1994 FINANCIAL REVIEW
During 1994 and 1993, the Company completed certain actions in positioning
itself as a highly focused maker and marketer of petroleum additives to
customers around the world. The steps taken to sharpen its focus and streamline
its organization are significant and affect the financial results and the year-
to-year comparisons. The following Financial Review describes these actions and
financial activities.
On September 15, 1994, the Company sold its wholly owned pharmaceuticals
subsidiary, Whitby, Inc. Earlier in the year the Company completed the tax-free
spin-off of its wholly owned subsidiary, Albemarle Corporation (Albemarle), at
the close of business on February 28, 1994, which included the operations of the
olefins and derivatives, bromine chemicals and specialty chemicals businesses.
The results of both the pharmaceuticals subsidiary and Albemarle are included in
the consolidated results through those dates.
The Company also completed the tax-free spin-off of its approximately 80%
interest in First Colony Corporation (First Colony) on July 1, 1993, which
included the operations of First Colony Life Insurance Company and subsidiaries.
The accounts and operations of the Insurance segment are reported as
"Discontinued Insurance Operations" through that date.
The completion of these transactions places the Company solely in the
petroleum additives business and permits it to devote its time and energies to
developing and expanding the fuel and lubricant additive lines.
In the following review, in addition to the consolidated information
discussed for 1994 versus 1993 and 1993 versus 1992, PRO FORMA information is
provided and discussed for 1994 versus 1993 to illustrate the Company's results
without the results of the businesses spun off. PRO FORMA financial statements
are also provided as supplementary financial information on page 35.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Net Sales
Consolidated net sales for 1994 were $1.17 billion, down from $1.94 billion
in 1993. The reduction in net sales resulted primarily from only two months of
Albemarle sales being included in 1994 versus 12 months included in 1993.
On a PRO FORMA basis, without the spun-off businesses, net sales for 1994
would have been $1.02 billion, down about $16 million (2%) from $1.03 billion in
1993. The decrease in PRO FORMA net sales reflected the effect of the sale of
the pharmaceuticals business in September, with pharmaceutical revenues
decreasing about $23 million, partially offset by about $7 million in higher
sales revenue from fuel and lubricant additives. The increase in fuel and
lubricant additives net sales reflects about $42.8 million from sales price
increases, partially offset by $35.9 million from lower shipments.
Fuel additives (excluding antiknocks) revenues increased due to higher
shipments. Lubricant additives sales were somewhat higher due to higher selling
prices, largely offset by lower shipments of components. The increases in
lubricant and fuel additives selling prices represented general industry price
increases announced in late 1993 to cover higher material, environmental and
product-technology costs. Lead antiknock sales were about even with the prior
year, as the effect of lower shipments was substantially offset by higher
selling prices.
Costs & Expenses
Consolidated cost of goods sold in 1994 decreased to $776.5 million from
$1.39 billion in 1993. The decline in consolidated cost of goods sold primarily
reflected the inclusion of only two months of Albemarle costs of goods sold in
1994 versus 12 months in 1993 as well as the absence of pharmaceuticals cost of
goods sold following the September sale of this business.
On a PRO FORMA basis, cost of goods sold in 1994 would have been $657.4
million down about $17.9 million (3%) from $675.3 million in 1993. About $10.7
million of the decrease reflected the impact of lower antiknock and lubricant
additive shipments, partly offset by higher costs of goods sold per unit and
increased fuel additives shipments. The absence of pharmaceuticals cost of goods
sold following the sale of this business also contributed about $5.7 million to
the reduction of cost of goods sold.
Lubricant additives cost of goods sold reflected higher costs per unit due
in part to start-up costs of $7.7 million associated with the construction and
completion of new and expanded lubricant additives manufacturing facilities to
replace production now provided by Amoco under a short-term supply agreement,
partly offset by higher costs incurred in 1993 resulting from an inventory-
reduction program. Lead antiknock costs were higher due to product sourcing.
On a PRO FORMA basis, average raw material unit costs were slightly lower in
1994 than in 1993. Process oils and polybutene costs were lower, but olefin
costs increased, and other raw material unit costs were mixed. Average energy
costs were mixed, with natural gas prices lower in 1994 than in 1993, while
electricity costs remained stable.
PRO FORMA gross profit margin increased to 35.5% in 1994 from 34.8% in 1993,
primarily due to improvements in lubricant additives as well as in lead
antiknocks.
Consolidated selling, general and administrative expenses including
research, development and testing expenses decreased to $227.1 million in 1994
from $348.4 million in 1993 primarily reflecting the effect of the spin-off of
Albemarle. The discontinuance of pharmaceuticals research operations of Whitby
Research, Inc., at the end of 1993 as well as the absence of Whitby, Inc.,
expenses following the September sale also contributed to the decline.
On a PRO FORMA basis, selling, general and administrative expenses,
including research, development and testing expenses, would have been $204
million in 1994, down $7.9 million (4%) from $211.9 in 1993. The decrease
primarily reflects an $8.4-million effect from the discontinuance of the
pharmaceutical research operations of Whitby Research, Inc., at the end of 1993,
and a decline of $12.2 million of Whitby, Inc., expenses reflecting the sale of
the pharmaceutical business in September 1994. These decreases were offset
partly by a $6.4-million increase in research, development and testing expenses
for petroleum additives and higher expenses for outside consulting. The benefit
of the work-force-reduction program implemented at the end of 1993 was largely
offset by increases in other employee-related costs. As a percentage of PRO
FORMA net sales, selling, general and administrative expenses, including
research, development and testing expenses decreased to 20% in 1994 from 20.5%
in 1993.
Special Charges
The $2.7 million of special charges in 1994 ($1.7 million after income
taxes, or $.01 per share) consist of an $8-million provision for environmental
remediation as well as $2.7 million in other nonrecurring charges, largely
offset by an $8million benefit from a legal settlement.
The $36.1 million of consolidated special charges in 1993 ($22.4 million
after income taxes, or $.19 per share) include provisions for corporate
downsizing, plant write-down and related costs. The PRO FORMA special charges in
1993 would have amounted to $28.8 million ($17.8 million after income taxes or
$.15 per share) consisting primarily of a charge of $14.2 million related to the
decision to cease production at the Canadian antiknock facility in 1994
(including an $11.4 million noncash charge for write-down of facilities as well
as severance and other related costs), a $6-million charge covering downsizing
costs of Whitby Research, Inc., prior to its sale in April 1994, and an $8.6-
million charge for various early-retirement and other work-force-reduction
programs affecting approximately 175 employees in the petroleum additives and
corporate staffs in the U.S. and Europe as well as relocation costs for certain
research and development and administrative groups. All of the early retirements
and work-force reductions were completed in early 1994, and substantially all of
the relocations were completed by year-end 1994.
Operating Profit
Consolidated operating profit in the 1994 period was essentially even with
the 1993 period. However, 1994 included only two months of Albemarle operating
profit compared to 12 months in 1993. Operating profit also reflected the impact
of special charges of $2.7 million in 1994 versus $36.1 million in 1993.
On a PRO FORMA basis, operating profit in the 1994 period would have shown
an increase of $36 million, or 30% from 1993, of which $26.1 million was due to
lower special charges in 1994 than in 1993. Excluding the effects of these
special charges, PRO FORMA operating profit in 1994 increased 7% from 1993,
primarily due to higher profit in lubricant additives, reflecting higher margins
primarily resulting from higher selling prices and improved product mix, as well
as higher pharmaceuticals profit due to the year-end 1993 shutdown of Whitby
Research, Inc. This was partly offset by lower fuel additives profit due to
lower margins reflecting higher research, development and testing expenses for
this product line. Lead antiknock profit in 1994 improved over 1993, excluding
the effect of special charges, primarily because of higher margins in 1994.
Further discussion of the lead antiknock profit contribution is covered under
Information About Significant Product Lines beginning on page 19.
Interest & Financing Expenses
Consolidated interest and financing expenses in 1994 decreased 42% from the
1993 period primarily reflecting the reduction of interest expense resulting
from the debt transferred to Albemarle as part of the spin-off. On a PRO FORMA
basis, 1994 interest and financing expenses would have decreased $4.2 million
(16%) from 1993 due to a $2.2 million increase in interest capitalized in 1994
and a $9.6-million benefit from a lower average interest rate in 1994 due to the
early redemption of the Company's 93/8% Sinking Fund Debentures in December
1993, partly offset by an increase in interest of about $7.6 million reflecting
higher average debt outstanding during the 1994 period.
Other Expenses (Income), Net
Consolidated other expenses (income), net amounted to $1.2 million expense
in 1994 versus $10 million income in 1993. On a PRO FORMA basis, other expenses
would have been $1.8 million in 1994 versus $8.3 million income in 1993. The
reduction in other income on both a consolidated and PRO FORMA basis primarily
results from the inclusion in 1993 of a gain of about $5.9 million on the sale
of a financial-services subsidiary as well as lower interest income and certain
charges associated with the sale of Whitby, Inc., in 1994.
Income Taxes
Consolidated income-tax expense in 1994 was essentially even with 1993,
reflecting a lower 1994 effective tax rate (30.7% in 1994 versus 32.6% in 1993)
on a 6% increase in income before income taxes, extraordinary item and
discontinued insurance operations. On a PRO FORMA basis, income taxes in 1994
would have increased 48%, reflecting a 30% increase in income before income
taxes, extraordinary item and discontinued insurance operations, as well as a
higher effective income tax rate (30% in 1994 versus 26.2% in 1993). Both the
consolidated and PRO FORMA effective tax rates reflected various tax benefits
(1994 - from the sale of Ethyl's pharmaceuticals subsidiary, Whitby, Inc.; 1993
- from the downsizing of Whitby Research, Inc., and from the sale of a
financial-services subsidiary). The 1993 rates also included one-time charges
from the 1993 tax legislation and also reflected the absence of a tax benefit on
operating losses of the Company's former Belgian subsidiary, which was included
as part of the spin-off of Albemarle. (See Note 16 of Notes to Financial
Statements beginning on page 41 for details of changes in consolidated effective
income-tax rates.)
Discontinued Insurance Operations
The Company spun off its approximately 80% interest in First Colony on July
1, 1993. Accordingly, no income from the insurance operations was reported in
the 1994 period, whereas $90.5 million was reported in the 1993 period.
1993 COMPARED TO 1992
Net Sales
Consolidated net sales for 1993 increased $245.8 million (15%) to $1.94
billion from $1.69 billion in 1992. The increase included $222.5 million from
higher shipments and $23.3 million from higher selling prices. The increased
shipments primarily reflected the acquisitions of Amoco's petroleum additives
business in June 1992, a lubricant additives business in Japan at the end of
1992 (which increased net sales about $62 million) and the organic and inorganic
brominated compounds business of Potasse et Produits Chimiques (PPC) in February
1993 (which increased net sales about $71 million). Additional increases were
due to higher shipments of linear and poly alpha olefins and zeolites, partially
offset by lower selling prices. Shipments of flame retardants and pharmaceutical
products also were higher. Revenues from lead antiknocks were down due to lower
shipments, as expected, partly offset by higher selling prices.
Costs & Expenses
Consolidated cost of goods sold in 1993 increased $187.2 million (16%), to
$1.39 billion from $1.20 billion in 1992 primarily due to increased shipments,
mainly reflecting the impact of acquisitions in 1992 and 1993 (discussed
earlier). Other significant factors were higher operating costs (including
depreciation of the new Belgian linear alpha olefin facility) due to low
capacity utilization at the Feluy, Belgium, and Houston, Texas, olefin
manufacturing facilities and higher maintenance and repair expenses ($96.9
million in 1993 versus $83.5 million in 1992) resulting partly from scheduled
plant turnarounds at Feluy and Houston and $8 million higher environmental
expenses, of which $4.4 million related to the operation of newly acquired
facilities. These items were partly offset by slightly lower per-unit raw
material costs, the nonrecurrence of $12.7 million of start-up costs in 1992 at
the new linear alpha olefin facility in Feluy and a favorable foreign exchange
effect. In addition, lead antiknock product costs were lower because of product
source (a higher percentage of lower-cost, self-produced product was sold in
1993 than in 1992, when a larger quantity and higher percentage of purchased
material was sold).
Average raw-material unit costs decreased during 1993 from 1992. Ethylene,
process oil, aluminum metal, 2-ethyl-1-hexanol and isobutylene costs were lower.
Polybutene costs were higher. Average energy unit costs were mixed.
Natural gas prices were higher in 1993 than in the prior year, but
electricity costs were lower.
Gross profit margin decreased to 28.5% in 1993 from 29.2% in 1992 primarily
due to continuing high costs at the olefin manufacturing facilities as well as
the impact of low profit margins from the PPC operations, which reflected the
recession in Europe.
Consolidated selling, general and administrative expenses combined with
research, development and testing expenses in 1993 were $348.4 million, an
increase of 12% over 1992. The increase reflected the impact of the PPC and
petroleum additives acquisitions, a $15.3-million increase in research,
development and testing expenses, a $10.4-million increase in employee-related
expenses and a $5.2-million increase in expenses for outside consulting,
partially offset by the favorable effect of foreign-exchange rates and the $1.6-
million recovery of prior years' legal fees resulting from settlement of a
lawsuit in 1993. The additional research, development and testing expenses are
due mainly to changes in the lubricant additives market and efforts to integrate
the lubricant additives products and technologies acquired from Amoco in 1992.
Consolidated selling, general and administrative and research, development
and testing expenses as a percentage of consolidated net sales decreased
slightly to 18% in 1993 from 18.3% in 1992.
Special Charges
Consolidated special charges in 1993 amounted to $36.1 million ($22.4
million after income taxes, or $.19 per share), while 1992 had a special charge
of $9.5 million ($6 million after income taxes, or $.05 per share).
The major components of the 1993 special charges included $14.2 million
related to ceasing production at Ethyl's Canadian subsidiary's lead antiknock
facility (of which $11.4 million was a noncash write-down of facilities), $6
million for downsizing costs of Whitby Research, Inc., $8.3 million for
relocation of employees primarily in petroleum additives and other related costs
as well as $7.6 million for work-force reductions in the U.S. and Europe. The
work-force reductions and relocations were expected to be completed during 1994.
In 1992 the special charge included estimated relocation and related
expenses in connection with the transfer of Petroleum Additives Division R&D
personnel from St. Louis, Missouri, to Richmond, Virginia, which was expected to
be completed after the mid-1994 opening of the new research facilities.
Operating Profit
Consolidated operating profit in 1993 decreased 4% from 1992. However, 1993
included special charges of $36.1 million (discussed previously), while 1992
included a special charge of $9.5 million (also discussed previously). Excluding
the effects of these special charges, 1993 operating profit increased 11% from
1992. The increase was due to higher lubricant additives profit mainly
reflecting the increased 1993 volumes resulting from 1992 acquisitions, partly
offset by higher operating costs resulting from an inventory-reduction program;
higher antiknock profit mainly reflecting lower product costs; higher profit
from fuel additives other than antiknocks, primarily due to higher shipments
partly resulting from 1992 acquisitions; improved poly alpha olefin results
reflecting higher shipments and operating margins; higher zeolite profit due
mainly to additional volume; and a favorable foreign-exchange impact. Partly
offsetting factors were lower linear alpha olefin profit due to higher operating
costs, offset in part by higher shipments; lower alcohols profit due to lower
shipments and margins; lower bromine chemicals profit due to lower selling
prices and higher product costs; and lower pharmaceutical-intermediates profit
primarily due to lower margins offset in part by higher shipments.
Interest & Financing Expenses
Consolidated interest and financing expenses in 1993 decreased $18.2 million
(29%) from 1992, of which about $15.5 million was due to lower average
outstanding long-term debt, with the remainder primarily reflecting slightly
lower average interest rates (7.2% in 1993 versus 7.5% in 1992).
Other Income, Net
Consolidated other income, net, increased to $10 million from $1.5 million
in 1992 primarily due to a gain of about $5.9 million on the sale in 1993 of a
financial-services subsidiary. Also, 1992 other income reflected $1.8 million in
losses on non-operating assets.
Income Taxes
Consolidated income-tax expense in 1993 decreased 56% from 1992, reflecting
a 35% reduction in pretax income before extraordinary item, cumulative effect of
accounting changes and discontinued insurance operations as well as a lower
effective income-tax rate (32.6% in 1993 versus 48.1% in 1992). The 1993 rate
reflected a deferred-tax benefit (realized in 1994) in connection with the down-
sizing of Whitby Research in addition to other favorable tax credits, which were
partly offset by (1) the absence of a tax benefit in 1993 on significant
operating losses of the Company's Belgian subsidiary and (2) a nonrecurring
deferred-tax charge in 1993 and additional taxes on the first-half 1993 earnings
of the spun-off insurance business resulting from 1993 Federal income-tax
legislation. In addition, the 1992 rate reflected a high tax rate on the gain on
the sale of 20% of the Company's interest in First Colony due to a lower tax
basis than book basis.
See Note 16 of Notes to Financial Statements on Page 41 for details of
changes in effective income-tax rates.
Extraordinary Item
In December 1993, the Company redeemed its $116.25-million 93/8% Sinking
Fund Debentures at a premium, resulting in an after-tax charge of $5 million
($.04 per share).
Discontinued Insurance Operations
The Company's interest in First Colony's income after income taxes decreased
44% to $90.5 million in 1993 from $162.5 million in 1992. The decline resulted
from the spin-off of the Company's 80% interest in First Colony on July 1, 1993,
whereby six months of income was reported in the 1993 period versus 12 months of
income from the Company's then-100% interest in the discontinued insurance
operations that was reported in the 1992 period.
Accounting Changes
In the fourth quarter of 1992, the Company changed its method of accounting
for postretirement health benefits and its method of accounting for deferred
income taxes, both retroactive to January 1, 1992, in accordance with FASB
Statement Numbers 106 and 109, respectively.
By changing to the accrual method of accounting for postretirement health
benefits, the Company recognized a consolidated cumulative noncash charge of
$54.5 million, or $34.3 million, net of income taxes, and increased its 1992
annual consolidated expenses to approximately $7.1 million from $3.1 million. By
changing its method of accounting for income taxes, the Company also decreased
its deferred income-tax liability and increased consolidated net income by $19.6
million. The combined cumulative net charge amounted to $14.7 million ($.12 per
share). (See Notes 15 and 16 of Notes to Financial Statements beginning on page
39 for details.)
INFORMATION ABOUT SIGNIFICANT PRODUCT LINES
Lead antiknock compounds, which are sold worldwide to petroleum refiners,
remain one of the Company's most significant product lines. The Company
estimates that it accounts for approximately one-third of the total worldwide
sales of lead antiknock compounds.
Lead antiknock compounds have been subject to regulations restricting the
amount of the product that can be used in gasoline in the United States since
the 1970s and in Canada since 1990. The North American market for these products
in motor vehicles has effectively been eliminated, but the market for their use
in piston aircraft and certain other applications has remained at about the same
level for years and is expected to remain stable. As the Company has fore-cast
and planned, the market for these products in other major markets, particularly
Western Europe, continues to decline as the use of unleaded gasoline grows.
The contribution of lead antiknock compounds to the Company's consolidated
net sales was about 22% in 1994, 13% in 1993 and about 16% in 1992. The lead
antiknock profit contribution to the Company's consolidated operating profit,
excluding allocation of corporate expenses, is estimated to have been 56% in
1994, 49% in 1993 and 50% in 1992. Excluding the 1994 environmental special
charge, the 1994 lead antiknock profit contribution would have been about 58%.
Excluding the 1993 special charges related to the planned cessation of lead
antiknock compound production at the Company's Canadian subsidiary's plant, the
1993 lead antiknock profit contribution would have been about 52%.
On a PRO FORMA basis, the contribution of lead antiknock compounds to net
sales would have been 25% in 1994, 25% in 1993 and 32% in 1992. The contribution
to operating profit would have been 60% in 1994, 70% in 1993 and 79% in 1992 on
a PRO FORMA basis. Excluding the 1994 and 1993 special charges, the contribution
to PRO FORMA operating profit would have been 62% in 1994 and 72% in 1993. In
recent years, the Company has been able to offset a continuing decline in
shipments of lead antiknock compounds with higher margins due primarily to
increases in selling prices. Any further decline in the use of lead antiknocks
would adversely affect such sales and profit contributions unless the Company
can offset such declines with higher margins.
Prior to March 1994, the Company produced a portion of its lead antiknock
requirements at its Canadian subsidiary's plant, and prior to July 1994 the
Company obtained additional quantities under a supply agreement with E. I.
DuPont de Nemours & Company. On January 11, 1994, the Company announced an
agreement with The Associated Octel Company Limited (Octel) of London under
which Octel has agreed to allocate a portion of its production capacity of lead
antiknock compounds to Ethyl for sale and distribution through the Company's
worldwide network, and, as a result, the Company's Canadian subsidiary ceased
production of lead antiknock compounds near the end of March 1994. The Octel
agreement continues as long as Ethyl determines that a market continues to exist
for lead antiknock compounds. Under the agreement with Octel, the Company has
the right to purchase from Octel antiknock compounds that the Company estimates
will be sufficient to cover its needs in any contract year. Purchases are at a
fixed initial price per pound with periodic escalation and adjustments.
In addition to the supply agreement, Octel and Ethyl agreed that Ethyl will
distribute for Octel any of its lead antiknock compounds that are shipped in
bulk aboard oceangoing vessels.
The Company believes the agreements with Octel assure it of an ongoing
efficient source of supply for lead antiknock compounds as the worldwide demand
for these products continues to decline. It does not anticipate that the
cessation of its Canadian subsidiary's antiknock operations and the entry into
the Octel supply agreement will adversely affect its relations with its
customers, nor will these changes have a material effect on its future results
of operations. Ethyl and Octel continue to compete vigorously in sales and
marketing of lead antiknock compounds.
Ethyl also sells a manganese-based antiknock compound, HiTEC(R) 3000
performance additive (MMT), which is manufactured by Albemarle under a long-term
contract with Ethyl, and is used in unleaded gasoline primarily in Canada. Ethyl
conducted extensive testing of this product prior to filing a request in 1990
for a fuel-additive waiver from the United States Environmental Protection
Agency (EPA) that is required in order to begin marketing the additive for use
in unleaded gasoline in the United States. The Company voluntarily withdrew its
waiver application in November 1990 after public hearings and detailed exchanges
of information with the EPA, when the EPA raised several health and
environmental questions near the end of the 180-day statutory review period. The
Company continued testing and filed a new waiver request in July 1991, followed
by additional public hearings and detailed exchanges of information with the
EPA.
In January 1992, the EPA denied the Company's application for a waiver. An
appeal was filed with the United States Court of Appeals for the District of
Columbia Circuit contesting the EPA's denial of the application for a waiver for
the use of the additive in unleaded gasoline. In April 1993, the Court remanded
the case to the EPA for reconsideration within 180 days of its denial of the
Company's waiver application, directing the EPA to consider new evidence and
make a new decision.
On November 30, 1993, the EPA determined that emissions data contained in
the Company's application satisfied all Clean Air Act standards, but reported
that it was not able to complete its assessment of the overall public-health
implications of manganese. The Company and the EPA mutually agreed to an 180-day
extension, later extended for an additional six weeks to resolve this last
remaining issue.
In July 1994, the EPA refused to grant the waiver for the use of the
additive in unleaded gasoline, finding that there was insufficient data to
alleviate its concerns about the overall public-health implications of manganese
despite EPA's own statements acknowledging the favorable health effects of MMT.
Ethyl filed an appeal in July 1994 with the United States Court of Appeals for
the District of Columbia Circuit seeking relief from the EPA's actions. The
Court heard oral arguments in Ethyl's appeal on January 13, 1995, and it is
anticipated that a decision will be made before the Court's term ends in early
June.
In a related matter, Ethyl is awaiting the establishment of a briefing
schedule in a lawsuit challenging the EPA's July 13, 1994, determination that
Ethyl must complete additional manganese health testing before it can obtain a
"registration" under the Clean Air Act for sale of MMT as an unleaded gasoline
fuel additive. Based on the long history of use of MMT in the U.S., Ethyl
maintains that MMT is currently registered for use in unleaded gasoline as well
as in leaded gasoline.
In the meantime, in Canada, the federal government is examining claims made
by the Motor Vehicle Manufacturers Association of Canada (MVMA) about MMT's
compatibility with automobile exhaust emissions systems. Ethyl believes that the
MVMA has made its claims without the support of credible study or test data. The
Company has joined the Canadian Petroleum Products Institute in calling for an
independent panel to review the merits of the additive. The Canadian government
is still studying this proposal.
Ethyl also is working with the government of British Columbia and a task
force of the Canadian Council of Ministers of the Environment, which both have
initiated consultations with gasoline refiners, automobile manufacturers and
others with respect to the potential development of new vehicle emission and
efficiency standards and fuel formulations.
The Company has shared with Canadian federal and provincial governments
extensive test data demonstrating that the additive, which has been used in
almost all unleaded Canadian gasoline for nearly 18 years, provides vital
environmental benefits including significant reductions in smog-causing
automobile emissions of nitrogen oxides as well as reductions in benzene and
other dangerous emissions.
FINANCIAL CONDITION & LIQUIDITY
Cash and cash equivalents at December 31, 1994, were $31.2 million, which
represents a decrease of $17 million from $48.2 million at year-end 1993. The
decrease 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 spin-off.
Consolidated cash flows from operating activities of $122.2 million,
together with $47.4 million in additional long-term debt and $60.5 million from
the sale of Whitby, Inc., in September 1994, were used primarily to provide
funds for capital expenditures of $147.3 million, to pay regular quarterly cash
dividends to shareholders totalling $62.2 million, as well as partly replace the
reduction of $29.3 million in cash and cash equivalents, which occurred as part
of the spin-off of Albemarle.
Consolidated cash flows from operating activities in 1993 of $140.1 million,
supplemented by additional long-term debt of $360.4 million, were used primarily
to provide funds for capital expenditures of $205 million, to acquire the
organic and inorganic brominated compounds business of Potasse et Produits
Chimiques (PPC) from Rhone-Poulenc S.A. in February 1993 and to make a further
payment in connection with the acquisition of the lubricant additives business
in Japan (total outlay for acquisitions of approximately $125.4 million), to pay
regular quarterly dividends to shareholders totalling $71 million and to repay
long-term debt. Long-term debt of $230.4 million was repaid in 1993, of which
$100 million represented the 11% Notes due in 1995 that were repaid on January
11, 1993, with a like amount of short-term securities reserved for this purpose
at December 31, 1992. The balance of $130.4 million included the early repayment
on December 15, 1993, of the Company's $116.25-million 93/8% Sinking Fund
Debentures due in 2016, and the remaining amount consisted of scheduled debt
repayments.
The Company anticipates that cash provided from operations in the future
will be sufficient to cover the Company's operating expenses, service debt
obligations (including reducing long-term debt from the amount outstanding at
December 31, 1994) and make dividend payments to shareholders. With respect to
operating expenses, management expects that, due to an increase in the discount
rates used for actuarial calculations in connection with the Company's pension
and postretirement benefit plans, these expenses will decline in 1995.
Ethyl's long-term debt, all of which is noncurrent, amounted to $349.8
million at December 31, 1994, representing a reduction in long-term debt of
about $337.2 million from December 31, 1993. The reduction results primarily
from $384.9 million transferred to Albemarle in connection with the spin-off,
consisting of $303.4 million of variable-rate bank debt and $81.5 million
primarily of foreign bank debt, net of $47.4 million borrowed by Ethyl during
the year. About $14.1 million of current foreign bank debt also was transferred.
(See Note 10 of Notes to Financial Statements on page 37 for details of the
Company's long-term debt.) The Company's consolidated long-term debt as a
percent of long-term debt plus shareholders' equity was 47.2% at December 31,
1994, versus 47.7% at December 31, 1993. The Company targets a range of
approximately 30% to 50% for its long-term debt ratio.
The Company's capital-spending program in the near future is expected to be
substantially lower than in the recent past, reflecting the completion or near
completion of major construction and expansion programs in 1994 and early 1995.
These projects primarily include completion in 1994 of Ethyl's new Research
Center in Richmond, Virginia, as well as completed or nearly completed lubricant
additive manufacturing facilities to expand capacity and replace production
provided by Amoco under a short-term supply agreement. Capital spending during
the next few years will be financed with cash provided from operations.
Ethyl's acquisitions are normally for cash and are funded through internal
and external sources, including the use of existing credit lines and long-term
debt. The proceeds from occasional sales of businesses normally are used to
repay long-term debt.
The amount and timing of additional borrowing or issuance of stock will
depend on the Company's specific cash requirements. The Company has recently
filed a shelf-registration statement for up to $300 million of debt securities
and/or preferred stock should the need arise.
Environmental Matters
The Company is subject to Federal, state and local requirements regulating
the handling, manufacture and use of materials (some of which may be classified
as hazardous or toxic by one or more regulatory agencies), the discharge of
materials into the environment and the protection of the environment. It is the
Company's policy to comply with these requirements and to provide workplaces
that are safe, healthful and environmentally sound for employees and that will
not adversely affect the safety, health or environment of communities in which
Ethyl does business. The Company believes that as a general matter its policies,
practices and procedures are properly designed to prevent any unreasonable risk
of environmental damage, and of resulting financial liability, in connection
with its business.
To the best of the Company's knowledge, Ethyl currently is complying with,
and expects to continue to comply in every material respect with, all existing
environmental laws, regulations, statutes and ordinances even though compliance
with government pollution-abatement and safety regulations usually increases
operating costs and requires remediation costs and investment of capital that in
some cases produce no monetary return. Such compliance with Federal, state,
local and foreign environmental-protection laws has not in the past had, and is
not expected to have in the future, a material effect upon the Company's
financial position.
Consolidated environmental operating and remediation costs charged to
expense were approximately $31 million in 1994, $61 million in 1993 and $51
million in 1992 (excluding depreciation of previous capital expenditures).
On a PRO FORMA basis, operating and remediation costs were approximately $24
million (which includes the $8-million environmental special charge) in 1994,
$13 million in 1993, and $12 million in 1992, and are expected to be somewhat
higher in the next few years than in 1993 and 1992. The ongoing cost of
operations was about $11 million in 1994 and $6 million in 1993 and 1992 with
the balance representing remediation and monitoring costs incurred or accrued.
Consolidated capital expenditures for pollution-abatement and safety
projects, including such costs that are included in other projects, were
approximately $16 million in 1994, versus $30 million in 1993 and $29 million in
1992.
On a PRO FORMA basis, such expenditures were $14 million in 1994, $4 million
in 1993 and $7 million in 1992. For each of the next few years, capital
expenditures for these types of projects are likely to decrease from current
levels, reflecting a generally lower capital-expenditures program.
Management's estimates of the effects of compliance with governmental
pollution-abatement and safety regulations are subject to (1) the possibility of
changes in the applicable statutes and regulations or in judicial or
administrative construction of such statutes and regulations, (2) uncertainty as
to whether anticipated solutions to pollution problems will be successful or
whether additional expenditures may prove necessary and (3) the possibility that
emerging technology will change remediation methods and reduce remediation and
monitoring costs.
Among other environmental requirements, the Company is subject to the
Federal Superfund law, and similar state laws, under which the Company may be
designated as a Potentially Responsible Party (PRP) and may be liable for a
share of the costs associated with cleaning up various hazardous-waste sites.
For sites where Ethyl has been named a PRP, in all but two cases, the Company
has been able to demonstrate it is only a DE MINIMIS participant (actual or
estimated cost for Ethyl's share is less than $50,000) or a minor participant
(actual or estimated cost for Ethyl's share is less than $300,000). Further,
almost all such sites, including the two largest, represent environmental issues
that are quite mature and have been investigated, studied and, in many cases,
including the two largest, the remediation methodology and the proportionate
shares of each PRP have been established, and the financial viability of the
other PRPs is reasonably assured. Therefore, point estimates for remediation and
monitoring costs had been accrued previously, and some or all of the remediation
has been completed. At some sites where remediation is not complete, including
one of the largest, the remediation and monitoring probably will continue for
extended periods of time.
In DE MINIMIS PRP matters and in some minor PRP matters, the Company's
policy generally is to negotiate a consent decree and to pay any apportioned
settlement, enabling the Company to be effectively relieved of any further
liability as a PRP, except for remote contingencies.
In PRP matters other than those that are DE MINIMIS, the Company's records
indicate that unresolved exposures are not material individually or in the
aggregate to Ethyl's financial statements.
The Company reviews the status of significant existing or potential
environmental issues, including PRP matters, accrues and expenses its
proportionate share of environmental remediation and monitoring costs in
accordance with FASB Statement No. 5 and FASB Interpretation No. 14 and adjusts
reserves, as appropriate, on the basis of additional information. The total
gross liabilities accrued at December 31, 1994, were approximately $38.4
million, with insurance recoveries expected for a significant portion of this
amount. In addition, the Company has contingent liabilities for environmental
remediation costs associated with past operations. Management expects accrued
and contingent amounts may be reduced as emerging technologies are proved to be
viable. The Company believes that the costs of remediation of current sites,
which will occur over an extended period of time, will not have a material
adverse impact on its consolidated financial position but possibly could have a
material effect when ultimately resolved, on results of operations in a given
year.
INTRODUCTION TO GEOGRAPHIC AREAS: The following table includes the results and
accounts of the businesses spun off as Albemarle Corporation through the
spin-off date at the close of business on February 28, 1994.
GEOGRAPHIC AREAS:
(In Thousands)
1994 1993 1992 1991 1990
Net sales:
Domestic unaffiliated:
United States $ 502,427 $ 969,438 $ 829,432 $ 712,826 $ 778,127
Export 217,067 338,944 352,596 323,564 279,639
Transfers to foreign affiliates 210,884 258,966 270,887 331,751 313,068
Foreign unaffiliated 454,592 630,008 510,554 498,181 533,174
Elimination of transfers (210,884) (258,966) (270,887) (331,751) (313,068)
Total $1,174,086 $1,938,390 $1,692,582 $1,534,571 $1,590,940
Operating profit: (b)(c)
Domestic $ 149,847 $ 161,590 $ 174,870 $ 178,776 $ 178,538
Foreign 44,828 42,392 35,068 52,058 50,833
Subtotal 194,675 203,982 209,938 230,834 229,371
Unallocated expenses (26,933) (36,377) (36,116) (38,169) (35,877)
Operating profit 167,742 167,605 173,822 192,665 193,494
Interest and financing expenses (25,378) (44,085) (62,279) (59,097) (64,839)
Gain on sale of 20% of First Colony Corporation - - 93,600 - -
Gain on sale of Hardwicke Chemical Company - - - - 78,993
Other (expenses) income, net (1,218) 9,987 1,475 1,652 8,110
Income before income taxes, extraordinary item,
cumulative effect of accounting changes and
discontinued insurance operations $ 141,146 $ 133,507 $ 206,618 $ 135,220 $ 215,758
Identifiable assets:
Domestic $ 642,814 $1,250,650 $1,155,860 $ 975,415 $ 894,269
Foreign 265,506 628,830 517,390 484,498 407,501
Non-operating assets 122,095 129,718 205,648 110,592 83,873
Net assets of discontinued insurance operations - - 658,550 909,876 775,523
Total $1,030,415 $2,009,198 $2,537,448 $2,480,381 $2,161,166
Refer to notes on page 26.
Domestic operating profit includes profit from U.S. export sales and profit
from sales to foreign affiliates of products that are resold in foreign markets.
Intercompany transfers from foreign areas to the United States are not material.
Transfers between geographic areas are made at prices intended to reflect arm's-
length pricing.
Consolidated net unaffiliated sales of foreign subsidiaries for 1994
decreased 28% from 1993 primarily reflecting the inclusion of Albemarle's
foreign unaffiliated sales for two months in 1994 versus 12 months in 1993.
Consolidated net unaffiliated sales of foreign subsidiaries for 1993 increased
23% over 1992, primarily due to the PPC acquisition and the acquisition of a
lubricant additives business in Japan.
On a PRO FORMA basis, net unaffiliated sales of foreign subsidiaries in 1994
would have been about $413.4 million, down about 2% from some $422.7 million in
1993. Most of the decrease was due to lower lead antiknock sales by Ethyl's
Canadian subsidiary, following the cessation of lead antiknock production at the
Canadian lead antiknock manufacturing facility in early 1994, and slightly lower
sales of lubricant and fuel additives in the Far East.
Consolidated export sales decreased 36% in 1994 from 1993, primarily
reflecting the inclusion of only two months of Albemarle's export sales in 1994
versus 12 months of export sales in 1993. Consolidated export sales decreased 4%
in 1993 from 1992. This decrease was due to a decline in shipments of lead anti-
knocks and alpha olefins to Europe, partially offset by increases in shipments
of lead antiknocks to Latin America and of lubricant additives to the Far East.
On a PRO FORMA basis, export sales would have been about $191.5 million in
1994, down about 2% from $194.4 million in 1993 due to lower shipments of lead
antiknocks and lubricant and fuel additives to the Far East, partly offset by
increased antiknock shipments to Latin America.
Consolidated foreign operating profit for 1994 increased 6% from 1993,
reflecting primarily the effect of the spin-off, whereby Albemarle's foreign
subsidiaries' operating losses are included only for the first two months of
1994 versus the inclusion of 12 months of operating losses for 1993, and the
1993 special charge of $14.2 million related to the shutdown of Ethyl's Canadian
subsidiary's lead antiknock facility, partially offset by lower operating profit
in 1994 following the cessation of lead antiknock production by Ethyl's Canadian
subsidiary. Consolidated foreign operating profit for 1993 increased 21% from
1992 due to the acquisition of the lubricant additives business in Japan and
favorable foreign-exchange effects, partially offset by the $14.2-million
special charge related to the shutdown of the Canadian subsidiary's lead
antiknock facility.
On a PRO FORMA basis, foreign operating profit in 1994 was about $47.2
million, down from approximately $58.1 million in 1993, because of lower lead
antiknock sales by the Company's Canadian subsidiary following the cessation of
lead antiknock manufacturing at this facility, partially offset by the charge
for write-down of the facility in 1993.
Consolidated total assets were $1,030.4 million at the end of 1994, a
decrease of $978.8 million from $2,009.2 million at the end of 1993, primarily
reflecting the effect of the spin-off of Albemarle. The $2,009.2 million in
total assets at the end of 1993 represented an increase of $130.3 million from
$1,878.9 million, excluding the net assets of the discontinued insurance
operations, at the end of 1992. The increase in operating assets in 1993
primarily reflected capital expenditures for new plants and expansions in the
U.S. and the acquisition of PPC in France.
The decrease in non-operating assets in 1994 was due to the spin-off of
Albemarle, while the decrease in 1993 primarily reflected the use of $100
million in short-term securities reserved at December 31, 1992, for redemption
of the Company's $100-million 11% Notes on January 11, 1993.
INTRODUCTION TO SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA: The following
information includes the results of the businesses spun off as Albemarle
Corporation through the spin-off date at the close of business on February 28,
1994.
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA(a) (In Thousands Except Earnings
Per Share) (Unaudited)
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
Net sales $ 389,082 $ 276,083 $ 244,935 $ 263,986
Gross profit $ 115,541 $ 107,763 $ 86,856 $ 87,418
Special charges (b) $ 638 $ 1,332 $ - $ 750
Net income $ 20,264 $ 30,378 $ 22,494 $ 24,619
Earnings per share $ .17 $ .26 $ .19 $ .21
Shares used to compute earnings per
share 118,462 118,454 118,448 118,441
1993
Net sales $ 469,828 $ 495,038 $ 486,874 $ 486,650
Gross profit $ 131,008 $ 140,486 $ 150,349 $ 130,296
Special charges (c) - $ 2,400 $ 10,600 $ 23,150
Income before extraordinary item and
discontinued
insurance operations $ 26,329 $ 30,825 $ 19,966 $ 12,902
Extraordinary after-tax charge due to
early extinguishment of debt (d) - - - (5,000)
Income before discontinued insurance
operations 26,329 30,825 19,966 7,902
Income from discontinued insurance
operations (e) 45,536 44,947 - -
Net income $ 71,865 $ 75,772 $ 19,966 $ 7,902
Earnings per share:
Income before extraordinary item
and discontinued insurance operations $ .22 $ .26 $ .17 $ .11
Extraordinary after-tax charge (d) - - - (.04)
Income before discontinued insurance
operations .22 .26 .17 .07
Income from discontinued insurance
operations (e) .38 .38 - -
Net income $ .60 $ .64 $ .17 $ .07
Shares used to compute earnings per
share 118,428 118,436 118,444 118,436
NOTES TO FINANCIAL TABLES
(a) Certain 1994 previously reported quarterly amounts and certain prior-year
amounts have been reclassified to conform to current presentation.
(b) Operating profit for 1994 includes a net charge of $2,720 ($1,690 after
income taxes) primarily for an environmental remediation provision and
certain other charges net of the benefit of a legal settlement.
Fourth-quarter adjustments included an $8,000 benefit from a legal
settlement and an $8,000 provision for environmental remediation.
(c) Operating profit for 1993 includes special charges totalling $36,150
($22,400 after income taxes) for the write-down of the Canadian subsidiary's
plant and other costs of $14,200, costs of a work-force-reduction program in
the U.S. and Europe amounting to $7,635 and $14,315 for downsizing costs of
Whitby Research, Inc., and relocation of employees and other related costs.
(d) The extraordinary charge resulted from the early redemption of Ethyl's
$116,250 93/8% Sinking Fund Debentures, net of income taxes of $3,000.
(e) On July 1, 1993, Ethyl completed the spin-off of its 80% interest in First
Colony Corporation, which included the operations of First Colony Life
Insurance Company and subsidiaries. The results of the Insurance business
are reported as discontinued insurance operations.
HOW ETHYL USED THE REVENUES IT RECEIVED (PRO FORMA BASIS, EXCLUDING SPUN-OFF
OPERATIONS)
(In Millions) (Unaudited)
1994
Materials,
services, etc.. . . . . . . . . . . . . . . . . . . $ 698.5 68.7%
Payrolls &
employee benefits . . . . . . . . . . . . . . . . . 103.6 10.2
Regular dividends
declared. . . . . . . . . . . . . . . . . . . . . . 59.2 5.8
Current income &
other taxes . . . . . . . . . . . . . . . . . . . . 41.6 4.1
Interest expense . . . . . . . . . . . . . . . . . 22.5 2.2
For use in the business
including expansion &
modernization . . . . . . . . . . . . . . . . . . . 91.9 9.0
Total revenues . . . . . . . . . . . . . . . . . . $1,017.3 100.0%
DIVIDEND INFORMATION & EQUITY PER COMMON SHARE
On March 3, 1994, the Company's board of directors adjusted the prior common
stock dividend rate to reflect the effect of the dividend to be paid by
Albemarle Corporation, which was spun-off at the close of business on February
28, 1994. The combination of Ethyl's current quarterly dividend rate of $.125
per share or $.50 on an annual basis and the Albemarle dividend, established at
the time of the spin-off, equals the annual dividend rate prior to the spin-off.
Equity per common share at December 31, 1994, was $3.30. This reflects a
reduction from December 31, 1993, due to the dividend of common stock of
Albemarle Corporation, which was equivalent to $3.38 per Ethyl common share
based on book value.
MARKET PRICES OF COMMON STOCK & SHAREHOLDER DATA
The Company's common stock is traded primarily on the New York Stock
Exchange under the symbol EY. The reported high and low prices by quarters for
the years 1994 and 1993 are shown in the following table.
1994 1993
HIGH LOW High Low
First Quarter 19 5/8 11 1/8 30 7/8 26 1/4
Second Quarter 13 3/4 11 30 3/8 27 1/4
Third Quarter 13 5/8 10 3/4 20 7/8 17 1/2
Fourth Quarter 11 3/4 9 1/2 19 1/8 16 3/4
The 1994 prices reflect the effect of the spin-off of Ethyl's wholly owned
subsidiary, Albemarle Corporation, at the close of business on February 28,
1994. Shareholders of record on that date received one share of Albemarle common
stock for every two shares of Ethyl common stock held. There were 118,414,769
shares of Ethyl common stock outstanding on February 28, 1994.
The 1993 prices reflect the effect of the spin-off on July 1, 1993, of
Ethyl's 80-percent investment in First Colony Corporation. Shareholders of
record on June 11, 1993, received approximately one share of First Colony
Corporation common stock for every three shares of Ethyl common stock held. The
exact distribution ratio was .33451 of a share of First Colony for each Ethyl
share. There were 118,381,949 shares of Ethyl common stock outstanding on the
distribution date.
There were 118,434,401 shares of common stock held by 12,606 shareholders of
record as of December 31, 1994.
CONSOLIDATED BALANCE SHEETS
INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS: At the close of
business on February 28, 1994, the Company completed the spin-off of its wholly
owned subsidiary, Albemarle Corporation. The December 31, 1994, balance sheet
accounts reflect the reductions in connection with the spin-off. The operating
results of what is now Albemarle are included in the Consolidated Statements of
Income and Consolidated Statements of Cash Flows for the two months ended
February 28, 1994, and the full years 1993 and 1992. The Company is including
certain PRO FORMA financial statements to illustrate the Company's estimated
financial results excluding the operations and accounts of the businesses spun
off (see Note 2 beginning on page 34).
(In Thousands of Dollars Except Share Data)
December 31 1994 1993
ASSETS
Current assets:
Cash and cash equivalents $ 31,166 $ 48,201
Accounts receivable, less allowance for doubtful
accounts (1994 - $2,395; 1993 - $4,189) 229,477 345,160
Inventories:
Finished goods 118,731 219,001
Work-in-process 9,959 12,419
Raw materials 10,842 32,173
Stores, supplies and other 5,531 27,221
145,063 290,814
Deferred income taxes and prepaid expenses 25,744 49,522
Total current assets 431,450 733,697
Property, plant and equipment, at cost 684,379 1,908,630
Less accumulated depreciation and amortization (250,012) (910,360)
Net property, plant and equipment 434,367 998,270
Other assets and deferred charges 144,856 164,382
Goodwill and other intangibles - net of
amortization 19,742 112,849
TOTAL ASSETS $1,030,415 $2,009,198
See accompanying notes to financial statements.
December 31 1994 1993
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 77,223 $ 154,971
Accrued expenses 73,118 125,704
Long-term debt, current portion - 14,056
Dividends payable 14,807 17,764
Income taxes payable 17,652 14,020
Total current liabilities 182,800 326,515
Long-term debt 349,766 686,986
Other noncurrent liabilities 78,902 99,240
Deferred income taxes 28,010 143,676
Redeemable preferred stock:
Cumulative First Preferred ($100 par value) 6%
Series A - 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 (2,253) (1,757)
Retained earnings 272,050 633,483
390,937 752,581
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,030,415 $2,009,198
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per-Share Amounts)
Years ended December 31 1994 1993 1992
Net sales $ 1,174,086 $1,938,390 $1,692,582
Cost of goods sold 776,508 1,386,251 1,199,096
Gross profit 397,578 552,139 493,486
Selling, general and administrative expenses 144,455 221,384 198,466
Research, development and testing expenses 82,661 127,000 111,698
Special charges 2,720 36,150 9,500
Operating profit 167,742 167,605 173,822
Interest and financing expenses 25,378 44,085 62,279
Gain on sale of 20% interest in First Colony Corporation - - (93,600)
Other expenses (income), net 1,218 (9,987) (1,475)
Income before income taxes, extraordinary item, cumulative
effect of
accounting changes and discontinued insurance
operations 141,146 133,507 206,618
Income taxes 43,391 43,485 99,373
Income before extraordinary item, cumulative effect of
accounting changes
and discontinued insurance operations 97,755 90,022 107,245
Extraordinary after-tax charge due to early extinguishment
of debt - (5,000) -
Income before cumulative effect of accounting changes and
discontinued insurance operations 97,755 85,022 107,245
Cumulative effect of accounting changes for:
Postretirement health benefits (net of tax) - - (34,348)
Deferred income taxes - - 19,616
Total - - (14,732)
Income before discontinued insurance operations 97,755 85,022 92,513
Income from discontinued insurance operations - 90,483 162,472
Net income $ 97,755 $ 175,505 $ 254,985
Earnings per share:
Income before extraordinary item, cumulative effect
of accounting changes
and discontinued insurance operations $ .83 $ .76 $ .90
Extraordinary item - (.04) -
Cumulative effect of accounting changes - - (.12)
Income before discontinued insurance operations .83 .72 .78
Income from discontinued insurance operations - .76 1.37
Net income $ .83 $ 1.48 $ 2.15
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands of Dollars Except Share Data)
Years Ended December 31 1994 1993 1992
SHARES AMOUNTS Shares Amounts Shares Amounts
COMMON STOCK
(AUTHORIZED 400,000,000 SHARES)
Beginning balance 118,405,287 $ 118,405 118,357,515 $ 118,358 118,316,994 $ 118,317
Issued upon exercise of stock options and SARs 75,723 76 75,714 75 59,199 59
Purchased and retired (46,609) (47) (27,942) (28) (18,678) (18)
Ending balance 118,434,401 118,434 118,405,287 118,405 118,357,515 118,358
ADDITIONAL PAID-IN CAPITAL
Beginning balance 2,450 1,708 865
Exercise of stock options and SARs 858 1,374 1,367
Retirement of purchased common stock (602) (621) (524)
Distribution of common stock under bonus plan - (11) -
Ending balance 2,706 2,450 1,708
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Beginning balance (1,757) 9,840 20,993
Translation adjustments 3,647 (11,597) (11,153)
Spin-off of Albemarle Corporation (4,143) - -
Ending balance (2,253) (1,757) 9,840
UNREALIZED GAIN ON MARKETABLE EQUITY SECURITIES
Beginning balance - 64,901 56,640
Unrealized gains - 13,326 8,261
Spin-off of First Colony Corporation - (78,227) -
Ending balance - - 64,901
RETAINED EARNINGS
Beginning balance 633,483 1,206,472 1,022,498
Net income 97,755 175,505 254,985
Cash dividends declared:
First Preferred stock, $6.00 per share (12) (12) (12)
Common stock, $.50 per share in 1994
and $.60 per share in 1993 and 1992 (59,215) (71,033) (70,999)
Dividend of common stock of Albemarle Corporation,
at book value (399,957) - -
Dividend of common stock of First Colony
Corporation,
at book value - (677,449) -
Redemption of 6% First Preferred stock (4) - -
Ending balance 272,050 633,483 1,206,472
TOTAL SHAREHOLDERS' EQUITY $ 390,937 $ 752,581 $1,401,279
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Years ended December 31 1994 1993 1992
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 48,201 $ 162,988 $ 36,031
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before discontinued insurance operations 97,755 85,022 92,513
Adjustments to reconcile income to cash flows from
operating activities:
Depreciation and amortization 53,983 127,456 105,765
Special charges 10,720 36,150 9,500
Gain on sale of subsidiaries (4,150) (6,121) -
After-tax gain on sale of 20% interest in First
Colony Corporation - - (30,200)
Cumulative effect of accounting changes - - 14,732
Deferred income taxes, excluding cumulative
effect of accounting changes 10,262 (7,663) (3,030)
Changes in assets and liabilities, net of
effects from acquisitions:
Income-tax payment on 1992 gain on sale of
20% of First Colony Corporation - (60,552) -
(Increase) decrease in accounts receivable (29,701) (16,268) 3,506
Decrease (increase) in inventories 9,166 (918) (16,807)
(Increase) in prepaid expenses (5,516) (999) (3,140)
(Decrease) increase in accounts payable
and accrued expenses (2,621) (13,686) 43,879
(Decrease) increase in income taxes
payable (6,903) (2,454) 3,231
Other, net (10,775) 166 2,118
Cash provided from operating
activities before discontinued insurance
operations 122,220 140,133 222,067
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (147,260) (205,029) (157,412)
Acquisitions of businesses (net of $5,369 cash
acquired in 1993) - (125,431) (136,500)
Proceeds from sale of 20% interest in First Colony
Corporation - - 256,350
Proceeds from sale of subsidiary 60,500 10,000 -
Other, net (8,234) 537 (4,274)
Cash used in investing activities before
discontinued insurance operations (94,994) (319,923) (41,836)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional long-term debt 47,400 360,448 164,500
Repayment of long-term debt - (230,355) (409,700)
Cash dividends paid (62,184) (71,037) (71,006)
Cash and cash equivalents of Albemarle spun off as a
dividend on February 28, 1994 (29,332) - -
Repurchases of capital stock (649) (649) (543)
Other, net 504 1,448 1,475
Cash (used in) provided from financing
activities before
discontinued insurance operations (44,261) 59,855 (315,274)
Net cash used in operations before discontinued insurance
operations (17,035) (119,935) (135,043)
Cash provided by discontinued insurance operations - 5,148 262,000
(Decrease) increase in cash and cash equivalents (17,035) (114,787) 126,957
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 31,166 $ 48,201 $ 162,988
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION - The consolidated financial statements include the
accounts and operations of Ethyl Corporation and all of its subsidiaries
(the Company). All significant intercompany accounts and transactions
are eliminated in consolidation.
BASIS OF PRESENTATION - At the close of business on February 28,
1994, the Company completed the spin-off of its wholly owned subsidiary,
Albemarle Corporation (Albemarle), in the form of a tax-free stock
dividend to Ethyl common shareholders. The operating results of what is
now Albemarle are included in the Consolidated Statements of Income and
the Consolidated Statements of Cash Flows and related notes to financial
statements for the two months ended February 28, 1994, and the full
years 1993 and 1992. The December 31, 1994, Consolidated Balance Sheet
and related notes to financial statements reflect reductions in
connection with the spin-off.
On July 1, 1993, the Company completed the spin-off of its then
80-percent interest in First Colony Corporation (First Colony) in the
form of tax-free stock dividend to Ethyl common shareholders. The
Company has accounted for the financial results and net assets of First
Colony prior to the spin-off as a discontinued insurance operation in
accordance with Accounting Principles Board (APB) Opinion No. 30.
FOREIGN CURRENCY TRANSLATION - The financial statements of all
foreign subsidiaries were prepared in their respective local currencies
and translated into U.S. dollars based on the current exchange rate at
the end of the period for the balance sheet and a weighted-average rate
for the period on the statement of income. Translation adjustments (net
of deferred income tax benefits of $1,481,000 and $1,164,000 in 1994 and
1993, respectively, and a deferred income-tax charge of $5,716,000 in
1992) are reflected as foreign currency translation adjustments in
Shareholders' Equity and accordingly have no effect on net income.
Transaction adjustments for all foreign subsidiaries are included in
income.
INVENTORIES - Inventories are stated at the lower of cost or market,
with cost determined on the last-in, first-out (LIFO) basis for
substantially all domestic inventories, and on either the
weighted-average cost or first-in, first-out basis for other
inventories. Cost elements included in work-in-process and
finished-goods inventories are raw materials, direct labor and
manufacturing overhead. Raw materials include purchase and delivery
costs. Stores and supplies include purchase costs.
PROPERTY, PLANT & EQUIPMENT - Accounts include costs of assets
constructed or purchased, related delivery and installation costs and
interest incurred on significant capital projects during their
construction periods. Expenditures for renewals and betterments also are
capitalized, but expenditures for repairs and maintenance are expensed
as incurred. The cost and accumulated depreciation applicable to assets
retired or sold are removed from the respective accounts, and gains or
losses thereon are included in income. Depreciation is computed
primarily by the straight-line method based on the estimated useful
lives of the assets.
ENVIRONMENTAL COMPLIANCE & REMEDIATION Environmental-compliance
costs include the cost of purchasing and/or constructing assets to
prevent, limit and control pollution or to monitor the environmental
status at various locations. These costs are capitalized and depreciated
based on estimated useful lives.
Environmental-compliance costs also include maintenance and
operating costs with respect to pollution-prevention-and-control
facilities and administrative costs. Such operating costs are expensed
as incurred.
Environmental remediation costs of facilities used in current
operations are generally immaterial and are expensed as incurred.
Remediation costs and post- remediation costs including postremediation
monitoring costs at facilities or off-plant-disposal sites that relate
to an existing condition caused by past operations are accrued as
liabilities and expensed when costs can be reasonably estimated.
GOODWILL & OTHER INTANGIBLES - Goodwill acquired prior to November
1, 1970 ($1,652,000) is not being amortized. Goodwill acquired
subsequently ($9,815,000 and $75,333,000 at December 31, 1994 and 1993,
respectively, net of accumulated amortization) is being amortized on a
straight-line basis, over a period of 10 years. Other intangibles
($8,275,000 and $35,864,000 at December 31, 1994 and 1993, respectively,
net of accumulated amortization) are being amortized on a straight-line
basis primarily over periods from three to seven years. Goodwill and
other intangibles were reduced during the year due to the spin-off of
Albemarle and the sale of Whitby, Inc. Amortization of goodwill and
other intangibles amounted to $9,379,000 for 1994, $14,464,000 for 1993
and $9,508,000 for 1992. Accumulated amortization of goodwill and other
intangibles was $13,256,000 and $41,058,000 at the end of 1994 and 1993,
respectively.
PENSION PLANS & OTHER POSTEMPLOYMENT BENEFITS Annual costs of
pension plans are determined actuarially based on Financial Accounting
Standards Board (FASB) Statement No. 87, "Employers' Accounting for
Pensions." The policy of the Company is to fund its U.S. pension plans
at amounts not less than the minimum requirements of the Employee
Retirement Income Security Act of 1974. Annual costs of other
postretirement plans are accounted for based on FASB Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
The policy of the Company is to fund its postretirement health benefits
for retirees on a pay-as- you-go basis. Annual costs of other
postemployment plans for employees who leave the Company for reasons
other than retirement are immaterial and are accounted for based on FASB
Statement No. 112, "Employers' Accounting for Postemployment Benefits."
The Company's policy is to fund such benefits on a pay-as-you-go basis.
PROFIT-SHARING & EMPLOYEE SAVINGS PLAN - The Company's employees
participate in the Ethyl-defined contribution 401(k) profit-sharing and
employee savings plan, which is generally available to all full-time and
non-union hourly employees. Certain other employees are covered by a
collective bargaining agreement pursuant to the terms of such agreement.
The plans are funded with contributions by participants and the Company.
Expenses recorded for the 401(k) plans related to the Company in 1994,
1993, and 1992 were $2,879,000, $7,478,000, and $6,788,000,
respectively.
RESEARCH, DEVELOPMENT & TESTING EXPENSES Company-sponsored research,
development and testing expenses related to present and future products
are expensed currently as incurred. Research and development expenses
determined in accordance with FASB Statement No. 2, "Accounting for
Research and Development Costs," were $49.7 million, $75.6 million and
$73.8 million in 1994, 1993 and 1992, respectively.
INCOME TAXES - Income taxes are determined based on FASB Statement
No. 109, "Accounting for Income Taxes." Deferred tax liabilities and
assets are recognized for the expected future tax consequences of events
that have been included in the financial statements or tax returns.
Deferred tax liabilities and assets are determined based on differences
between financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
DERIVATIVE INSTRUMENTS & HEDGING OF FOREIGN CURRENCY EXPOSURES - The
Company's current policy is not to make use of derivative financial
instruments. The Company's policy is to manage foreign currency exposure
by maintaining assets and liabilities in approximate balance for each of
the major foreign currencies to which the Company has risk exposure. At
December 31, 1994, the Company was not a party to any derivative
financial instruments.
EARNINGS PER SHARE - Earnings per share is computed after deducting
applicable preferred stock dividends from net income and using the
weighted- average number of shares of common stock and common stock
equivalents outstanding during the year. The numbers of shares used in
computing earnings per share were 118,451,000 in 1994, 118,436,000 in
1993 and 118,380,000 in 1992.
2. SPIN-OFF OF ALBEMARLE CORPORATION:
At the close of business on February 28, 1994, Ethyl completed the
spin-off of its wholly owned subsidiary, Albemarle, in the form of a
tax-free stock dividend. Following the spin-off, Albemarle owns,
directly or indirectly, the olefins and derivatives, bromine chemicals
and specialty chemical businesses formerly owned directly or indirectly
by the Company. One share of Albemarle common stock was distributed to
Ethyl common shareholders for every two shares of Ethyl common stock
held.
The December 31, 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 supplemental
information is provided regarding the accounts of Albemarle spun off at
the close of business on February 28, 1994:
(In Thousands)
February 28, 1994
ASSETS
Current assets:
Cash & cash equivalents $ 29,332
Accounts receivable, less allowance
for doubtful accounts 147,513
Inventories 137,624
Deferred income taxes & prepaid expenses 16,059
Total current assets 330,528
Property, plant & equipment 1,355,537
Less accumulated depreciation (692,032)
Net property, plant & equipment 663,505
Other assets & deferred charges 49,480
Goodwill & intangibles - net of amortization 33,132
Total assets 1,076,645
LIABILITIES
Current liabilities:
Accounts payable 65,162
Accrued expenses 47,122
Long-term debt, current portion 14,065
Total current liabilities 126,349
Long-term debt 384,924
Other noncurrent liabilities 40,996
Deferred income taxes 120,276
Total liabilities 672,545
Net assets of Albemarle $ 404,100
SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION (UNAUDITED) - As a
result of the aforementioned distribution, the Company believes that the
following PRO FORMA financial information is important to enable the
reader to obtain a meaningful understanding of the Company's results of
operations. The PRO FORMA financial statements are for informational
purposes only to illustrate the estimated effects of the distribution of
Albemarle on Ethyl on a stand-alone basis and may not necessarily
reflect the future results of operations of Ethyl or what the earnings
or results of operations of Ethyl would have been had Albemarle operated
as a separate, independent company.
PRO FORMA CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except Per-Share Amounts)
1994 1993
PRO PRO
Years Ended December 31 Historical Adjustments(a) FORMA Historical Adjustments(a) FORMA
Net sales $ 1,174,086 $ (155,064) $1,019,022 $1,938,390 $(903,418) $1,034,972
Cost of goods sold 776,508 (119,086) 657,422 1,386,251 (710,970) 675,281
Gross profit 397,578 (35,978) 361,600 552,139 (192,448) 359,691
Selling, general & administrative expenses 144,455 (14,471) 129,984 221,384 (85,470) 135,914
Research, development & testing expenses 82,661 (8,662) 73,999 127,000 (50,994) 76,006
Special charges 2,720 - 2,720 36,150 (7,322) 28,828
Operating profit 167,742 (12,845) 154,897 167,605 (48,662) 118,943
Interest & financing expenses 25,378 (2,873)(b) 22,505 44,085 (17,358)(b) 26,727
Other expenses (income), net 1,218 543 1,761 (9,987) 1,640 (8,347)
Income before income taxes, extraordinary
item and discontinued insurance operations 141,146 (10,515) 130,631 133,507 (32,944) 100,563
Income taxes 43,391 (4,239)(c) 39,152 43,485 (17,098)(c) 26,387
Income before extraordinary item and
discontinued insurance operations $ 97,755 $ (6,276) $ 91,479 $ 90,022 $ (15,846) $ 74,176
Earnings per share based on income before
extraordinary item and
discontinued insurance operations (d) $ .83 $ .78 $ .76 $ .63
INTRODUCTION TO NOTES: The following is a summary of the adjustments
reflected in the PRO FORMA condensed Statements of Income. Following the
distribution, in the opinion of management, expenses of Ethyl would not
have differed materially from the amounts remaining in the Ethyl
consolidated financial statements after eliminating those expenses
attributable to Albemarle.
NOTES:
(a) To eliminate the historical income and expenses of Albemarle for the
respective periods presented, as if the distribution had occurred on
January 1, 1993.
(b) To eliminate interest expense that would have been incurred by
Albemarle on debt transferred to Albemarle (as if the distribution
had occurred on January 1, 1993), including debt under the credit
facility transferred from Ethyl. Interest eliminated under the
credit facility was computed at the weighted-average interest rates
of 3.8% and 3.6% for the two months ended February 28, 1994, and the
year ended December 31, 1993, respectively, less capitalized
interest of $124,000 and $1,101,000, respectively. Interest rates
used to calculate the Albemarle interest eliminated under the credit
facility are those rates that were available to Ethyl under its
revolving credit agreement during the respective periods presented.
Such rates were used because, during management's negotiations to
obtain the credit facility, the rates available to Ethyl and
Albemarle on a stand-alone basis were approximately the same.
Management was advised that these rates would have been the same
during the respective periods presented.
(c) To record the estimated income-tax effect for the PRO FORMA
adjustments described in Notes (a) and (b) for the two months ended
February 28, 1994, and the year ended December 31, 1993,
respectively.
(d) Historical and PRO FORMA earnings per share, based on income before
discontinued insurance operations and extraordinary item are
computed after deducting applicable preferred-stock dividends from
such income and using the weighted-average number of shares of
common stock and common-stock equivalents outstanding for the
periods presented.
3. SUPPLEMENTAL CASH-FLOW INFORMATION:
Supplemental information for the Consolidated Statements of Cash
Flows is as follows:
(In Thousands)
1994 1993 1992
Cash paid during the year for:
Income taxes $ 45,513 $110,867 $35,863
Interest and financing expenses
(net of capitalization) 24,118 45,352 62,320
Supplemental investing and financing
non-cash transactions:
Dividend of common stock of
Albemarle Corporation -
at book value 399,957 - -
Dividend of common stock of
First Colony Corporation -
at book value - 677,449 -
Assumption of liabilities in
connection with the acquisition
of Potasse et Produits Chimiques
(PPC) in February 1993 - 49,000 -
Also see Notes 2 and 21 with respect to spun-off operations.
4. INDUSTRY SEGMENT:
The geographic-areas table on page 24 (and the related notes on page
26) is an integral part of the consolidated financial statements.
Information about the Company's geographic areas is presented for the
years 1990-1994. The discussion of geographic-areas information is
unaudited.
5. CASH & CASH EQUIVALENTS:
Cash and cash equivalents consist of the following:
(In Thousands)
1994 1993
Cash and time deposits $31,166 $43,854
Short-term securities - 4,347
Total $31,166 $48,201
Short-term securities (generally commercial paper maturing in less
than 90 days) are stated at cost plus accrued income, which approximates
market value.
6. INVENTORIES:
Domestic inventories stated on the LIFO basis amounted to $49,889,000
and $115,874,000 at December 31, 1994 and 1993, respectively, which are
below replacement cost by approximately $17,080,000 and $36,239,000,
respectively.
7. DEFERRED INCOME TAXES & PREPAID EXPENSES:
Deferred income taxes and prepaid expenses consist of the following:
(In Thousands)
1994 1993
Deferred income taxes - current $20,404 $42,754
Prepaid expenses 5,340 6,768
Total $25,744 $49,522
8. PROPERTY, PLANT & EQUIPMENT, AT COST:
Property, plant and equipment, at cost consist of the following:
(In Thousands)
1994 1993
Land $ 48,781 $ 60,227
Land improvements 27,947 59,637
Buildings 94,224 137,980
Machinery and equipment 408,982 1,436,965
Capitalized interest 19,283 41,580
Construction in progress 85,162 172,241
Total $684,379 $1,908,630
Interest capitalized on significant capital projects in 1994, 1993
and 1992 was $8,060,000, $6,864,000 and $6,763,000, respectively, while
amortization of capitalized interest (which is included in depreciation
expense) was $1,294,000, $3,246,000 and $2,807,000, respectively.
9. ACCRUED EXPENSES:
Accrued expenses consist of the following:
(In Thousands)
1994 1993
Employee benefits, payrolls and related taxes $11,871 $ 35,565
Other 61,247 90,139
Total $73,118 $125,704
10. LONG-TERM DEBT:
A summary of long-term debt maturities at December 31, 1994, is
listed below:
(In Thousands)
Variable-
Variable- 9.8% Rate
Rate Notes Medium-
Bank Due Term
Loans 1998 Notes Total
1995 -
1996 -
1997 $ 6,750 $ 6,750
1998 $200,000 6,750 206,750
1999 $117,000 6,750 123,750
2000-2001 13,500 13,500
$117,000 $200,000 $33,750 350,750
Less unamortized discount (984)
Total long-term debt at December 31, 1994 $349,766
On February 16, 1994, the Company entered into a new, five-year,
$1-billion unsecured credit facility with a group of banks to replace
its existing $700- million credit agreement. The credit facility was
split into two separate $500- million facilities upon the spin-off of
Ethyl's wholly owned subsidiary, Albemarle Corporation. As a result of
the spin-off, $303,400,000 of variable- rate bank debt was transferred
to Albemarle, as well as foreign bank borrowing and other debt,
amounting to $95,589,000 (of which $81,524,000 was noncurrent). Under
the new credit facility, 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 long-term debt (as defined) of not more than 60% of the sum
of shareholders' equity (as defined) and consolidated long-term debt and
maintenance of minimum shareholders' equity of at least $250 million.
The Company was in compliance with such covenants at December 31, 1994.
$100 million was borrowed under the agreement at December 31, 1994.
Amounts outstanding at February 16, 1999, mature on that date. Average
interest rates on variable-rate loans during 1994 and 1993 were 4.5% and
3.6%, respectively.
The Company also has three uncommitted agreements with banks
providing for immediate borrowings up to a maximum of $135 million at
the individual bank's money-market rate. There was $17 million
outstanding under these agreements at December 31, 1994. The average
interest rates on borrowings during 1994 and 1993 under these agreements
were 4% and 3.4%, respectively.
The Company's $200-million 9.8% Notes are due September 15, 1998, at
100% of their principal amount. The Notes are not redeemable prior to
September 15, 1995, when they will be redeemable at the option of the
Company at 100% of their principal amount.
The Company's $33.75-million variable-rate (ranging from 8.6% to
8.86%) Medium-Term Notes were issued in five series (1 through 5) of
$6.75 million each, which are due annually in serial order at 100% of
their principal amount, beginning December 15, 1997, through December
15, 2001.
11.OTHER NONCURRENT LIABILITIES:
Other noncurrent liabilities consist of the following:
(In Thousands)
1994 1993
Provision for environmental remediation
and future shutdown costs $47,609 $35,574
Other 31,293 63,666
Total $78,902 $99,240
12. CAPITAL STOCK:
REDEEMABLE PREFERRED STOCK - Transactions in 1992-1994 were as follows:
Issued
Shares Amounts
Cumulative First Preferred, 6% Series A
(authorized 1,000,000 shares)
January 1, 1992, December 31, 1992
and 1993, balance 2,002 $ 200,200
Called for redemption in 1994 (2,002) (200,200)
December 31, 1994, balance - $ -
The Cumulative First Preferred 6% Series A stock was called for
redemption in December 1994 at $101 per share, plus accrued dividends.
SHAREHOLDER RIGHTS PLAN - In 1987, the Company declared a dividend of
one preferred-share purchase right on each outstanding share of common
stock as part of a new Shareholder Rights Plan.
Each right entitles common shareholders to buy 2.522 one-thousandth
of a share of the Company's authorized Cumulative Second Preferred
stock, Series B, at an exercise price of $105. The rights will be
exercisable, if not earlier redeemed, only if a person or group acquires
20% or more of the Company's common stock or announces a tender offer,
the consummation of which would result in ownership by a person or group
of 30% or more of the common stock.
Each holder of a right, upon the occurrence of certain events, will
become entitled to receive, upon exercise and payment of the purchase
price, preferred stock (or in certain circumstances, cash, property or
other securities of the Company or another person) having a value equal
to twice the amount of the purchase price. The rights will expire on
September 24, 1997.
STOCK-OPTION PLAN - The Company has an incentive stock-option plan,
whereby incentive stock options and non-qualifying stock options may be
granted to officers and other key employees to purchase a specified
number of shares of common stock at a price not less than the fair
market value on the date of grant and for a term not to exceed 10 years.
In addition to the stock options, the optionee may also be granted a
stock appreciation right (SAR). To date, SARs generally have been
granted for the same number of shares subject to related options. During
1994, the Board of Directors of the Company unanimously adopted and the
shareholders approved an amendment to the Company's incentive stock
option plan increasing the number of shares issuable under the option
plan by 5,900,000 to 11,900,000 and established an annual limit of
200,000 on the number of shares for which options may be granted to an
individual. Activity in 1992, 1993 and 1994 is shown at right:
Shares Option Prices
Outstanding at January 1, 1992 567,546 $20.07-$28.74
Granted 178,900 $28.00-$31.49
Exercised (56,759) $20.07-$27.53
Surrendered upon exercise of SARs (29,564) $20.07-$26.13
Lapsed (6,605) $22.00-$27.53
Outstanding at December 31, 1992 653,518 $20.07-$31.49
Adjustment for First Colony spin-off 238,711 $13.22-$20.73
Exercised (71,865) $13.22-$28.74
Surrendered upon exercise of SARs (59,212) $14.49-$26.13
Lapsed (153,539) $15.94-$31.49
Outstanding at December 31, 1993 607,613 $13.22-$20.73
Granted 3,042,000 $ 12.50
Adjustment for Albemarle spin-off 168,650 $ 9.00-$14.11
Exercised (73,475) $ 9.00-$17.20
Surrendered upon exercise of SARs (48,402) $ 9.86-$18.85
Lapsed (413,112) $ 9.86-$20.73
Outstanding at December 31, 1994 3,283,274 $ 9.00-$14.11
All of the unexercised options and related SARs granted prior to
1994 were exercisable at December 31, 1994. None of the stock options
and related SARs granted in 1994 were exercisable at December 31, 1994.
On December 31, 1993 and 1994, 3,053,552 and 6,156,014 shares,
respectively, were available for grant.
13.GAINS & LOSSES ON FOREIGN CURRENCY:
Foreign currency transaction adjustments resulted in gains of
$1,968,000 in 1994 and $1,725,000 in 1993 and a loss of $4,918,000 in
1992.
14.CONTRACTUAL COMMITMENTS & CONTINGENCIES:
Rental expense was $17,120,000 for 1994, $29,680,000 for 1993 and
$27,060,000 for 1992.
The Company has a number of operating lease agreements primarily for
office space, transportation equipment and storage facilities.
Future lease payments for the next five years for all non-cancelable
leases as of December 31, 1994, are $6,764,000 for 1995, $5,428,000 for
1996, $3,308,000 for 1997, $852,000 for 1998, $587,000 for 1999, and
amounts payable after 1999 are $3,644,000.
Contractual obligations for plant construction and purchases of real
property and equipment amounted to approximately $37,500,000 at December
31, 1994.
The Company and Albemarle entered into agreements, dated as of
February 28, 1994, pursuant to which the Company and Albemarle agreed to
coordinate certain facilities and services of adjacent operating sites
at plants in Orangeburg, South Carolina; Houston, Texas; and Feluy,
Belgium. In addition, the Company and Albemarle entered into agreements
providing for the blending by Albemarle of Ethyl's additive products and
the production of antioxidants and manganese-based antiknock compounds
at the Orangeburg plant. Ethyl was billed approximately $48 million in
connection with these agreements during 1994.
The Company is from time to time subject to routine litigation
incidental to its business. The Company is not a party to any pending
litigation proceedings that will have a materially adverse effect on the
Company's results of operations or financial condition. Further, no
additional disclosures are required in conformity with FASB Statement
No. 5, "Accounting for Contingencies," due to immateriality.
At December 31, 1994 and 1993, the Company had accruals of
$38,400,000 and $25,400,000, respectively, for environmental
liabilities. In developing its estimates of environmental remediation
and monitoring costs, the Company considers, among other things,
risk-based assessments of the contamination, currently available
technological solutions, alternative cleanup methods, and prior Company
experience in remediation of contaminated sites, all based on presently
enacted laws and regulations. Amounts accrued do not take into
consideration claims for recoveries from insurance. Although studies
have not been completed for certain sites, some amounts generally are
estimated to be expended over extended periods. When specific amounts
within a range cannot be determined, the Company has accrued the minimum
amount in that range.
Environmental exposures are difficult to assess and estimate for
numerous reasons including the complexity and differing interpretations
of regulations, lack of reliable data, multiplicity of possible
solutions, and length of time. As the scope of the Company's
environmental contingencies becomes more clearly defined, it is possible
that amounts in excess of those already accrued may be necessary.
However, management believes that these overall costs are expected to be
incurred over an extended period of time and, as a result, such
contingencies are not expected to have a material impact on the
consolidated financial position or liquidity of the Company, but they
could have a material adverse effect on the Company's results of
operations in any given future quarterly or annual period.
15. PENSION PLANS & OTHER
POSTRETIREMENT BENEFITS:
U.S. PENSION PLANS - The Company has noncontributory defined-benefit
pension plans covering most U.S. employees. The benefits for these plans
are based primarily on years of service and employees' compensation. The
Company's funding policy complies with the requirements of Federal law
and regulations. Plan assets consist principally of common stock, U.S.
government and corporate obligations and group annuity contracts. The
pension information for all periods includes amounts related to the
Company's salaried plan and to the hourly plans.
The major changes from 1993 to 1994 in the following tables reflect
the effects of the spin-off of Albemarle at the close of business on
February 28, 1994, with the related wage-roll plans and a portion of the
salaried plan identified with employees who were transferred to
Albemarle.
As a result of the spin-off, plan assets and projected benefit
obligations reported at December 31, 1993, were reduced by $286,035,000
and $240,278,000, respectively, as of January 1, 1994. The expected
returns and interest cost reported for 1994 are computed based upon the
lesser amounts.
The components of net pension income are as follows:
(In Thousands)
Years ended December 31 1994 1993 1992
Return on plan assets:
Actual return $ 32,018 $ 50,130 $ 43,970
Expected return higher
than actual 3,256 3,679 7,091
Expected return 35,274 53,809 51,061
Amortization of transition asset 4,730 6,995 6,995
Service cost (benefits earned
during the year) (5,462) (12,355) (11,219)
Interest cost on projected
benefit obligation (24,122) (36,978) (34,740)
Amortization of prior service costs (2,958) (4,318) (3,811)
Net pension income $ 7,462 $ 7,153 $ 8,286
Amortization of the transition asset is based on the amount
determined at the date of adoption of FASB Statement No. 87.
Net pension income and plan obligations are calculated using
assumptions of estimated discount and interest rates and rates of
projected increases in compensation. The discount rate on projected
benefit obligations was primarily assumed to be 8.25% at December 31,
1994, 6.75% at December 31, 1993, and 7.25% at December 31, 1992. The
assumed interest rate at the beginning of each year is the same as the
discount rate at the end of each prior year. The rates of projected
compensation increase were assumed to be primarily 4.5% at December 31,
1994 and 1993, and 5% at December 31, 1992. The expected long-term rate
of return on plan assets was assumed to be primarily 9% each year. Net
pension income (table above) is determined using assumptions as of the
beginning of each year. Funded status (table next page) is determined
using assumptions as of the end of each year.
The following table presents a reconciliation of the funded status
of the U.S. pension plans to prepaid pension expense, which is included
in "Other assets and deferred charges":
(In Thousands)
Years ended December 31
1994 1993
Plan assets at fair value $367,471 $637,427
Less actuarial present value of benefit obligations:
Accumulated benefit obligation (including vested
benefits of $271,458 and $486,284, respectively) 274,346 502,828
Projected compensation increase 13,666 63,873
Projected benefit obligation 288,012 566,701
Plan assets in excess of projected benefit obligation 79,459 70,726
Unrecognized net (gain) loss (16,087) 30,379
Unrecognized transition asset being amortized
principally over 16 years (30,861) (56,422)
Unrecognized prior-service costs being amortized 24,992 44,997
Prepaid pension expense $ 57,503 $ 89,680
One of the Company's U.S. pension plans is the supplemental
executive retirement plan (SERP), which is an unfunded defined benefit
plan. The actuarial present value of accumulated benefit obligations
related to the Company's SERP totalled $10,263,000 and $12,705,000 at
December 31, 1994 and 1993, respectively. The prepaid pension expense
asset in the table above is net of an accrued pension expense liability
of $9,255,000 and $9,270,000 related to the SERP at December 31, 1994
and 1993, respectively. Pension expense for the SERP totalled
$1,459,000, $1,550,000, and $1,111,000 for 1994, 1993, and 1992,
respectively.
FOREIGN PENSION PLANS - Pension coverage for employees of the
Company's foreign subsidiaries is provided through separate plans.
Obligations under such plans are systematically provided for by
depositing funds with trustees or under insurance policies. 1994, 1993
and 1992 pension cost for these plans was $3,317,000, $2,265,000 and
$1,954,000, respectively. The actuarial present value of accumulated
benefits at December 31, 1994 and 1993, was $12,159,000 and $13,445,000,
substantially all of which was vested, compared with net assets
available for benefits of $15,571,000 and $14,451,000, respectively.
CONSOLIDATED - Consolidated net pension income for 1994, 1993 and
1992 was $4,145,000, $4,888,000 and $6,332,000, respectively.
OTHER POSTRETIREMENT BENEFITS - The Company also provides
postretirement medical benefits and life insurance for certain groups of
retired employees.
In 1992, the Company adopted FASB Statement No. 106. The Company
elected to recognize immediately the cumulative effect of the change in
accounting for postretirement benefits of $54.5 million ($34.3 million
net of income tax benefit), which represents the accumulated
postretirement benefit obligation (APBO) existing at January 1, 1992,
net of plan assets. The Company continues to fund medical and life
insurance benefit costs principally on a pay-as-you-go basis. Although
the availability of medical coverage after retirement varies for
different groups of employees, the majority of employees who retire from
the Company before becoming eligible for Medicare can continue group
coverage by paying the full cost of a composite monthly premium designed
to cover the claims incurred by active and retired employees. The
availability of group coverage for Medicare-eligible retirees also
varies by employee group with coverage designed either to supplement or
coordinate with Medicare. Retirees generally pay a portion of the cost
of the coverage.
The components of net periodic postretirement benefit cost are as
follows:
(In Thousands)
Years ended December 31
1994 1993
Service cost (benefits attributed to
employee service during the year) $(1,789) $(3,088)
Interest cost on accumulated postretirement
benefit obligation (4,419) (6,911)
Actual return on plan assets 2,101 2,823
Net periodic postretirement benefit cost $(4,107) $(7,176)
Summary information on the Company's plans is as follows:
(In Thousands)
Years ended December 31
1994 1993
Accumulated postretirement benefit obligation for:
Retirees $41,985 $ 51,091
Fully eligible, active plan participants 2,008 18,608
Other active plan participants 7,709 41,492
51,702 111,191
Less plan assets at fair value 24,447 33,153
(Plus) less unrecognized net (gain) loss (717) 14,776
Accrued postretirement benefit cost $27,972 $ 63,262
Plan assets are held under an insurance contract and reserved for
retiree life-insurance benefits.
As a result of the spin-off, plan assets and projected benefit
obligations reported at December 31, 1993, were reduced by approximately
$7,242,000 and $46,002,000, respectively, as of January 1, 1994. The
expected returns and interest cost reported for 1994 are computed based
on the lesser amounts.
The discount rate used in determining the APBO was 8.25% at December
31, 1994, 6.75% at December 31, 1993, and 8% at December 31, 1992. The
expected long-term rate of return on plan assets used in determining the
net periodic postretirement benefit cost was 9% in 1994 and 1993, and
the estimated pay increase was 4.5% at December 31, 1994 and 1993, and
5% at December 31, 1992. The assumed health-care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 15% in
1992 and 14% in 1993, and 13% in 1994, declining by 1% per year to an
ultimate rate of 7%, except that managed- care costs were assumed to
begin at 12% in 1992 and 11% in 1993 and 10% in 1994, declining by 1%
per year to 6%.
If the health-care cost-trend rate assumptions were increased by 1%,
the APBO, as of December 31, 1994, would be increased by approximately
$4 million. The effect of this change on the sum of the service cost and
interest cost components of net periodic postretirement benefit cost for
1994 would be an increase of about $0.9 million.
CHANGES IN ESTIMATES - The higher discount rate at December 31,
1994, decreased the pension accumulated benefit obligation by about $39
million and the pension projected benefit obligation by about $40.9
million. The higher discount rate at December 31, 1994, decreased the
postretirement accumulated benefit obligation by approximately $9.4
million. The rate-change effects on net pension income and
postretirement benefit cost are not material to the Company's financial
statements.
16. INCOME TAXES:
Effective January 1, 1992, the Company adopted FASB Statement No.
109, which requires the use of the asset-and-liability approach for
financial accounting and reporting for income taxes. The cumulative
effect of the accounting change resulted in a reduction of the deferred
income-tax liability and an increase in net income of $19.6 million, or
$.17 per share. This amount was included in the 1992 consolidated
statements of income reported as part of the cumulative effect of
accounting changes.
Income before discontinued insurance operations, income taxes,
extraordinary item and cumulative effect of accounting changes and
current and deferred income taxes are composed of the following:
(In Thousands)
Years ended December 31 1994 1993 1992
Income before discontinued
insurance operations, income
taxes, extraordinary item and
cumulative effect of accounting
changes:
Domestic $103,083 $121,486 $189,788
Foreign 38,063 12,021 16,830
Total $141,146 $133,507 $206,618
Current income taxes:
Federal $ 19,451 $ 33,195 $ 78,268
State 3,109 4,171 11,897
Foreign 10,569 13,782 12,238
Total 33,129 51,148 102,403
Deferred income taxes:
Federal 6,180 (10,944) 4,987
State (45) (282) 259
Foreign 4,127 3,563 (8,276)
Total 10,262 (7,663) (3,030)
Total income taxes $ 43,391 $ 43,485 $ 99,373
The significant differences between the U.S. Federal statutory rate
and the effective income-tax rate are as follows:
% of Income Before Income Taxes
1994 1993 1992
Federal statutory rate 35.0% 35.0% 34.0%
Gain on sale of subsidiaries (3.8) (1.7) -
State taxes, net of federal tax benefit 1.8 1.9 1.4
Foreign sales corporation benefit (1.2) (1.8) (1.5)
Deferred-tax benefit attributable to
Whitby Research downsizing - (7.0) -
Higher net tax on foreign related operations
primarily due to absence of tax benefit
on significant losses of Belgian subsidiary - 3.9 -
Increase in federal deferred taxes to
enacted 35% rate - 1.8 -
Gain on sale of 20% of First
Colony Corporation - - 16.3
Other items, net (1.1) .5 (2.1)
Effective income-tax rate 30.7% 32.6% 48.1%
1994 and 1993 deferred income taxes result from temporary
differences in the recognition of income and expenses for financial and
income-tax reporting purposes, using the liability or balance sheet
method. Such temporary differences result primarily from differences
between the financial statement carrying amounts and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Federal income-tax legislation
enacted in 1993 increased the corporate income-tax rate to 35%
retroactive to January 1, 1993. This rate has been applied to all future
years and resulted in an increase in the deferred income-tax liability
and a decrease in net income of $2.3 million, or $.02 per share in 1993.
The deferred income-tax assets and deferred income-tax liabilities
recorded on the balance sheets as of December 31, 1994, and 1993, are as
follows:
(In Thousands)
Deferred tax assets:
1994 1993
Environmental reserves $12,892 $12,599
Future employee benefits 3,903 8,753
Undistributed earnings of foreign subsidiaries 7,267 2,920
Intercompany profit in inventories 4,916 6,015
Inventory capitalization 654 1,876
Corporate downsizing, plant write-down
and related costs 5,555 9,740
Foreign currency translation adjustment 1,481 -
Deferred-tax benefit attributable to
Whitby Research downsizing - 9,300
Belgian subsidiary net operating
loss carryforward - 16,360
Valuation allowance for Belgian
loss carryforward - (9,104)
Other 3,510 4,931
Net deferred tax asset 40,178 63,390
Deferred tax liabilities:
Depreciation 25,259 129,526
Future employee benefits 11,441 10,581
Foreign currency translation adjustment - 6,485
Capitalization of interest 2,011 10,209
Other 9,073 7,511
Deferred tax liabilities 47,784 164,312
Net deferred tax liabilities $ 7,606 $100,922
Reconciliation to financial statements:
Current tax assets $20,404 $ 42,754
Deferred tax liabilities 28,010 143,676
Net deferred tax liabilities $ 7,606 $100,922
The reduction in net deferred tax liabilities in the table above
reflects $109.8 million spun off as part of Albemarle.
During 1993, it was concluded that it was more likely than not that
a portion of the tax benefit from the Belgian subsidiary's operating
loss carryforward would not be realized, and consequently there was a
need for a valuation allowance. The business and related valuation
adjustment was part of Albemarle, which was spun off at the close of
business on February 28, 1994.
Based on current United States income-tax rates, it is anticipated
that no additional United States income taxes would be incurred if the
unremitted earnings of the Company's foreign subsidiaries were remitted
to Ethyl Corporation due to available foreign tax credits.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and estimates were used by the Company in
estimating the fair values of its outstanding financial instruments in
conformity with the disclosure requirements of FASB Statement No. 107,
"Disclosures About Fair Value of Financial Instruments."
CASH & CASH EQUIVALENTS - The carrying value approximates fair value.
LONG-TERM DEBT - The fair value of the Company's long-term debt is
estimated based on current rates available to the Company for debt of
the same remaining duration.
The estimated fair values of Ethyl's financial instruments are as
follows:
(In Thousands)
December 31, 1994 Carrying Fair
Value Value
Cash and cash equivalents $ 31,166 $ 31,166
Long-term debt, including current maturities $349,766 $360,489
December 31, 1993
Cash and cash equivalents $ 48,201 $ 48,201
Long-term debt, including current maturities $701,042 $732,500
18. SPECIAL CHARGES:
Special charges in 1994 amounted to $2,720,000 ($1,690,000 after
income taxes, or $.01 per share) consisting of a charge of $10,720,000
primarily for a provision for environmental remediation as well as other
costs largely offset by the benefit of an $8,000,000 legal settlement.
Special charges for 1993 amounted to $36,150,000 ($22,400,000 after
income taxes, or $.19 per share), of which $14,200,000 was incurred for
plant write- down and other related costs in connection with the
Company's decision to discontinue production of lead antiknock compounds
at Ethyl's subsidiary's Sarnia, Ontario, plant. This decision resulted
from entering into an agreement with The Associated Octel Company
whereby Ethyl is assured of an ample long-term supply of lead antiknock
compounds. The remainder of the special charges related to costs of
work-force reductions in the U.S. and Europe amounting to $7,635,000 and
$14,315,000 for downsizing costs of Whitby Research, Inc., relocation of
employees and other miscellaneous costs.
A special charge in 1992 amounting to $9,500,000 ($6,000,000 after
income taxes, or $.05 per share) covered expenses for the relocation of
the Petroleum Additives Division research-and-development employees to
Richmond, Virginia, in 1994.
19. GAIN ON SALE OF 20% INTEREST IN FIRST COLONY CORPORATION:
The gain on the sale of 20% of the Company's interest in First
Colony Corporation of $93,600,000 ($30,200,000 after income taxes, or
$.25 per share) resulted from the December 15, 1992, initial public
offering of 9,700,000 shares of First Colony Corporation stock at a
price of $28.00 per share less expenses. The after-tax gain of
$30,200,000 reflects higher tax expenses based on a lower tax basis than
book basis.
20. EXTRAORDINARY CHARGE:
The extraordinary charge of $5,000,000, or $.04 per share (net of
income taxes of $3,000,000), due to early extinguishment of debt results
from the Company redeeming its $116.25-million 9 3/8% Sinking Fund
Debentures due December 15, 2016, on December 15, 1993, at a redemption
price of 105.081 of the principal amount and the write-off of remaining
deferred financing costs associated with the sinking-fund debt.
21. DISCONTINUED INSURANCE OPERATIONS:
On July 1, 1993, the Company's 80-percent investment in First Colony
Corporation was spun off in a tax-free distribution to the Company's
shareholders. The distribution consisted of the net assets of the
Company's investment in First Colony Corporation totaling $757,211,000
less unrealized gains on marketable equity securities amounting to
$78,227,000 (net of deferred income taxes of $40,299,000) and
retroactive income-tax charges of $1,535,000 due to a change in federal
tax legislation.
The results of operations during the first six months of 1993 and
the year ended December 31, 1992, were as follows:
Statements of Income (In Thousands)
Six
Months Ended Year Ended
June 30 December 31
1993 1992
Revenues $737,137 $1,282,448
Benefits and expenses 566,174 1,044,580
Income before income taxes and
cumulative effect of
accounting changes 170,963 237,868
Income taxes 58,316 74,475
Income before cumulative effect
of accounting changes 112,647 163,393
Cumulative effect of
accounting changes - 332
Net income 112,647 163,725
Less provision for minority interest 22,164 1,253
Income from discontinued
insurance operations $ 90,483 $ 162,472
FIVE-YEAR SUMMARY
INTRODUCTION TO THE FIVE-YEAR SUMMARY: The following Five-Year
Summary includes the results of the businesses spun off as Albemarle
Corporation through the spin-off date at the close of business on
February 28, 1994. The financial position and other data at December 31,
1994, reflect the impact of the spin-off of Albemarle.
The results and net assets of the Insurance segment, spun off on
July 1, 1993, are reported as discontinued insurance operations.
(In Thousands Except Per-Share Amounts)
Years Ended December 31 1994
RESULTS OF OPERATIONS
Net sales $1,174,086
Costs and expenses 1,003,624
Special charges(1) 2,720
Operating profit 167,742
Interest and financing expenses 25,378
Gain on sale of 20% of First Colony Corporation(2) -
Gain on sale of subsidiary(3) -
Other expenses (income), net 1,218
Income before income taxes, extraordinary charge,
cumulative effect of accounting changes and discontinued
insurance operations 141,146
Income taxes 43,391
Income before extraordinary charge, cumulative effect of
accounting changes and discontinued insurance operations 97,755
Extraordinary after-tax charge due to early extinguishment
of debt(4) -
Cumulative effect of accounting changes for:(5)
Postretirement health-care benefits (net of tax) -
Deferred income taxes -
Income before discontinued insurance operations 97,755
Income from discontinued insurance operations -
Net income $97,755
FINANCIAL POSITION AND OTHER DATA
Total assets - before discontinued insurance operations $1,030,415
Net assets of discontinued insurance operations -
Total $1,030,415
Continuing Operations:
Working capital $ 248,650
Current ratio 2.36 TO 1
Depreciation and amortization $ 53,983
Capital expenditures 147,260
Acquisitions of businesses -
Gross margin as a % of net sales 33.9
Research, development and testing expenses(6) $ 82,661
Long-term debt(7) 349,766
Redeemable preferred stock -
Common and other shareholders' equity 390,937
Long-term debt as a % of total capitalization(7) 47.2
Net Income as a % of shareholders' equity 17.1
COMMON STOCK
Earnings per share:
Income before extraordinary charge, cumulative
effect of accounting changes and discontinued insurance
operations $ .83
Extraordinary charge -
Cumulative effect of accounting changes -
Income before discontinued insurance operations .83
Income from discontinued insurance operations -
Net income $ .83
Shares used to compute earnings per share 118,451
Dividends per share:
Cash dividends declared $ .50
Dividend of common stock of Albemarle Corporation,
at book value 3.38
Dividend of common stock of First Colony
Corporation, at book value -
Total $ 3.88
Equity per share(8) $ 3.30
1993 1992 1991 1990
$1,938,390 $1,692,582 $1,534,571 $1,590,940
1,734,635 1,509,260 1,330,721 1,348,736
36,150 9,500 11,185 48,710
167,605 173,822 192,665 193,494
44,085 62,279 59,097 64,839
- (93,600) - -
- - - (78,993)
(9,987) (1,475) (1,652) (8,110)
133,507 206,618 135,220 215,758
43,485 99,373 41,168 79,331
90,022 107,245 94,052 136,427
(5,000) - - -
- (34,348) - -
- 19,616 - -
85,022 92,513 94,052 136,427
90,483 162,472 112,616 95,762
$ 175,505 $ 254,985 $ 206,668 $ 232,189
$2,009,198 $1,878,898 $1,570,505 $1,385,643
- 658,550 909,876 775,523
$2,009,198 $2,537,448 $2,480,381 $2,161,166
$ 407,182 $ 327,840 $ 318,716 $ 277,289
2.25 to 1 1.71 to 1 2.25 to 1 2.12 to 1
$ 127,456 $ 105,765 $ 89,879 $ 88,522
205,029 157,412 166,148 151,822
125,431 136,500 24,035 61,575
28.5 29.2 31.9 31.6
$ 127,000 $ 111,698 $ 114,732 $ 106,172
686,986 711,736 810,849 683,829
200 200 200 214
752,581 1,401,279 1,219,313 1,047,606
47.7 33.7 39.9 39.5
16.3 19.5 18.2 23.8
$ .76 $ .90 $ .80 $ 1.15
(.04) - - -
- (.12) - -
.72 .78 .80 1.15
.76 1.37 .95 .80
$ 1.48 $ 2.15 $ 1.75 $ 1.95
118,436 118,380 118,380 119,309
$ .60 $ .60 $ .60 $ .60
- - - -
5.72 - - -
$ 6.32 $ .60 $ .60 $ .60
$ 6.36 $ 11.84 $ 10.31 $ 8.85
(1) Special charges in 1994 consist of $10,720 primarily for a
provision for environmental remediation as well as other costs, largely
offset by the benefit of an $8,000 legal settlement (totalling $1,690
after income taxes). 1993 includes the write-down of the Canadian plant
and other related costs of $14,200, costs of work-force reductions in the
U.S. and Europe amounting to $7,635, and $14,315 for downsizing costs of
Whitby Research, Inc., and relocation of employees and other related
costs (totalling $22,400 after income taxes); 1992 includes charges for
the relocation of the Petroleum Additives Division R&D personnel ($6,000
after taxes); 1991 includes expenses and write- offs of $6,350 resulting
from the discontinuance of certain developmental research programs as
well as expenses of $4,835 covering the relocation of the Petroleum
Additives Division headquarters ($7,000 after income taxes); 1990
includes mainly the write-off of goodwill and provisions for relocation
expenses of Whitby, Inc., and for environmental remediation projects at
certain chemical facilities ($42,441 after income taxes).
(2) Resulted from the December 1992 sale of approximately 20% of
First Colony Corporation stock ($30,200 after income taxes).
(3) Resulted from the 1990 sale of Hardwicke Chemical Company ($50,765
after income taxes).
(4) The extraordinary after-tax charge is the result of the early
redemption of the $116,250, 9 3/8% Sinking Fund Debentures, net of
income taxes of $3,000.
(5) Change in accounting for postretirement health benefits ($54,460
before income taxes) and deferred income taxes in accordance with FASB
Statements No. 106 and 109, respectively, adopted effective January 1,
1992.
(6) Research-and-development expenses determined in accordance with
FASB Statement No. 2 were $49,651 for 1994, $75,624 for 1993, $73,831
for 1992, $69,119 for 1991 and $65,186 for 1990.
(7) The reduction in long-term debt in 1994 reflects $384,924 of debt
transferred to Albemarle at the close of business on February 28, 1994.
Excluding the debt and net assets of the businesses spun off, the
consolidated debt-to-total-capitalization ratio at December 31, 1993,
would have been 46.2%. 1992 includes $250 million of debt of First
Colony Corporation spun off July 1, 1993.
(8) Based on the number of common shares outstanding at the end of
each year. The decline in 1994 reflects the dividend of common
stock of Albemarle Corporation of $3.38 per share at book value. The
decline in 1993 reflects the dividend of common stock of First Colony
Corporation of $5.72 per share at book value.
MANAGEMENTS REPORT ON
THE FINANCIAL STATEMENTS
Ethyl Corporation's management has prepared the financial statements
and related notes appearing on pages 28 through 45 in conformity with
generally accepted accounting principles. In so doing, management makes
informed judgments and estimates of the expected effects of events and
transactions. Financial data appearing elsewhere in this annual report
are consistent with these financial statements.
Ethyl maintains a system of internal controls to provide reasonable,
but not absolute, assurance of the reliability of the financial records
and the protection of assets. The internal control system is supported
by written policies and procedures, careful selection and training of
qualified personnel and an extensive internal audit program.
These financial statements have been audited by Coopers & Lybrand,
L.L.P., independent certified public accountants. Their audit was made
in accordance with generally accepted auditing standards and included a
review of Ethyl's internal accounting controls to the extent considered
necessary to determine audit procedures.
The audit committee of the board of directors, composed only of
outside directors, meets with management, internal auditors and the
independent accountants to review accounting, auditing and financial
reporting matters. The independent accountants are appointed by the
board on recommendation of the audit committee, subject to shareholder
approval.
REPORT OF INDEPENDENT ACCOUNTANTS
certified public accountants Riverfront Plaza West
901 East Byrd Street
in principal areas of Suite 1200
the world Richmond, Virginia 23219
Telephone (804) 697-1900
TO THE BOARD OF DIRECTORS & SHAREHOLDERS OF ETHYL CORPORATION
We have audited the accompanying consolidated balance sheets of
Ethyl Corporation and Subsidiaries (the Company) as of December 31, 1994
and 1993, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1994. 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 in accordance with generally accepted
auditing standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ethyl Corporation and Subsidiaries as of December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Notes 15 and 16 to the consolidated financial
statements, effective January 1, 1992, the Company changed its method of
accounting both for postretirement benefits other than pensions and for
income taxes by adopting Financial Accounting Standards Board Statements
No. 106 and No. 109, respectively.
[SIGNATURE]
February 21, 1995
*BRUCE C. GOTTWALD
Chairman of the Board
Ethyl Corporation
Richmond,Virginia
*FLOYD D. GOTTWALD, JR.
Vice Chairman of the Board
Ethyl Corporation
Richmond,Virginia
*CHARLES B. WALKER
Vice Chairman of the Board
Ethyl Corporation
Richmond,Virginia
*THOMAS E. GOTTWALD
President
Ethyl Corporation
Richmond,Virginia
*WILLIAM M. GOTTWALD, MD
Senior Vice President
Ethyl Corporation
Richmond,Virginia
LLOYD B. ANDREW
Retired Executive Vice President
Ethyl Corporation
Richmond,Virginia
WILLIAM W. BERRY
Retired Chairman of the Board
Dominion Resources, Inc.
Richmond,Virginia
+PHYLLIS L. COTHRAN
President & Chief Operating Officer
Trigon Blue Cross Blue Shield
Richmond, Virginia
ALLEN C. GOOLSBY
Partner
Hunton & Williams
Richmond,Virginia
BRUCE C. GOTTWALD, JR.
Chairman of the Board
First Colony Corporation
Richmond,Virginia
GILBERT M. GROSVENOR
President & Chairman
National Geographic Society
Washington, D.C.
ANDRE B. LACY
Chairman, Chief Executive Officer
& President
LDI Management, Inc.
Indianapolis, Indiana
EMMETT J. RICE
Retired Member - Board of Governors
Federal Reserve System
Washington, D.C.
SIDNEY BUFORD SCOTT
Chairman of the Board
Scott & Stringfellow, Inc.
Richmond,Virginia
OFFICERS & STAFF
* BRUCE C. GOTTWALD
Chairman of the Board
Chief Executive Officer
Chairman - Executive Committee
* FLOYD D. GOTTWALD, JR.
Vice Chairman of the Board
* CHARLES B. WALKER
Vice Chairman of the Board
Chief Financial Officer
* THOMAS E. GOTTWALD
President
Chief Operating Officer
* WILLIAM M. GOTTWALD, MD
Senior Vice President - Business
& Finance Support
SAMPSON H. BASS, JR.
Vice President
Secretary - Executive Committee
as Management Committee
E. WHITEHEAD ELMORE
Secretary & Special Counsel
to the Executive Committee
DAVID A. FIORENZA
Vice President - Finance
& Controller
CHRISTOPHER HICKS
Vice President - Government
Relations
C. S. WARREN HUANG
Vice President - Research
& Development
DONALD R. LYNAM
Vice President - Air Conservation
STEVEN M. MAYER
Vice President & General Counsel
IAN A. NIMMO
Vice President- Lubricant Additives
HENRY C. PAGE, JR.
Vice President - Human Resources
NEWTON A. PERRY
Vice President - Fuel Additives
A. PRESCOTT ROWE
Vice President - External Affairs
JOHN S. PATTON
Director- Investor Relations
Fuel Additives
NEWTON A. PERRY
Corporate Vice President - General Manager
ROGER H. VENABLE
Marketing Vice President - Antiknocks
ROBERT A. YONDOLA
Marketing Vice President - Fuel Additives
Lubricant Additives
IAN A. NIMMO
Corporate Vice President - General Manager
RAYMOND C. GUDUM
Marketing Vice President - North America
JAMES D. HANES
Marketing Vice President - Far East,
Latin America/Caribbean
KENNETH J. DONLAN
Managing Director - Ethyl Petroleum
Additives Limited
LEE A. CHOUINARD
General Manager - Product Supply
* Member of the Executive Committee
+ Elected February 23, 1995
PRODUCTS & LOCATIONS
PRODUCTS
Ethyl formulates fuel and lubricant additive packages that help meet
or exceed a wide range of industry and government performance standards.
The most prominent of these include reducing exhaust emissions,
improving fuel economy, prolonging oil-drain intervals and extending
equipment life.
FUEL ADDITIVES FOR GASOLINE
. antiknock compounds to increase octane and prevent engine knock
. antioxidants/stabilizers to prevent degradation during storage/transport
. corrosion inhibitors to prevent storage/pumping system failures
. detergents to prevent carbon deposits on engine parts
. dyes to provide color differentiation
FUEL ADDITIVES FOR DIESEL
. antioxidants/stabilizers to prevent degradation during storage/transport
. cetane improvers for consistent combustion and emission reduction
. cold-flow improver to enhance fuel pumping
. conductivity modifier to neutralize static charge build-up in fuel
. detergents/dispersants to prevent carbon deposits on engine parts
. dyes for fuel identification and leak detection
. lubricity agents
LUBRICANT ADDITIVES FOR ENGINE CRANKCASE OILS (PASSENGER CAR,
HEAVY-DUTY VEHICLE AND RAILROAD)
. antioxidants to resist high-temperature degradation
. antiwear agents to protect metal surfaces from abrasion
. corrosion inhibitors to protect metal parts
. detergents to prevent carbon and varnish deposits on engine parts
. dispersants to keep engine parts clean
. pour-point depressants to enable oil flow at cold temperatures
LUBRICANT ADDITIVES FOR SPECIALTY OILS (AUTOMATIC TRANSMISSION,
HYDRAULIC, INDUSTRIAL AND GEAR)
. antioxidants to resist high-temperature degradation
. antiwear agents to protect metal surfaces from abrasion
. corrosion inhibitors to protect metal parts
. detergents to prevent carbon and varnish deposits on engine parts
. friction reducers to facilitate movement
PLANTS
Feluy, Belgium
Houston, Texas
Natchez, Mississippi
Orangeburg, South Carolina
Sarnia, Ontario, Canada
Sauget, Illinois
Yokkaichi, Japan
OFFICES
Brussels, Belgium
Chicago, Illinois
Detroit, Michigan
Hamburg, Germany
Houston, Texas
Milan, Italy
Moscow, Russia
Paris, France
Richmond, Virginia
Singapore
Sydney, Australia
Tokyo, Japan
Washington, D.C.
RESEARCH, DEVELOPMENT
& TESTING FACILITIES
Ashland, Virginia
Bracknell, Berkshire, England
Richmond, Virginia
Yokkaichi, Japan