
<FN>
See accompanying notes to financial statements.
3
4
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
September 30
1994 December 31
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 1993
------------ -----------
Current liabilities:
Accounts payable $ 94,995 $ 154,971
Accrued expenses 56,283 125,704
Cash dividends payable 14,807 17,764
Long-term debt, current portion - 14,056
Income taxes payable 14,323 14,020
-------- ----------
Total current liabilities 180,408 326,515
-------- ----------
Long-term debt 332,714 686,986
Other noncurrent liabilities 60,908 99,240
Deferred income taxes 27,751 143,676
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 499 (1,757)
Retained earnings 262,242 633,483
-------- ----------
383,881 752,581
-------- ----------
Total liabilities and shareholders' equity $ 985,862 $ 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 Nine Months Ended
September 30 September 30
-------------------- --------------------
1994 1993 1994 1993
------- ------- ------- ---------
Net sales $ 244,935 $ 486,874 $ 910,100 $1,451,740
Cost of goods sold 158,079 336,525 599,940 1,029,897
------- ------- ------- ---------
Gross profit 86,856 150,349 310,160 421,843
Selling, general and administrative expenses 41,896 68,616 145,362 201,098
Research and development expenses 10,534 19,539 36,259 54,831
Special charges - 9,700 - 9,700
------- ------- ------- ---------
Operating profit 34,426 52,494 128,539 156,214
Interest and financing expenses 5,996 11,046 18,762 34,205
Gain on sale of subsidiary - - - (5,871)
Other expense (income), net 1,851 (508) 1,773 (2,876)
------- ------- ------- ---------
Income from continuing operations before income taxes 26,579 41,956 108,004 130,756
Income taxes 4,085 21,990 34,868 53,636
------- ------- ------- -------
Income from continuing operations 22,494 19,966 73,136 77,120
Income from discontinued insurance operation
(see note 9 on page 9) - - - 90,483
------- ------- ------- -------
Net income 22,494 19,966 73,136 167,603
Preferred stock dividends (3) (3) (9) (9)
------- ------- ------- -------
Net income applicable to common stock $ 22,491 $ 19,963 $ 73,127 $ 167,594
======= ======= ======= =======
Earnings per share:
Income from continuing operations $ .19 $ .17 $ .62 $ .65
Income from discontinued insurance operation - - - .77
------- ------- ------- -------
Net income $ .19 $ .17 $ .62 $ 1 .42
======= =======
Shares used to compute earnings per share 118,448 118,444 118,455 118,436
======= ======= ======= =======
Cash dividends per share of common stock $ .125 $ .15 $ .40 $ .45
======= ======= ======= =======
<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)
Nine Months Ended
September 30
--------------------
1994 1993
------ ------
Cash and cash equivalents at beginning of year $ 48,201 $ 162,988
------- --------
Cash flows from operating activities:
Income from continuing operations 73,136 77,120
Adjustments to reconcile income to cash flows from
operating activities:
Depreciation and amortization 42,719 93,321
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 (8,892) (53,759)
Other, net (8,120) 817
------- --------
Net cash provided from continuing operating activities 98,843 56,947
------- --------
Cash flows from investing activities:
Capital expenditures (136,257) (139,150)
Acquisitions of businesses (net of $5,369 cash acquired) - (125,431)
Proceeds from sale of subsidiaries 60,500 10,000
Other, net 719 (757)
------- --------
Net cash used in investing activities of continuing operations (75,038) (255,338)
------- --------
Cash flows from financing activities:
Additional long-term debt 30,400 242,000
Repayment of long-term debt - (100,625)
Cash dividends paid (47,376) (53,274)
Cash and cash equivalents of Albemarle Corporation spun off as a dividend
on February 28, 1994 (29,332) -
Other, net 260 751
------- --------
Net cash (used in) provided from financing activities
of continuing operations (46,048) 88,852
------- --------
Net cash used in continuing operations (22,243) (109,539)
Cash provided by discontinued insurance operation - 5,148
------- --------
Decrease in cash and cash equivalents (22,243) (104,391)
------- --------
Cash and cash equivalents at end of period $ 25,958 $ 58,597
======= ========
<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
September 30, 1994, the consolidated results of operations for the
three and nine-month periods ended September 30, 1994 and 1993 and
the consolidated cash flows for the nine-month periods ended September
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 nine-month period ended
September 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.
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 third quarter and first nine months in 1993.
The September 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
========
7
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:
September 30 December 31
1994 1993
------------ -----------
Variable-rate bank loans (average effective interest rates were
4.2% for the nine-month period ended September 30,
1994 and 3.6% for the year 1993) $100,000 $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 - 3,368
-------- --------
Total long-term debt 333,750 702,234
Less unamortized discount (1,036) (1,192)
________ --------
Net long-term debt 332,714 701,042
Less current portion - (14,056)
-------- --------
$332,714 $686,986
======== ========
A portion of the variable-rate bank debt and the entire foreign bank
borrowing was included as part of the spin-off to Albemarle.
5. Special charges of $9,700 before income taxes for the third quarter
and nine months of 1993 cover the costs of a work-force-reduction and
early-retirement program.
6. At the end of the second quarter 1993, Ethyl sold its financial-
services subsidiary, The Barclay Group, Inc., for $10,000 resulting
in a gain of $5,871 before income taxes.
8
9
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
7. Income taxes on income from continuing operations for the three and
nine-month periods ended September 30, 1993 include a nonrecurring
deferred income tax charge of $2,347 and additional taxes of $1,535
on six-month earnings of the spun-off insurance operation both
resulting from federal income-tax legislation, which increased the
corporate income tax rate retroactive to January 1, 1993.
8. On September 15, 1994, Ethyl sold its pharmaceutical subsidiary,
Whitby, Inc. for $60,500 resulting in a gain of $4,150 after income
taxes.
9. The 1993 Consolidated Statements of Income and Condensed Consolidated
Statements of Cash Flows 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 the discontinued insurance operation included in the
accompanying Consolidated Statements of Income consists of the
following:
Six Months
1993
----------
Revenues $737,137
Benefits and expenses 560,785
Interest and financing expenses 5,389
-------
Income before income taxes 170,963
Income taxes 58,316
-------
Net income 112,647
Less provision for minority interest 22,164
-------
Income from discontinued insurance operation $ 90,483
=======
10. On February 8, 1993, the Company completed the acquisition of Potasse
et Produits Chimiques (PPC) from Rhone-Poulenc S.A., the Paris-based
multinational chemical and pharmaceutical company. The transaction
was financed with additional long-term debt of $122 million under the
Company's revolving credit agreement. This business was included in
the businesses spun-off to Albemarle.
9
10
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
11. 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)
Third Quarter Ended September 30
------------------------------------------
1993
------------------------------------------
Historical Adjustments(i) Pro Forma
------------------------------------------
Net sales $486,874 $(225,966) $260,908
Cost of goods sold 336,525 (169,132) 167,393
------- ------- -------
Gross profit 150,349 (56,834) 93,515
Selling, general and administrative
expenses 68,616 (26,215) 42,401
Research and development expenses 19,539 (7,686) 11,853
Special charges 9,700 (7,700) 2,000
------- ------- -------
Operating profit 52,494 (15,233) 37,261
Interest and financing expenses 11,046 (4,355)(ii) 6,691
Other (income), net (508) 302 (206)
------- ------- -------
Income before income taxes 41,956 (11,180) 30,776
Income taxes 21,990 (6,641)(iii) 15,349
------- ------- -------
Income after income taxes $ 19,966 $ (4,539) $ 15,427
======= ======= =======
Earnings per share (iv) $ .17 $ .13
====== ======
Nine Months Ended September 30
-----------------------------------------------------------------------------------------
1994 1993
----------------------------------------- ------------------------------------------
Historical Adjustments(i) Pro Forma Historical Adjustments(i) Pro Forma
----------------------------------------- ------------------------------------------
Net sales $910,100 $(155,064) $755,036 $1,451,740 $(668,453) $783,287
Cost of goods sold 599,940 (119,086) 480,854 1,029,897 (523,344) 506,553
------- ------- ------- --------- ------- -------
Gross profit 310,160 (35,978) 274,182 421,843 (145,109) 276,734
Selling, general and administrative
expenses 145,362 (19,046) 126,316 201,098 (74,417) 126,681
Research and development expenses 36,259 (4,087) 32,172 54,831 (22,208) 32,623
Special charges - - - 9,700 (7,700) 2,000
------- ------- ------- --------- ------- -------
Operating profit 128,539 (12,845) 115,694 156,214 (40,784) 115,430
Interest and financing expenses 18,762 (2,873)(ii) 15,889 34,205 (13,174)(ii) 21,031
Gain on sale of subsidiary - - - (5,871) - (5,871)
Other expense (income), net 1,773 543 2,316 (2,876) 947 (1,929)
------- ------- ------- --------- ------- -------
Income from continuing operations
before income taxes 108,004 (10,515) 97,489 130,756 (28,557) 102,199
Income taxes 34,868 (4,239)(iii) 30,629 53,636 (14,653)(iii) 38,983
------- ------- ------- --------- ------- -------
Income from continuing operations
after income taxes 73,136 $ (6,276) $ 66,860 $ 77,120 $ (13,904) $ 63,216
======= ======= ======= ========= ======= =======
Earnings per share (iv) $ .62 $ .57 $ .65 $ .53
====== ====== ====== ======
10
11
11. Continued
Introduction to Notes: Notes (i), (ii) and (iii) reflect a summary of the
pro forma adjustments made to the historical condensed statements of income
as if the distribution had occurred on January 1, 1993.
Notes:
(i) To eliminate the historical income and expenses of Albemarle for the
respective periods presented.
(ii) To eliminate interest expense (net of capitalized interest) that
would have been incurred by Albemarle on debt transferred to
Albemarle.
(iii) Includes the estimated income tax effects of the pro forma adjustments.
(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.
11
12
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 third quarter and first
nine months of 1993. The Company's remaining businesses after the spin-off
consisted of petroleum additives and pharmaceutical products. On September
15, 1994, Ethyl sold its pharmaceutical subsidiary, Whitby, Inc., placing
Ethyl solely in the petroleum additives business.
Pro forma condensed statements of income are provided for the nine-
month period ended September 30, 1994, and the third quarter and nine-month
periods ended September 30, 1993, in Note 11 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
Third Quarter 1994 Compared with Third Quarter 1993
Net sales for the third quarter of 1994 amounted to $244.9 million,
down $242.0 million (50%) from $486.9 million in 1993. The reduction in
aggregate net sales was due almost entirely to the absence of Albemarle sales
in the 1994 quarter versus the inclusion of $226.0 million of Albemarle sales
in the 1993 quarter. Combined net sales of petroleum additives and
pharmaceutical products for the third quarter of 1994 decreased $16.0 million
(6%) from third quarter 1993 sales primarily due to lower shipments of lead
antiknocks and lubricant additives. The decline was partially offset
by higher prices of lead antiknocks as well as lubricant additives primarily
in the U.S., and slightly higher shipments and prices of fuel additives.
Pharmaceutical products sales decreased slightly due to lower shipments.
12
13
Cost of goods sold of $158.1 million in 1994 decreased $178.4 million
(53%) from $336.5 million in the 1993 quarter. The decline in aggregate cost
of goods sold was due primarily to the absence of Albemarle cost of goods sold
in 1994 versus the inclusion of $169.1 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 $9.3 million (6%)
from the 1993 quarter due mainly to lower lubricant additives and lead
antiknock shipments, slightly offset by higher shipments of fuel additives.
Selling, general and administrative expenses, combined with research
and development expenses, amounted to $52.4 million in the third quarter
1994, a decrease of $35.7 million (41%) from $88.1 million in the 1993
quarter. The reduction in aggregate expenses occurred primarily because of
the absence of Albemarle expenses in the 1994 period versus the inclusion of
Albemarle expenses of $33.9 million in the 1993 period. Selling, general and
administrative expenses, including research and development expenses, for
petroleum additives and pharmaceutical products in 1994 decreased $1.8
million (3%) from the 1993 quarter. The decrease reflects 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, largely offset by higher research and development
expenses for lubricant and fuel additives and higher employee-related expenses
in other areas.
The $9.7 million special charges in the 1993 quarter covers provisions
for a work-force-reduction and early-retirement program, of which $7.7 million
related to the spun-off Albemarle businesses.
Operating profit in the 1994 third quarter, which did not include any
operating profit from Albemarle, decreased 34% from the 1993 third quarter,
which included $15.2 million of operating profit of Albemarle. Operating
profit for the combined petroleum additives and pharmaceutical products
businesses in the 1994 quarter decreased 8% from the 1993 quarter. Most of
the decrease resulted from the effects of lower shipments of lead antiknocks
(reflecting fluctuations in shipping schedules) and lubricant additives,
partially offset by higher lubricant additives profits reflecting higher
selling prices, as well as improved pharmaceutical profit reflecting the
year-end 1993 shutdown of Whitby Research.
Interest and financing expenses in the 1994 quarter decreased 46%
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 $6.0 million
in the 1994 quarter which was 10% lower than $6.7 million of interest and
financing expenses in the 1993 quarter, assuming the spin-off had occurred on
January 1, 1993. The decline results from 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.
13
14
Other expense, net, was $1.9 million in 1994 compared to other
income, net, of $508 thousand in 1993. Other expense in 1994 reflects mainly
various non-operating losses.
Income Taxes
Income taxes in the 1994 quarter decreased 81% compared to the 1993
quarter, on a 37% decrease in pretax income from continuing operations, and
a lower effective tax rate (15.4% in 1994 versus 52.4% in 1993). The 1994
effective tax rate included the beneficial effect of the sale of the Company's
pharmaceutical products subsidiary (Whitby, Inc.) on September 15, 1994, which
had a higher tax basis than book basis, while the 1993 effective tax rate
reflected charges resulting from federal income tax legislation enacted in the
third quarter of 1993 which increased the corporate income tax rate retroactive
to January 1, 1993. (See Note 7 on Page 9)
Results of Operations
Nine Months 1994 Compared with Nine Months 1993
Total net sales for the nine months of 1994 amounted to $910.1 million,
down 37% from $1,451.7 million in 1993. The reduction in net sales resulted
primarily from two months of Albemarle sales being included in 1994 versus nine
months of Albemarle sales included in 1993.
On a pro forma basis, assuming the distribution occurred on January 1,
1993, net sales for the first nine months of 1994 would have been $755.0
million, a decrease of 4% from the first nine months of 1993 sales of $783.3
million. The decrease was due to lower shipments of lubricant additives and
lead antiknocks, partly offset by higher selling prices of lead antiknocks as
well as lubricant additives primarily in the U.S. and lower shipments of
pharmaceutical products. Lower selling prices of other fuel additives were
more than offset by higher shipments.
Cost of goods sold in 1994 decreased 42% 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 nine
months included in 1993.
On a pro forma basis, cost of goods sold would have been $480.9 million
in 1994, down 5% from $506.6 million in the 1993 period. The decrease was due
to lower shipments of lead antiknocks and lubricant additives. The net result
of a 4% decrease in net sales and 5% decrease in cost of goods sold was that
the gross profit margin on a pro forma basis increased to 36.3% in the 1994
period from 35.3% in the 1993 period.
14
15
Selling, general and administrative expenses, combined with research
and development expenses, amounted to $181.6 million in the first nine months
of 1994, a decrease of 29% from $255.9 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 the inclusion of nine months
of such expenses in 1993.
On a pro forma basis, selling, general and administrative expenses,
including research and development expenses, would have been $158.5 million
in the 1994 period, down 1% from $159.3 million in the 1993 period.
The decrease reflects primarily the effect of the discontinuance of the
pharmaceutical research operations of Whitby Research, Inc., at the end of
1993 and the work-force-reduction program implemented at the end of 1993, as
well as lower charges related to relocation of research and development
operations to Richmond, Virginia, partially offset by higher employee-related
expenses. As a percentage of net sales, selling, general and administrative
expenses, including research and development expenses, increased to 21.0% in
1994 from 20.3% in the 1993 period.
The $9.7 million of special charges in the 1993 period covers
provisions for a work-force- reduction and early-retirement program, of which
$7.7 million related to the spun-off Albemarle businesses.
Operating profit in the 1994 period decreased 18% from the 1993 period,
but included two months' operating profit of Albemarle ($12.8 million) in 1994
compared with nine months' operating profit of Albemarle ($40.8 million) in
1993.
On a pro forma basis, operating profit in the 1994 period would have
shown an increase of less than 1% from the 1993 period. 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., was substantially offset by lower fuel additives profit due
to lower margins and higher research and development expenses and a decrease
in lead antiknock profit. The lower lead antiknock profit reflects the
impact of lower shipments due to shipping schedules, partly offset by the
benefit of higher selling prices.
Interest and financing expenses in 1994 decreased 45% from the 1993
period reflecting the inclusion of interest on debt transferred to Albemarle
for two months in 1994 versus the inclusion of such interest for nine months
in 1993. On a pro forma basis, interest and financing expenses would have
been $15.9 million, or (24%) 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 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.
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Other expense, net, was $1.8 million in 1994 versus income of $2.9
million in 1993. On a pro forma basis, other expense, net, in 1994 would
have been $2.3 million compared with $1.9 million in other income, net, in
1993 reflecting various non-operating items in 1994 as well as less
interest income than in the 1993 period.
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 35% compared to the 1993
period, reflecting a 17% decrease in pretax income from continuing operations
as well as a lower 1994 effective tax rate (32.3% in 1994 versus 41.0% in
1993). On a pro forma basis, income taxes in 1994 would have shown a
decrease of 21% from the 1993 period on a 5% reduction in pretax income and a
lower effective income tax rate in the 1994 period (31.4% in 1994 versus 38.1%
in 1993). The lower 1994 effective income tax rate primarily reflects the
tax benefit on the sale of Ethyl's pharmaceutical subsidiary, Whitby, Inc.,
which had a higher tax basis than book basis, while 1993 includes additional
taxes resulting from federal income tax legislation in 1993 which increased
the corporate income tax rate retroactive to January 1, 1993. (See Note 7 on
Page 9)
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 period, whereas $90.5 million was reported in the 1993
period.
Financial Condition and Liquidity
Cash and cash equivalents at September 30, 1994, were about $26.0
million which represents a decrease of about $22.2 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 nine months of 1994, including a working capital increase of $8.9 million.
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Cash flows from operating activities of $98.8 million, together with
$30.4 million in additional long-term debt and the $60.5 million proceeds
from the sale of Whitby, Inc. on September 15, 1994, were used to cover
capital expenditures of $136.3 million and cash dividends to shareholders of
$47.4 million. A 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
$332.7 million at September 30, 1994, compared to $687 million at the end of
1993. The decrease reflects $384.9 million of debt transferred in connection
with the spin-off of Albemarle Corporation, partly offset by a $30.4 million
net increase in long-term debt by Ethyl subsequent to the spin-off. The
long-term debt to total capitalization ratio was 46.4% on September 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. Capital expenditures in 1994 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
flows 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
Ethyl continues to pursue vigorously its long-term effort to obtain a
waiver from the U.S. Environmental Protection Agency (EPA) for the use of
HiTEC 3000 performance additive (MMT), a manganese-based fuel additive, in
unleaded gasoline. Following the EPA's most recent denial of Ethyl's
application for a waiver, the Company filed an appeal on July 14, 1994, with
the U.S. Court of Appeals for the District of Columbia Circuit seeking relief
from the EPA's actions, which fly in the face of numerous scientific
submissions demonstrating the additive's value in boosting engine performance
and contributing to a cleaner environment. It is anticipated that the Court
will hear oral arguments in Ethyl's appeal on January 13, 1995, and that a
decision will be made before the Court's term ends in early June.
In the meantime, in Canada, the Motor Vehicle Manufacturers Association
of Canada (MVMA) has threatened to alter engine diagnostic systems or limit or
even void warranty coverage for consumers using gasoline containing MMT.
Ethyl believes that this action is being threatened without evidence to back
MVMA's claims or proper consideration for the environmental impact of such
action. MMT is an environmentally beneficial fuel additive which has been used
successfully in unleaded gasoline in that country for more than 17 years, that
is responsible for a 20-percent reduction in Canadian levels of nitrogen oxide
emissions from automobiles as well as reductions in benzene and other dangerous
emissions.
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Ethyl has urged the Canadian government not to take any action against MMT
that clearly would result in an immediate harmful impact to the environment.
Even the U.S., EPA's own assessment of MMT recognizes that "favorable health
and environmental effects result from changes in gasoline composition
associated with the Additive..." At this time, the Company cannot determine
whether any of the threatened actions by MVMA will come to pass, or what
impact any such action would have on the sales of MMT in Canada.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Previous Form 10-K filings have made reference to a product liability
suit brought in 1992 against Ethyl, another chemical company and
various real estate interests in a Minnesota state court. This suit
alleged that two Minneapolis children were injured by ingesting soil
and dust containing lead from peeling paint and automotive emissions.
The real estate defendants paid the plaintiffs to end the litigation
premised on leaded paint. Ethyl and the other chemical company,
however, refused to pay the plaintiffs anything whatsoever and
vigorously defended against claims based on leaded gasoline. In
August 1994, the plaintiffs decided simply to abandon the litigation
against Ethyl and the other chemical company. The suit was then
dismissed with prejudice.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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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 there-unto duly authorized.
ETHYL CORPORATION
(Registrant)
Date: November 4, 1994 By: s/ Charles B. Walker
Vice Chairman of the Board,
Chief Financial Officer
and Treasurer
(Principal Financial Officer)
Date: November 4, 1994 By: s/ David A. Fiorenza
Vice President,
Finance and Controller
(Principal Accounting Officer)
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