Exhibit 13
ANNUAL REPORT
FIVE - YEAR SUMMARY
(In Thousands Except Per-Share Amounts)
Years Ended December 31 1993 1992 1991 1990 1989
Results of Operations(1)
Net sales $1,938,390 $1,692,582 $1,534,571 $1,590,940 $1,519,637
Costs and expenses 1,734,635 1,509,260 1,330,721 1,348,736 1,272,824
Special charges(2) 36,150 9,500 11,185 48,710 -
Operating profit 167,605 173,822 192,665 193,494 246,813
Interest and financing expenses 44,085 62,279 59,097 64,839 61,159
Special items:
Gain on sale of 20% of First Colony
Corporation(3) - (93,600) - - -
Gain on sale of subsidiary(4) - - - (78,993) -
Other income, net (9,987) (1,475) (1,652) (8,110) (11,649)
Income from continuing operations before
income taxes and extraordinary item and
cumulative effect of accounting changes 133,507 206,618 135,220 215,758 197,303
Income taxes 43,485 99,373 41,168 79,331 62,133
Income from continuing operations
before extraordinary item and
cumulative effect of accounting
changes 90,022 107,245 94,052 136,427 135,170
Extraordinary after-tax charge due to early
extinguishment of debt(5) (5,000) - - - -
Cumulative effect of accounting changes for:(6)
Postretirement health benefits (net of tax - (34,348) - - -
Deferred income taxes - 19,616 - - -
Income from continuing operations 85,022 92,513 94,052 136,427 135,170
Income from discontinued operations 90,483 162,472 112,616 95,762 96,162
Net income $ 175,505 $ 254,985 $ 206,668 $ 232,189 $ 231,332
Financial Position and Other Data(1)
Total assets - continuing operations $2,009,198 $1,878,898 $1,570,505 $1,385,643 $1,242,754
Net assets of discontinued operations - 658,550 909,876 775,523 706,595
Total $2,009,198 $2,537,448 $2,480,381 $2,161,166 $1,949,349
Continuing Operations:
Working capital $ 407,182 $ 327,840 $ 318,716 $ 277,289 $ 268,312
Current ratio 2.25 to 1 1.71 to 1 2.25 to 1 2.12 to 1 2.28 to 1
Depreciation and amortization $ 127,456 $ 105,765 $ 89,879 $ 88,522 $ 81,683
Capital expenditures 205,029 157,412 166,148 151,822 119,082
Acquisitions of businesses 125,431 136,50 24,035 61,575 33,563
Gross margin as a % of net sales 28.5 29.2 31.9 31.6 31.2
Research and development expenses $ 75,624 $ 73,831 $ 69,119 $ 65,186 $ 61,229
Long-term debt(7) 686,986 711,736 810,849 683,829 497,181
Redeemable preferred stock 200 200 200 214 215
Common and other shareholders' equity 752,581 1,401,279 1,219,313 1,047,606 901,299
Long-term debt as a % of total
capitalization(7) 47.7 33.7 39.9 39.5 35.5
Net Income as a % of shareholders' equity 16.3 19.5 18.2 23.8 22.8
Common Stock
Earnings per share:
Income from continuing operations before
extraordinary item and cumulative effect
of accounting changes $ .76 $ .90 $ .80 $ 1.15 $ 1.13
Extraordinary item (.04) - - - -
Cumulative effect of accounting changes - (.12) - - -
Income from continuing operations .72 .78 .80 1.15 1.13
Income from discontinued operations .76 1.37 .95 .80 .80
Net income $ 1.48 $ 2.15 $ 1.75 $ 1.95 $ 1.93
Shares used to compute earnings per share 118,436 118,380 118,380 119,309 120,038
Dividends per share:
Cash dividends declared:
Regular $ .60 $ .60 $ .60 $ .60 $ .51
Special - - - - 1.50
Subtotal .60 .60 .60 .60 2.01
Dividend of common stock of First
Colony Corporation, at book value 5.72 - - - -
Dividend of common stock of Tredegar
Industries, Inc., at book value - - - - 1.54
Total $ 6.32 $ .60 $ .60 $ .60 $ 3.55
Equity per share(8) $ 6.36 $ 11.84 $ 10.31 $ 8.85 $ 7.53
(1) The results and net assets of the Insurance segment spun off in mid-1993
and the Aluminum, Plastics and Energy businesses spun off in mid-1989 are
reported as discontinued operations. Certain amounts have been
restated/reclassified to conform to the current presentation.
(2) Includes the 1993 writedown 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 cost of Whitby Research,
Inc., and relocation of employees and other related costs ($22,400 after
income taxes); 1992 includes charges for the 1994 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 and expenses
of $4,835 covering the mid-1992 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).
(3) Results from the December 1992 sale of approximately 20% of First Colony
Corporation stock ($30,200 after income taxes).
(4) Resulted from the 1990 sale of Hardwicke Chemical Company ($50,765 after
income taxes).
(5) 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.
(6) 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.
(7) Long-term debt in 1992 includes $250 million of debt of First Colony
Corporation spun off July 1, 1993; excluding the debt and net assets of
discontinued operations at December 31, 1992, the consolidated debt-to-
total-capitalization ratio of the continuing operation would be 38.3%.
(8) Based on the number of common shares outstanding at the end of each year.
The decline in 1993 reflects the dividend of common stock of First Colony
Corporation of $5.72 per share at book value.
1993 FINANCIAL REVIEW
In the financial data and discussion, the accounts and operations of the
Chemicals segment and Corporate activities are reported under the caption
"Chemicals." On July 1, 1993, the Company completed the spin-off of its
approximate 80% interest in First Colony Corporation (First Colony), which
included the operations of First Colony Life Insurance Company and
subsidiaries. Consequently, the accounts and operations of the Insurance
segment are reported as "Discontinued Insurance Operation."
The Company has scheduled a spin-off to Ethyl's shareholders of its Chemicals
Businesses, which include the Olefins and Derivatives Division, the Bromine
Chemicals Division and the Specialty Chemicals Division. The Internal
Revenue Service has acted favorably on the requested determination that the
spin-off will be tax-free to Ethyl and its shareholders. A Form 10 has been
filed with the Securities and Exchange Commission, and an Information
Statement was mailed to Ethyl shareholders. The spin-off transaction is
scheduled to be completed on February 28, 1994. The impact of the spin-off
has not been reflected in the financial information being presented, but pro
forma disclosures are included in the Notes to Financial Statements.
Results of Operations:
1993 Compared to 1992
Net Sales
Net sales for 1993 increased $245.8 million (15%) from 1992. The increase
primarily reflected acquisition of Amoco's petroleum additives business in
June 1992, a lubricant additives business in Japan at the end of 1992 and the
organic and inorganic brominated compounds business of Potasse et Produits
Chimiques (PPC) in February 1993. 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
Cost of goods sold in 1993 increased $187.2 million (16%), 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 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 higher environmental operating costs. 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 Ethyl's 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 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 due to
low capacity utilization caused by continuing excess capacity in the
marketplace, a situation likely to continue into 1994. The decline in the
gross profit margin also reflected the impact of low profit margins from the
PPC operations, which reflected the ongoing recession in Europe that
continues in 1994.
Selling, general and administrative expenses combined with research-and-
development expenses increased 12% in 1993 over 1992. The 1993 increase
reflected the impact of the PPC and petroleum additives acquisitions, higher
employee-related expenses, higher expenses for outside consulting and
testing costs and increased technical services expenses, partially offset by
the favorable effect of foreign exchange rates and the recovery of prior
years' legal fees resulting from settlement of a lawsuit in 1993. The
additional technical services expenses are due mainly to changes in the
lubricant additives market and the efforts to integrate the lubricant
additives products and technologies acquired from Amoco in 1992.
Selling, general and administrative and research-and-development expenses as
a percentage of net sales decreased slightly to 18% in 1993 from 18.3% in
1992.
Special Charges
Special charges in 1993 amounted to $36.1 million, while 1992 had special
charges of $9.5 million. The 1993 special charges include the provisions for
corporate downsizing, plant write-down and related costs amounting to $36.1
million ($22.4 million after income taxes, or $.19 per share). The major
components included $14.2 million related to ceasing production at the
Canadian antiknock facility, including plant write-down and other related
costs, $14.3 million for downsizing costs of Whitby Reasearch, Inc.,
relocation of employees and other related costs as well as $7.6 million for
work-force reductions in the U.S. and Europe. The early-retirement and work-
force-reduction program is expected to result in annual after-tax savings of
about $12 million.
In 1992 special charges were $9.5 million ($6 million after income taxes, or
$.05 per share) for estimated relocation and related expenses in connection
with the planned transfer of Petroleum Additives Division R&D personnel from
St. Louis, Missouri, to Richmond, Virginia, when new research facilities are
completed in mid-1994.
Operating Profit
Operating profit in 1993 decreased 4% from 1992. However, 1993 included
special charges of $36.1 million (discussed earlier), while1992 included a
special charge of $9.5 million (also discussed earlier). 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; and 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 ship-
ments 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
Interest and financing expenses in 1993 decreased $18.2 million (29%) from
1992 due to lower average outstanding long-term debt and slightly lower
average interest rates in 1993.
Other Income, Net
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 results reflected losses on non-
operating assets that did not recur in 1993.
Income Taxes
Income tax expense in 1993 decreased 56% from 1992, reflecting a 35%
reduction in income from continuing operations before income taxes and
extraordinary item and the cumulative effect of accounting changes 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 to be realized in 1994 in
connection with the downsizing of Whitby Research in addition to other
favorable tax credits, which were partly offset by (1) the absence of a tax
benefit on significant operating losses of the Company's Belgian subsidiary,
(2) a nonrecurring deferred tax charge required by Financial Accounting
Standards Board (FASB) Statement No. 109, and (3) additional taxes on the
first-half 1993 earnings of the spun-off insurance business resulting from
federal income tax legislation, which increased the income tax rate
retroactive to January 1, 1993. 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 15 of Notes to Financial Statements on Page 40 for details of
changes in effective income tax rates.
Extraordinary Item
In December 1993, the Company redeemed its $116.25-million 9 3/8% Sinking Fund
Debentures at a premium, resulting in an after-tax charge of $5 million
($.04 per share).
Discontinued Insurance Operation
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 operation that was reported in the 1992 period.
1992 Compared to 1991
Net Sales
Net sales for 1992 increased $158 million (10%) from 1991, largely due to
increased shipments of lubricant additives and fuel additives other than
antiknocks, primarily reflecting the acquisition of Amoco's petroleum
additives business in June 1992. Shipments of flame retardants,
pharmaceutical products and agricultural intermediates also were higher.
Olefin shipments were down slightly for the year, and zeolite volumes also
were lower. Antiknock shipments declined, as expected, but the impact was
offset in part by higher selling prices.
Costs & Expenses
Cost of goods sold in 1992 increased $154.4 million (15%) from 1991,
primarily reflecting increased shipments due to the acquisition of Amoco's
petroleum additives business and higher start-up costs at Ethyl's new olefin
facilities in Feluy ($12.7 million in 1992 versus $3.9 million in 1991).
Other significant factors were high operating costs (including depreciation
on the new linear and poly alpha olefin facilities) due to low capacity
utilization at the Feluy and Houston olefin manufacturing facilities, an
unfavorable foreign-exchange effect and higher environmental costs, partially
offset by slightly lower per-unit raw material costs. Maintenance and repairs
of fixed assets amounted to $83.5 million in 1992 versus $81 million in 1991.
Average raw material costs decreased during 1992 from 1991. The average
prices for ethylene, process oil, aluminum metal and bisphenol-A were lower
than 1991 prices, while average prices of phenol, isobutylene, sodium metal
and lead metal were higher than in 1991. Average prices for polybutenes and
for 2-ethyl-1-hexanol were about the same in 1992 as in 1991. Average energy
unit costs increased in 1992 over the prior year.
Gross profit margin decreased to 29.2% in 1992 from 31.9% in 1991. The
decrease mainly reflected high operating costs at the olefin manufacturing
facilities due to start-up costs at Feluy as well as low capacity utilization
caused by excess capacity in the marketplace, unfavorable foreign-exchange
effects and higher environmental costs.
Selling, general and administrative expenses combined with research-and-
development expenses increased 8% in 1992 over 1991. The 1992 increase mainly
reflects higher employee-related and other expenses to support business
expansions (including the addition of over 100 sales and technical-services
support staff with the Amoco acquisition in late June 1992) and advertising
and promotional costs of new pharmaceutical products as well as the effect of
inflation, offset in part by lower expenses associated with product testing
and outside consulting related to HiTEC- 3000 performance additive (MMT).
Selling, general and administrative and research and development expenses as
a percentage of net sales decreased slightly to 18.3% in 1992 from 18.6% in
1991.
Special Charges
Special charges in 1992 amounted to $9.5 million, while 1991 had special
charges of $11.2 million. The 1992 special charges of $9.5 million
represented the estimated relocation and related ex-penses in connection with
the planned transfer of Petroleum Additives Division R&D employees from St.
Louis to Richmond when new research facilities are completed in mid-1994.
In 1991, special charges of $11.2 million reflected a charge of $6.4 million
resulting from the discontinuation of certain developmental research
programs as well as a charge of $4.8 million for the relocation of the
Petroleum Additives Division headquarters to Richmond in 1992.
Operating Profit
Operating profit in 1992 decreased 10% from 1991. However, special charges of
$9.5 million in 1992 and $11.2 million in 1991 and an additional annual
charge of $4 million in connection with the accounting change for
postretirement health costs in 1992 affected the comparison. Excluding the
effects of these items, 1992 operating profit decreased 8% resulting
primarily from lower olefins profit, mainly reflecting start-up costs of
$12.7 million related to the new linear alpha olefin facility in Feluy in
1992 versus $3.9 million related primarily to the new poly alpha olefin
facility in 1991 and higher production costs at the Feluy and Houston olefin
manufacturing facilities as well as lower profit margins. Lubricant additives
profit declined from 1991 reflecting lower shipments and higher costs.
However, lubricant additives in the second half of 1992 had improved results
versus the prior year, reflecting the benefit of the acquisition of Amoco's
petroleum additives business. Operating profit for 1992 compared to 1991
reflected higher selling and administrative expenses, an unfavorable foreign-
exchange impact and higher environmental costs, partially offset by im-proved
1992 results in silicon materials, flame retardants and fuel additives other
than antiknocks as well as Whitby Pharmaceuticals, reflecting higher
shipments. Overall antiknock profit was slightly ahead of 1991 in spite of a
decline in MMT results due to lower shipments.
Interest & Financing Expenses
Interest and financing expenses in 1992 increased $3.2 million (5%) due to a
lower amount of interest capitalized and interest on higher average debt
outstanding in 1992, partially offset by a lower average interest rate in
1992.
Other Income, Net
Other income, net, decreased 11% in 1992 (to $1.5 million in 1992 from $1.7
million in 1991) due to lower interest income from a reduction in short-term
securities.
Gain on Sale of 20% Interest in First Colony Corporation
In December 1992, the Company sold approximately 20% of its investment in
First Colony for $256.4 million, net of selling expenses. This resulted in a
$93.6-million gain ($30.2 million after income taxes, or $.25 per share).
Income Taxes
Income tax expense in 1992 increased 141% from 1991 reflecting a 53% increase
in income from continuing operations before income taxes and cumulative
effect of accounting changes as well as a higher effective income tax rate
(48.1% in 1992 versus 30.4% in 1991). The increased rate is due primarily to
a high tax rate on the gain on the sale of 20% of the Company's interest in
First Colony Corporation due to a lower tax basis than book basis. Excluding
the impact of this sale, the 1992 effective tax rate would be 31.8% versus
30.4% in 1991, reflecting reduced benefits from the Company's foreign sales
corporation.
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 cumulative noncash charge of $54.5
million, or $34.3 million, net of income taxes, and increased its 1992 annual
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 net income by $19.6 million.
The combined cumulative net charge amounted to $14.7 million ($.12 per
share). (See Notes 14 and 15 of Notes to Financial Statements on Pages 39 and
40 for details.)
Discontinued Insurance Operation
In 1992, the Company's interest in First Colony's income after income taxes
increased $49.9 million (44%) to $162.5 million over 1991 including a $60.6
million increase in realized gains on investments as a result of bond calls and
redemptions. Excluding realized gains, Insurance profit increased due to higher
earnings on increased business in force, relatively better life insurance
mortality experience and accelerated income from collateralized mortgage
obligations (CMOs) in the bond portfolio. These increases were offset in part by
accelerated amortization of deferred acquisition costs related to both realized
investment gains and CMO income and a provision for guaranty fund costs related
to the insolvency of certain life insurance companies.
Information About Significant Product Lines
Lead antiknock compounds, which are sold worldwide by the Petroleum Additives
Division to petroleum refiners, remain one of the Company's largest product
lines. The Company estimates that it accounts for approximately one-third of
the total worldwide sales of lead antiknock compounds. For a number of years
lead antiknock compounds have been subject to regulations restricting the
amount of the product that can be used in gasoline in the United States.
Similar restrictions have been in effect 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 forecast and planned, the market for
these products in other major areas of the world, particularly Western
Europe, continues to decline as use of unleaded gasoline grows.
The contribution of lead antiknock compounds to the Company's net sales has
declined to about 13% in 1993 from about 16% in 1992 and about 19% in 1991.
The lead antiknock profit contribution to the Company's operating profit
excluding allocation of corporate expenses is estimated to have been 49% in
1993, 50% in 1992 and 44% in 1991. Excluding the costs related to the
planned cessation of lead antiknock compound production at the Company's
Canadian plant, the 1993 lead antiknock profit contribution would have been
about 52%. 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 significant 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 increased
market share and/or higher selling prices.
The Company currently produces some of its lead antiknock compounds in its
subsidiary's Canadian plant and obtains 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 will allocate a portion of its production
capacity of lead antiknock compounds to the Company for sale and distribution
through the Company's worldwide network. Ethyl also announced that its
Canadian subsidiary would cease production of lead antiknock compounds by
March 31, 1994. The agreement continues so long as the Company 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 lead
antiknock compounds, which 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 escalations and adjustments.
In addition to the supply agreement, Octel and the Company have agreed that
the Company will assume the distribution for Octel of any of its lead
antiknock compounds that are shipped in bulk.
The Company believes the agreements with Octel will 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 lead 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. The Company and Octel will continue to compete
vigorously in sales and marketing of lead antiknock compounds.
The Company also sells manganese-based antiknock compounds (MMT) used in
unleaded gasoline in Canada. The Company 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), which is required 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 satisfy 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 (until May 29, 1994) to resolve this last remaining issue.
Financial Condition & Liquidity:
Consolidated cash and cash equivalents at December 31, 1993, were about $48.2
million, which represents a decrease of $114.8 million from $163 million at
year-end 1992. The large decrease primarily is due to the use of $100 million
reserved at the end of 1992 for the early redemption on January 11, 1993, of
the Company's $100-million 11% Notes due in 1995.
Cash flows from operating activities in 1993 of $150.1 million, supplemented
by additional long-term debt of $360.4 million, were used primarily to
provide funds for capital expenditures, to acquire the organic and inorganic
brominated compounds business of Potasse et Produits Chimiques (PPC) from
Rhone-Poulenc S.A. in February 1993 and 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 common shareholders 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 was repaid with a like amount of
short-term securities reserved for this purpose. The balance of $130.4 mil
lion included the early repayment on December 15, 1993, of the Company's
$116.25-million 9 3/8% Sinking Fund Debentures due in 2016 and the remaining
amount consisted of scheduled debt repayments.
Cash flows from operating activities in 1992 of $222.1 million, supplemented by
additional long-term debt of $164.5 million, were used primarily to provide
funds for capital expenditures, to acquire the lubricant and fuel additives
business from Amoco in June and a lubricant additives business in Japan in
December (for a total of $136.5 million) and to pay regular quarterly dividends
to common shareholders. A $250-million special dividend received from First
Colony in December 1992 was used to repay a like amount of long-term debt.
Additional long-term debt of approximately $150 million was repaid in December
with part of the proceeds from the sale of approximately 20% of First Colony.
The balance of the proceeds were invested in short-term securities and reserved
for purposes of redeeming, at principal amount on January 11, 1993, the
Company's $100-million 11% Notes.
The Company anticipates that cash provided from operations in the future will
be sufficient to pay its operating expenses, satisfy debt-service obligations
and make dividend payments to common shareholders. With respect to operating
expenses, management expects that, because the discount rates used for
actuarial calculations in connection with the Company's pension and
postretirement benefit plans declined, pension and postretirement benefit
expenses will increase in 1994.
The noncurrent portion of Ethyl's consolidated long-term debt amounted to
$687 million at December 31, 1993, representing an increase of $225.3 million
from $461.7 million at the end of 1992. The Company's long-term debt as a
percent of total capitalization at December 31, 1993, was 47.7%. On a pro
forma basis, assuming the spin-off of First Colony had taken place at
December 31, 1992, the Company's long-term debt as a percent of total
capitalization would have been 38.3% at December 31, 1992. The Company
targets a range of 40% to 50% for its long-term debt ratio.
The Company's capital-spending program over the next three to five years is
expected to decrease from current levels, but it likely will be maintained at
the current level in 1994 by spending on projects already approved
(primarily an additional $130 million for petroleum additives facilities to
manufacture products now provided by Amoco under a short-term supply
agreement expiring in mid-1995). Capital spending for environmental and
safety projects likely will increase somewhat from current levels. The
capital spending will be financed with a mixture of cash provided from
operations and additional long-term debt.
Ethyl's acquisition searches are primarily for chemical businesses and are
normally for cash and are funded through internal and external sources,
including the use of existing lines of credit and long-term debt. The
proceeds from occasional sales of businesses normally are used to repay long-
term debt.
On February 16, 1994, Ethyl entered into a new five-year, $1-billion
unsecured credit facility to replace its existing $700-million credit
agreement. On March 1, 1994, the credit facility automatically will be split
into twoseparate, $500-million facilities upon the scheduled spin-off of the
Company's Chemicals Businesses to be contained in a wholly owned subsidiary,
Albemarle Corporation. The initial proceeds from the Albemarle credit
facility will be utilized by Albemarle to absorb the planned transfer from
the Company to Albemarle of a portion of the Company's borrowing under the
credit facility. Fees of up to 3/8 of 1% per annum are assessed on the unused
portion of the new 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 for a
credit facility agreement of this size and nature, including financial
covenants requiring the Company to maintain consolidated indebtedness (as
defined) of not more than 60% of the sum of shareholders' equity and
consolidated indebtedness and maintenance of minimum shareholders' equity of
at least $250 million after the spin-off.
The amount and timing of additional borrowing will depend on the Company's
specific cash requirements. See Notes 9 and 21 of Notes to Financial
Statements on pages 37 and 44 for information on unused lines of credit.
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 produces 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 competitive position.
Environmental operating and remediation costs charged to expense were
approximately $61 million in 1993, $51 million in 1992 and $38 million in
1991 (excluding depreciation of previous capital expenditures) and are
expected to be somewhat higher in the next few years than in the past.
Virtually all of the costs represent ongoing costs of operations. For sites
where Ethyl has been named a Potentially Responsible Party (PRP), costs had
been accrued previously, and payments related to such sites were charged
against accrued reserves, which at December 31, 1993, were immaterial.
Capital expenditures for pollution-abatement and safety projects, including
such costs that are included in other projects, were approximately $30
million in 1993, versus $29 million in 1992 and $25 million in 1991. For each
of the next few years, capital expenditures for these types of proj-ects are
likely to exceed current levels. 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 and (2) uncertainty as to whether anticipated solutions to
pollution problems will be successful, or whether additional expenditures may
prove necessary.
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 PRP and may be liable for a share of the costs associated
with cleaning up various hazardous-waste sites. In most cases, the Company's
participation is de minimis. Further, almost all such sites represent
environmental issues that are quite mature and have been investigated,
studied and in many cases settled.
In de minimis 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 other than de minimis PRP matters, the Company's records indicate that
unresolved exposures are immaterial. The Company accrues and expenses its
proportionate share of PRP costs in accordance with FASB Statement No. 5 and
FASB Interpretation No. 14.
Because management has been actively involved in evaluating environmental
matters, the Company is able to conclude that the outstanding environmental
liabilities for unresolved PRP sites for which the Company would not be a de
minimis participant are not material.
GEOGRAPHIC AREAS:
(In Thousands)
1993 1992 1991 1990 1989
Net sales:
Domestic unaffiliated:
United States $ 969,438 $ 829,432 $ 712,826 $ 778,127 $ 758,308
Export 338,944 352,596 323,564 279,639 285,375
Transfers to foreign affiliates 258,966 270,887 331,751 313,068 297,286
Foreign unaffiliated 630,008 510,554 498,181 533,174 475,954
Elimination of transfers (258,966) (270,887) (331,751) (313,068) (297,286)
Total $ 1,938,390 $1,692,582 $1,534,571 $1,590,940 $1,519,637
Operating profit:
Domestic $ 161,590 $ 174,870 $ 178,776 $ 178,538 $ 230,950
Foreign 42,392 35,068 52,058 50,833 52,036
Subtotal 203,982 209,938 230,834 229,371 282,986
Unallocated expenses (36,377) (36,116) (38,169) (35,877) (36,173)
Operating profit 167,605 173,822 192,665 193,494 246,813
Interest and financing expenses (44,085) (62,279) (59,097) (64,839) (61,159)
Gain on sale of 20% of First
Colony Corporation - 93,600 - - -
Gain on sale of Hardwicke Chemical Company - - - 78,993 -
Other income, net 9,987 1,475 1,652 8,110 11,649
Income from continuing operations before income
taxes and extraordinary item and cumulative effect
of accounting changes $ 133,507 $ 206,618 $ 135,220 $ 215,758 $ 197,303
Identifiable assets:
Domestic $ 1,250,650 $1,155,860 $ 975,415 $ 894,269 $ 895,191
Foreign 628,830 517,390 484,498 407,501 245,887
Non-operating assets 129,718 205,648 110,592 83,873 101,676
Net assets of discontinued
insurance operation - 658,550 909,876 775,523 706,595
Total $ 2,009,198 $2,537,448 $2,480,381 $2,161,166 $1,949,349
Refer to notes (a) through (g) on page 28.
Geographic Areas
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 priced at various
discounts depending on the product and economic activity of the transferee.
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. Net unaffiliated sales of foreign subsidiaries
for 1992 increased 2% over 1991.
Export sales decreased 4% in 1993 from 1992. This decrease was due to a
decline in shipments of lead antiknocks 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. Export sales increased 9%
in 1992 from 1991 due primarily to higher lead antiknock selling prices and
increased shipments of flame retardants to the Far East. Transfers to foreign
affiliates declined in 1993 and 1992 from the prior year with the 1992
decrease due primarily to lower lead antiknock volume and lower olefins
shipments and selling prices to Ethyl S.A.
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 a $14.2-million charge for
write-down of the Canadian plant and other costs. Foreign operating profit
for 1992 decreased 33% from 1991 due mainly to higher linear and poly alpha
olefin costs due to low capacity utilization as well as $12.7 million in
start-up costs at the Feluy olefins manufacturing plant in 1992 versus $3.9
million in 1991 and an unfavorable foreign-exchange effect. This was offset
partially by higher operating profit at Ethyl Canada due to higher antiknock
shipments.
Total assets, excluding net assets of the discontinued insurance operation,
were $2,009.2 million at the end of 1993, an increase of $130.3 million from
$1,878.9 million at the end of 1992, which was $308.4 million higher than
$1,570.5 million at the end of 1991. 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 increase in 1992 primarily
reflected the acquisitions of petroleum additives businesses.
The decrease in non-operating assets in 1993 primarily reflected the use of
$100 million in short-term securities reserved in 1992 for redemption of the
Company's $100 million of 11% Notes on January 11, 1993. The increase in non-
operating assets in 1992 mainly reflected the short-term securities used to
redeem the 11% Notes.
SELECTED QUARTERLY FINANCIAL DATA (a)
(In Thousands Except Earnings Per Share) (Unaudited)
First Second Third Fourth
1993 Quarter Quarter Quarter Quarter
Net sales $ 469,828 $495,038 $486,874 $486,650
Gross profit $ 131,008 $140,486 $150,349 $130,296
Special charges (b) - $ 2,400 $ 10,600 $ 23,150
Income from continuing operations before
extraordinary item $ 26,329 $ 30,825 $ 19,966 $ 12,902
Extraordinary after-tax charge due to early
extinguishment of debt (e) - - - (5,000)
Income from continuing operations 26,329 30,825 19,966 7,902
Income from discontinued insurance operation (f) 45,536 44,947 - -
Net income $ 71,865 $ 75,772 $ 19,966 $ 7,902
Earnings per share:
Income from continuing operations before
extraordinary item $ .22 $ .26 $ .17 $ .11
Extraordinary after-tax charge (e) - - - (.04)
Income from continuing operations .22 .26 .17 .07
Income from discontinued insurance operation (f) .39 .38 - -
Net income $ .61 $ .64 $ .17 $ .07
Shares used to compute earnings per share 118,428 118,436 118,444 118,436
1992
Net sales $389,158 $373,802 $460,672 $468,950
Gross profit $125,349 $112,139 $130,272 $125,726
Special charges (c) - - - $ 9,500
Gain on sale of 20% of First
Colony Corporation (d) - - - $ 93,600
Income from continuing operations
before cumulative effect of accounting
changes $ 26,196 $ 17,340 $ 22,307 $ 41,402
Cumulative effect of accounting changes
(net of tax) (g) (14,732) - - -
Income from continuing operations 11,464 17,340 22,307 41,402
Income from discontinued insurance
operation (f) 36,789 34,667 48,977 42,039
Net income $ 48,253 $ 52,007 $ 71,284 $ 83,441
Earnings per share:
Income before cumulative effect of
accounting changes $ .22 $ .15 $ .19 $ .34
Cumulative effect of accounting changes (g) (.12) - - -
Income from continuing operations .10 .15 .19 .34
Income from discontinued insurance operation (f) .31 .29 .41 .36
Net income $ .41 $ .44 $ .60 $ .70
Shares used to compute earnings per share 118,348 118,380 118,379 118,415
Notes to Financial Tables
(a) Certain 1993 previously reported quarterly amounts and certain prior-
year amounts have been restated/reclassified to conform to current
presentation.
(b) Operating profit for 1993 includes special charges for the
write-down of the Canadian plant and other 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 ($22,400 after income taxes).
(c) Operating profit for 1992 includes a special charge of $9,500 ($6,000 after
income taxes) for expenses covering the planned 1994 relocation of Petroleum
Additives Division research and development personnel from St. Louis, Missouri,
to Richmond, Virginia.
(d) Reflects the sale of approximately 20% of Ethyl's investment in First Colony
Corporation, which owns First Colony Life Insurance Company ($30,200 after
income taxes).
(e) The extraordinary item is the result of the early redemption of Ethyl's
$116,250 9 3/8% Sinking Fund Debentures, net of income taxes of $3,000.
(f) 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. Theresults of the Insurance business are reported as a
discontinued insurance operation.
(g) The cumulative effect of accounting changes results from a change in the
method of accounting for postretirement health benefits and deferred income
taxes in accordance with FASB Statements No. 106 and No. 109, respectively,
retroactive to January 1, 1992.
HOW ETHYL USED THE REVENUES IT RECEIVED
Continuing Operations
(In Millions) (Unaudited)
1993 1992
Materials,
services, etc. $1,242.1 63.8% $1,062.0 62.7%
Payrolls &
employee benefits 327.3 16.8 300.0 17.7
Current income &
other taxes 94.0 4.8 80.5 4.7
Regular dividends
declared 71.0 3.6 71.0 4.2
Interest expense 44.1 2.3 62.3 3.7
For use in the business
including expansion &
modernization 169.9 8.7 118.3 7.0
Total revenues $1,948.4 100.0% $1,694.1 100.0%
Dividend Information & Equity per Common Share
During 1993 and 1992, the quarterly dividend rate on the common stock was
$.15 per share, or $.60 on an annual basis.
See Note 11 of Notes to Financial Statements on page 38 for details of
restrictions on dividends.
Equity per common share at December 31, 1993, was $6.36. This reflects the
distribution on July 10, 1993, in the form of a tax-free dividend, of one
share of First Colony Corporation common stock for every three shares of
Ethyl common stock (equivalent to $5.72 per common share based on book
value). Excluding the impact of this special dividend in 1993, equity per
common share would have been about $12.08 per share at December 31, 1993, and
would have compared favorably to $11.84 per share at December 31, 1992, which
was up 15% from $10.31 at December 31, 1991.
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 Cumulative First Preferred 6% Series A stock is not listed.
There were 118,405,287 shares of common stock held by 13,939 shareholders of
record, as of December 31, 1993. On that date, there were 28 shareholders of
record of Cumulative First Preferred 6% Series A stock.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars Except Share Data)
December 31 1993 1992
ASSETS
Current assets:
Cash and cash equivalents $ 48,201 $ 162,988
Accounts receivable, less allowance
for doubtful accounts (1993 - $4,189;
1992 - $4,062) 345,160 316,582
Inventories:
Finished goods 219,001 214,527
Work-in-process 12,419 11,434
Raw materials 32,173 26,569
Stores, supplies and other 27,221 27,249
290,814 279,779
Deferred income taxes and prepaid
expenses 49,522 29,584
Total current assets 733,697 788,933
Property, plant and equipment, at cost 1,908,630 1,639,216
Less accumulated depreciation and
amortization (910,360) (809,442)
Net property, plant and equipment 998,270 829,774
Other assets and deferred charges 164,382 160,394
Goodwill and other intangibles -
net of amortization 112,849 99,797
Net assets of discontinued
insurance operation - 658,550
Total assets $2,009,198 $2,537,448
See accompanying notes to financial statements.
December 31 1993 1992
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 154,971 $ 159,372
Accrued expenses 125,704 94,112
Long-term debt, current portion 14,056 114,456
Dividends payable 17,764 17,756
Income taxes payable 14,020 75,397
Total current liabilities 326,515 461,093
Long-term debt 686,986 461,736
Other noncurrent liabilities 99,240 98,800
Deferred income taxes 143,676 114,340
Redeemable preferred stock:
Cumulative First Preferred
($100 par value) 6% Series A 200 200
Shareholders' equity:
Common stock ($1 par value)
Issued - 118,405,287 in 1993 and
118,357,515 in 1992 118,405 118,358
Additional paid-in capital 2,450 1,708
Foreign currency translation adjustments (1,757) 9,840
Unrealized gain on marketable equity
securities of discontinued insurance
operation (net of deferred income
taxes of $33,434) - 64,901
Retained earnings 633,483 1,206,472
752,581 1,401,279
Total liabilities & shareholders' equity $2,009,198 $2,537,448
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per-Share Amounts)
Years ended December 31 1993 1992 1991
Net sales $1,938,390 $1,692,582 $1,534,571
Cost of goods sold 1,386,251 1,199,096 1,044,720
Gross profit 552,139 493,486 489,851
Selling, general and administrative
expenses 272,760 236,333 216,882
Research and development expenses 75,624 73,831 69,119
Special charges 36,150 9,500 11,185
Operating profit 167,605 173,822 192,665
Interest and financing expenses 44,085 62,279 59,097
Gain on sale of 20% interest in
First Colony Corporation - (93,600) -
Other income, net (9,987) (1,475) (1,652)
Income from continuing operations before
income taxes and extraordinary item and
cumulative effect of accounting changes 133,507 206,618 135,220
Income taxes 43,485 99,373 41,168
Income from continuing operations before
extraordinary item and cumulative effect of
accounting changes 90,022 107,245 94,052
Extraordinary after-tax charge due to
early extinguishment of debt (5,000) - -
Income from continuing operations before
cumulative effect of accounting changes 85,022 107,245 94,052
Cumulative effect of accounting
changes for:
Postretirement health benefits (net of tax) - (34,348) -
Deferred income taxes - 19,616 -
Total - (14,732) -
Income from continuing operations 85,022 92,513 94,052
Income from discontinued insurance operation 90,483 162,472 112,616
Net income $ 175,505 $ 254,985 $ 206,668
Earnings per share:
Income from continuing operations before
extraordinary item and cumulative effect
of accounting changes $ .76 $ .90 $ .80
Extraordinary item (.04) - -
Cumulative effect of accounting changes - (.12) -
Income from continuing operations .72 .78 .80
Income from discontinued insurance operation .76 1.37 .95
Net income $ 1.48 $ 2.15 $ 1.75
See accompanying notes to the financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands of Dollars Except Share Data)
Years Ended December 31 1993 1992 1991
Shares Amounts Shares Amounts Shares Amounts
Common stock
(authorized 400,000,000 shares)
Beginning balance 118,357,515 $ 118,358 118,316,994 $ 118,317 118,324,675 $ 118,325
Issued upon exercise of stock
options and SARs 75,714 75 59,199 59 63,936 64
Purchased and retired (27,942) (28) (18,678) (18) (71,617) (72)
Ending balance 118,405,287 118,405 118,357,515 118,358 118,316,994 118,317
Additional paid-in capital
Beginning balance 1,708 865 398
Exercise of stock options and SARs 1,374 1,367 1,185
Retirement of purchased common stock (621) (524) (716)
Distribution of common stock under bonus plan (11) - (3)
Retirement of purchased 6% First Preferred stock - - 1
Ending balance 2,450 1,708 865
Foreign currency translation adjustments
Beginning balance 9,840 20,993 19,107
Translation adjustments (11,597) (11,153) 1,886
Ending balance (1,757) 9,840 20,993
Unrealized gain on marketable equity securities
Beginning balance 64,901 56,640 21,903
Unrealized gains 13,326 8,261 34,737
Spinoff of First Colony Corporation (78,227) - -
Ending balance - 64,901 56,640
Retained earnings
Beginning balance 1,206,472 1,022,498 887,873
Net income 175,505 254,985 206,668
Cash dividends declared:
First Preferred stock, $6.00 per share (12) (12) (12)
Common stock, $.60 per share (71,033) (70,999) (70,994)
Dividend of common stock of
First Colony Corporation, at book value (677,449) - -
Retirement of common stock - - (1,037)
Ending balance 633,483 1,206,472 1,022,498
Total shareholders' equity $ 752,581 $1,401,279 $1,219,313
See accompanying notes to the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Years ended December 31 1993 1992 1991
CONTINUING OPERATIONS:
Cash and cash equivalents at beginning of year $162,988 $ 36,031 $ 32,632
Cash flows from operating activities:
Income from continuing operations 85,022 92,513 94,052
Adjustments to reconcile income from continuing operations
to cash flows from continuing operating activities:
Depreciation and amortization 127,456 105,765 89,879
Special charges 36,150 9,500 11,185
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 (7,663) (3,030) 6,469
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 (16,268) 3,506 (4,390)
(Increase) in inventories (918) (16,807) (31,619)
(Decrease) increase in accounts payable and accrued expenses (13,686) 43,879 20,083
(Decrease) increase in income taxes payable (2,454) 3,231 (32,485)
Other, net 3,046 (1,022) (19,789)
Cash provided from continuing operating activities 150,133 222,067 133,385
Cash flows from investing activities:
Capital expenditures (205,029) (157,412) (166,148)
Acquisitions of businesses (net of $5,369 cash acquired in 1993 (125,431) (136,500) (24,035)
Proceeds from sale of 20% interest in First Colony Corporation - 256,350 -
Other, net 537 (4,274) (17,350)
Cash used in investing activities of continuing operations (329,923) (41,836) (207,533)
Cash flows from financing activites:
Additional long-term debt 360,448 164,500 138,400
Repayment of long-term debt (230,355) (409,700) (2,260)
Cash dividends paid (71,037) (71,006) (71,008)
Repurchases of capital stock (649) (543) (1,838)
Other, net 1,448 1,475 1,253
Cash provided from (used in) financing activities of
continuing operations 59,855 (315,274) 64,547
Net cash used in continuing operations (119,935) (135,043) (9,601)
Cash provided by discontinued insurance operation 5,148 262,000 13,000
(Decrease) increase in cash and cash equivalents (114,787) 126,957 3,399
Cash and cash equivalents at end of year $ 48,201 $162,988 $ 36,031
See accompanying notes to the financial statements.
NOTES TO FINANCIAL STATEMENTS
Ethyl Corporation & Subsidiaries
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 - On April 22,1993, Ethyl's board
of directors approved the spin-off of Ethyl's 80-percent interest in First
Colony Corporation (First Colony) in the form of a stock dividend to Ethyl
common shareholders. The tax-free distribution was made on July 1, 1993. 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.
Previously reported financial statements for all periods and certain amounts
in the accompanying financial statements and notes thereto have been restated
to conform to the current presentation.
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. Translation
adjustments (net of deferred income tax benefit of $1,164,000 in 1993 and
deferred income tax charges of $5,716,000 and $12,140,000 in 1992 and 1991,
respectively) 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 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
($75,333,000 and $57,895,000 at December 31, 1993 and 1992, respectively, net
of accumulated amortization) is amortized on a straight-line basis, over
periods from 10 to 20 years. Goodwill of $22,065,000 arising from the 1993
acquisition of Potasse et Produits Chimiques S.A. (PPC) is being amortized on
a straight-line basis over periods of 16 to 20 years. Other intangibles
($35,864,000 and $40,250,000 at December 31, 1993 and 1992, respectively, net
of accumulated amortization) are amortized on a straight-line basis primarily
over periods from three to 17 years. Amortization of goodwill and other
intangibles amounted to $14,464,000 for 1993, $9,508,000 for 1992 and
$5,598,000 for 1991. Accumulated amortization of goodwill and other
intangibles was $41,058,000 and $26,594,000 at the end of 1993 and 1992,
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 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.
Research & Development Expenses - Company- sponsored research-and-development
expenses related to present and future products are expensed currently as
incurred.
Income Taxes - In the fourth quarter of 1992, the Company adopted FASB
Statement No. 109, "Accounting for Income Taxes," retroactive to January 1,
1992. 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.
Prior to 1992, the provision for income taxes was based on APB No. 11 and
deferred income taxes arose from differences in recognition of revenue and
expense between financial and income tax reporting of various items.
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 118,436,000 in 1993 and 118,380,000 in 1992 and 1991.
2. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental information for the Consolidated Statements of Cash Flows is as
follows: (In Thousands)
1993 1992 1991
Cash paid during the year for:
Income taxes $110,867 $35,863 $85,127
Interest and financing expenses
(net of capitalization) 45,352 62,320 58,225
Supplemental investing and
financing non-cash transactions:
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 Note 20 with respect to Discontinued
Insurance Operation.
3. INDUSTRY SEGMENT:
The geographic areas table on page 26 (and the related notes on page 28) is
an integral part of the consolidated financial statements. Information about
the Company's geographic areas is presented for the years 1989-1993. The
discussion of geographic areas information is unaudited.
4. CASH & CASH EQUIVALENTS:
Cash and cash equivalents consist of the following:
(In Thousands)
1993 1992
Cash and time deposits $43,854 $ 62,988
Short-term securities 4,347 100,000
Total $48,201 $162,988
Short-term securities (generally commercial paper maturing in less than 90
days) are stated at cost plus accrued income, which approximates market
value.
5. INVENTORIES:
Domestic inventories stated on the LIFO basis amounted to $115,874,000 and
$98,323,000 at December 31, 1993 and 1992, respectively, which are below
replacement cost by approximately $36,239,000 and $49,089,000, respectively.
6. DEFERRED INCOME TAXES & PREPAID EXPENSES:
Deferred income taxes and prepaid expenses consist of the following:
(In Thousands)
1993 1992
Deferred income taxes-current $42,754 $23,697
Prepaid expenses 6,768 5,887
Total $49,522 $29,584
7. PROPERTY, PLANT & EQUIPMENT, AT COST:
Property, plant and equipment, at cost consist of
the following:
(In Thousands)
1993 1992
Land $ 60,22 7 $ 54,131
Land improvements 59,637 57,313
Buildings 137,980 114,995
Machinery and equipment 1,436,965 1,293,997
Capitalized interest 41,580 36,419
Construction in progress 172,241 82,361
Total $1,908,630 $1,639,216
Interest capitalized on significant capital projects in
1993, 1992 and 1991 was $6,864,000, $6,763,000, $8,964,000, respectively,
while amortization of capitalized interest (which is included in depreciation
expense) was $3,246,000, $2,807,000 and $2,266,000, respectively.
8. ACCRUED EXPENSES:
Accrued expenses consist of the following:
(In Thousands)
1993 1992
Employee benefits, payrolls and related taxes $ 35,565 $33,689
Other 90,139 60,423
Total $125,704 $94,112
9. LONG-TERM DEBT:
A summary of long-term debt maturities at December 31, 1993, is listed below:
(In Thousands)
Variable
Variable 9.8% Rate
Foreign Rate Notes Medium-
Bank Bank Due Term
Borrowings Loans 1998 Notes Misc. Total
1994 $13,356 $ 700 $ 14,056
1995 13,359 801 14,160
1996 13,356 841 3,440
1997 13,359 $ 6,750 88 20,197
1998 13,353 $200,000 6,750 71 220,174
1999-2016 25,333 $373,000 20,250 1,624 420,207
$92,116 $373,000 $200,000 $33,750 $3,368 702,234
Less unamortized discount (1,192)
Total long-term
debt at December 31, 1993 $ 701,042
Ethyl S.A. had borrowings totaling approximately 3,256.7 million Belgian
francs ($92.1 million) outstanding as of December 31, 1993, with the Generale
de Banque, Brussels, Belgium (Banque). Funds borrowed were used to finance
the construction of new production facilities in Feluy, Belgium. Annual
repayments of the loans are 472 million Belgian francs (approximately $13.4
million) through 1999 and a final payment of 423 million Belgian francs
(approximately $12 million) in October 2000. The annual interest rate has
been fixed at 9.28% for the period through October 5, 1994. Banque has been
granted tax concessions by the Belgian Government and consequently has
reduced the interest rate by 25% to 6.96%. Thereafter, the interest rate
is subject to renegotiation.
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.
The Company had a variable-rate revolving credit agreement with a group of
banks permitting it to borrow up to $700 million, which has been replaced
with a new agreement. (See Note 21 for a discussion of the new credit
facility.) The former agreement had fees of up to 3/8 of 1% per annum
assessed on the unused amount of the commitment. The agreement permitted
borrowing through October 16, 1995, at various interest rate options. $373
million was borrowed at December 31, 1993. Amounts outstanding at October
16, 1995, are repayable in 20 consecutive quarterly installments commencing
March 31, 1996. Average interest rates on variable-rate loans during 1993 and
1992 were 3.6% and 4.2%, respectively. See Note 11 for restrictions on
dividends. The Company also has three uncommitted agreements with banks
providing for immediate borrowings up to a maximum of $200 million at the
individual bank's money market rate. None was borrowed under these agreements
at December 31, 1993. The average interest rates on borrowings during 1993
and 1992 under these agreements were 3.4% and 4.1%, respectively.
10. CAPITAL STOCK:
Redeemable Preferred Stock - Transactions in 1991-1993 were as follows:
Issued
Shares Amounts
Cumulative First Preferred, 6% Series A
(authorized 1,000,000 shares)
January 1, 1991, balance 2,144 $214,400
Purchased and retired in 1991 (142) (14,200)
December 31, 1991, 1992, and 1993, balance 2,002 $200,200
The Cumulative First Preferred 6% Series A stock is redeemable at $101 per
share at the option of the Company and is preferentially entitled to par
value in involuntary liquidation and the redemption price in voluntary
liquidation. Annual mandatory sinking fund requirements approximate $114,000.
Stock previously purchased is currently being applied to satisfy the annual
sinking fund requirement.
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 1.638 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 nonqualifying 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. Activity in 1991, 1992 and 1993 is shown below:
Shares Option Prices
Outstanding at January 1, 1991 484,852 $17.00-$28.74
Granted 177,500 $25.75-$28.33
Exercised (60,618) $17.00-$26.13
Surrendered upon exercise of SARs (22,264) $17.00-$26.13
Lapsed (11,924) $20.07-$26.13
Outstanding at December 31, 1991 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
All but 22,500 of the unexercised options and related SARs granted prior to
1993 were exercisable at December 31, 1993. On December 31, 1992 and 1993,
3,138,724 and 3,053,552 shares, respectively, were available for grant.
11. RESTRICTIONS ON DIVIDENDS:
The Company's revolving credit agreement contains restrictions, among others,
on the payment of dividends. At December 31, 1993, approximately
$256,489,000 can be used for such purposes.
12. GAINS & LOSSES ON FOREIGN CURRENCY:
Foreign currency transaction adjustments resulted in a gain of $1,725,000 in
1993, a loss of $4,918,000 in 1992 and a gain of $3,845,000 in 1991.
13. RENTAL EXPENSE & CONTRACTUAL COMMITMENTS:
Rental expense was $29,680,000 for 1993, $27,060,000 for 1992 and $21,200,000
for 1991.
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 noncancelable leases as
of December 31, 1993, are $16,704,000 for 1994, $11,800,000 for 1995,
$8,827,000 for 1996, $4,775,000 for 1997, $2,917,000 for 1998, and amounts
payable after 1998 are $12,291,000.
Contractual obligations for plant construction and purchases of real property
and equipment amounted to approximately $114,000,000 at December 31, 1993.
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.
14. 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 components of net pension income are as follows:
(In Thousands)
1993 1992 1991
Return on plan assets:
Actual return $50,130 $43,970 $83,905
Expected return higher (lower)
than actual 3,679 7,091 (35,365)
Expected return 53,809 51,061 48,540
Amortization of transition asset 6,995 6,995 6,995
Service cost (benefits earned
during the year) (12,355) (11,219) (10,564)
Interest cost on projected
benefit obligation (36,978) (34,740) (33,443)
Amortization of prior service costs (4,318) (3,811) (3,811)
Net pension income $ 7,153 $ 8,286 $ 7,717
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 6.75% at December 31, 1993, and 7.25% at December 31,
1992 and 1991. 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, 1993, and 5% at December 31, 1992 and 1991. The expected long-term rate
of return on plan assets was assumed to be primarily 9% each year. Net
pension income (table at left) is determined using assumptions as of the
beginning of each year. Funded status (table below) 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 1993 1992
Plan assets at fair value $637,427 $620,646
Less actuarial present value of benefit obligations:
Accumulated benefit obligation (including vested
benefits of $486,284 and $444,229, respectively) 502,828 455,189
Projected compensation increase 63,873 56,785
Projected benefit obligation 566,701 511,974
Plan assets in excess of projected
benefit obligation 70,726 108,672
Unrecognized net loss (gain) 30,379 (3,946)
Unrecognized transition asset being amortized
principally over 16 years (56,422) (63,418)
Unrecognized prior service costs being amortized 44,997 41,237
Prepaid pension expense $ 89,680 $ 82,545
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. 1993, 1992 and 1991 pension cost for these plans
was $2,265,000, $1,954,000 and $1,509,000, respectively. The actuarial
present value of accumulated benefits at December 31, 1993 and 1992, was
$13,445,000 and $13,457,000, substantially all of which was vested, compared
with net assets available for benefits of $14,451,000 and $14,853,000,
respectively.
Consolidated - Consolidated net pension income for 1993, 1992 and 1991 was
$4,888,000, $6,332,000 and $6,208,000, 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 1993 1992
Service cost (benefits attributed to employee
service during the year) $ (3,088) $ (3,191)
Interest cost on accumulated postretirement
benefit obligation (6,911) (6,753)
Actual return on plan assets 2,823 2,797
Net periodic postretirement benefit cost $ (7,176) $ (7,147)
The pay-as-you-go expenditures for postretirement benefits prior to adoption
of FASB No. 106 were $2,970,000 in 1991.
Summary information on the Company's plans is as follows:
(In Thousands)
Years ended December 31 1993 1992
Accumulated postretirement benefit obligation for:
Retirees $ 51,091 $48,121
Fully eligible, active plan participants 18,608 13,879
Other active plan participants 41,492 30,274
111,191 92,274
Less plan assets at fair value 33,153 32,500
Less unrecognized net loss 14,776 1,267
Accrued postretirement benefit cost $ 63,262 $58,507
Plan assets are held under an insurance contract and reserved for retiree
life insurance benefits.
The discount rate used in determining the APBO was 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 1993 and 1992, and the estimated pay increase was 4.5% at December
31, 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, 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, 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, 1993, would be increased by approximately $9.3
million. The effect of this change on the sum of the service cost and
interest cost components of net periodic postretirement benefit cost for 1993
would be an increase of about $1.4 million.
Changes in Estimates - The lower discount rate at December 31, 1993,
increased the pension accumulated benefit obligation by about $24.5 million
and the pension projected benefit obligation by approximately $33 million,
while the lower rate of projected compensation increase reduced the pension
projected benefit obligation by about $10 million. The lower discount rate at
December 31, 1993, increased the postretirement accumulated benefit
obligation by approximately $17 million. As a result of the changes in rates,
the combined increase in pension and postretirement benefit expenses in 1994
will be approximately $1 million.
15. INCOME TAXES:
As discussed in Note 1, in the fourth quarter of 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. Financial
statements for prior years have not been restated, and the cumulative effect
of the accounting change as of January 1, 1992, 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 from continuing operations before income taxes and extraordinary item
and cumulative effect of accounting changes and current and deferred income
taxes are composed of the following:
(In Thousands)
1993 1992 1991
Income from continuing operations
before income taxes and
extraordinary item and cumulative
effect of accounting changes:
Domestic $121,486 $189,788 $ 95,883
Foreign 12,021 16,830 39,337
Total $133,507 $206,618 $135,220
Current income taxes:
Federal $ 33,195 $ 78,268 $ 20,234
State 4,171 11,897 1,957
Foreign 13,782 12,238 12,508
Total 51,148 102,403 34,699
Deferred income taxes:
Federal (10,944) 4,987 5,612
State (282) 259 825
Foreign 3,563 (8,276) 32
Total (7,663) (3,030) 6,469
Total income taxes $ 43,485 $ 99,373 $ 41,168
The significant differences between the U.S. federal statutory rate and the
effective income tax rate are as follows:
% of Income
Before Income Taxes
Continuing operations: 1993 1992 1991
Federal statutory rate 35.0% 34.0% 34.0%
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 - -
State taxes, net of federal tax benefit 1.9 1.4 1.4
Foreign sales corporation benefit (1.8) (1.5) (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 (1.2) (2.1) (1.1)
Effective income tax rate 32.6% 48.1% 30.4%
1993 and 1992 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. Recently enacted federal income tax legislation, which increased the
corporate income tax rate to 35% retroactive to January 1, 1993, 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. The deferred income tax assets and deferred income tax liabilities
recorded on the balance sheets as of December 31, 1993 and 1992, are as
follows:
(In Thousands)
Deferred tax assets: 1993 1992
Environmental reserves $ 12,599 $ 10,367
Future employee benefits 8,753 6,946
Intercompany profit in inventories 6,015 6,585
Inventory capitalization 1,876 2,356
Deferred tax benefit attributable to
Whitby Research downsizing 9,300 -
Corporate downsizing, plant writedown
and related costs 9,740 -
Belgian subsidiary net operating
loss carryforward 16,360 11,462
Valuation allowance for Belgian loss
carryforward (9,104) -
Other 4,931 6,163
Net deferred tax asset 60,470 43,879
Deferred tax liabilities:
Depreciation 129,526 97,728
Future employee benefits 10,581 8,328
Foreign currency translation adjustment 6,485 13,172
Capitalization of interest 10,209 8,215
Other 4,591 7,079
Deferred tax liabilities 161,392 134,522
Net deferred tax liabilities $100,922 $ 90,643
Reconciliation to financial statements:
Current tax assets $ 42,754 $ 23,697
Deferred tax liabilities 143,676 114,340
Net deferred tax liabilities $100,922 $ 90,643
During 1993, it was concluded that it was more likely than not that a portion
of the benefit from the Belgian subsidiary's operating loss carryforward
would not be realized, and consequently there was a need for a valuation
allow-ance relating to this operating loss carryforward. While the benefit of
the losses may be carried forward indefinitely, continued operating losses in
1993 make the timing of any realization currently undeterminable. Therefore
a valuation allowance of $9.1 million against a $16.4 million benefit
attributable to the operating loss carryforwards of the Belgian subsidiary
was established.
1991 deferred income taxes, determined under APB Opinion No. 11, result from
timing differences between financial and income tax reporting of depreciation
($5,370,000) and future employee benefits ($2,450,000).
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.
16. 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 as of December 31,
1993, are as follows:
(In Thousands)
Carrying Fair
Value Value
Cash and cash equivalents $ 48,201 $ 48,201
Long-term debt, including current maturities $ 701,042 $732,500
17. SPECIAL CHARGES:
Special charges for 1993 amounted to $36,150,000 ($22,400,000 after income
taxes, or $.19 per share), of which $14,200,000 of this charge was incurred
for plant writedown and other related costs in connection with the Company's
decision to discontinue production of lead antiknock compounds at the 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
relate 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 planned relocation of the
Petroleum Additives Division research and development employees to Richmond,
Virginia, in 1994.
Special charges in 1991 totaling $11,185,000 ($7,000,000 after income taxes,
or $.06 per share) consist of a charge amounting to $4,835,000 for expenses
covering the mid-1992 relocation of the Petroleum Additives Division
headquarters to Richmond, Virginia, and a charge of $6,350,000 for expenses
and write-offs resulting from the discontinuance of certain developmental
research programs.
18. 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 sale 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.
19. EXTRAORDINARY CHARGE:
The extraordinary charge due to early extinguishment of debt net of income
taxes of $3,000,000, or $.04 per share, results from the Company redeeming
its $116.25-million 93-8% 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
obtaining the Sinking Fund Debt.
20. DISCONTINUED INSURANCE OPERATION:
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 during
years ended December 31, 1992 and 1991, were as follows:
Statements of Income (In Thousands)
Six Months
Ended
June 30 Years Ended December 31
1993 1992 1991
Revenues $737,137 $1,282,448 $1,033,575
Benefits and expenses 566,174 1,044,580 874,113
Income before income taxes and
cumulative effect of
accounting changes 170,963 237,868 159,462
Income taxes 58,316 74,475 46,846
Income before cumulative effect
of accounting changes 112,647 163,393 112,616
Cumulative effect of
accounting changes - 332 -
Net income 112,647 163,725 112,616
Less provision for minority interest 22,164 1,253 -
Income from discontinued
insurance operation $ 90,483 $ 162,472 $ 112,616
The net assets of the discontinued insurance operation consist of the
following:
(In Thousands)
December 31
1992
Assets
Cash $ 12,689
Investments 6,465,738
Deferred policy acquisition costs 548,736
Value of acquired insurance in force 38,145
Other assets and goodwill 305,425
Total assets 7,370,733
Liabilities and Minority Interest
Policy liabilities & policyholder funds 5,975,477
Long-term debt 250,000
Deferred income taxes 248,911
Other liabilities 76,483
Minority interest shareholders 161,312
Total liabilities and minority interest 6,712,183
Net assets of discontinued insurance operation $ 658,550
Long-term Debt - Insurance - First Colony Corporation had a senior term loan
agreement at December 31, 1992, with a group of banks and Credit Suisse as
administrative agent. The term loan amounted to $250 million and was due in
1994. The current rate through June 11, 1994, based on LIBOR was 4.8275%.
21. SUBSEQUENT EVENTS:
New Credit Facility - On February 16, 1994, the Company entered into a new,
five-year, $1-billion unsecured credit facility to replace its existing $700-
million credit agreement. On March 1, 1994, the credit facility will
automati-cally be split into two separate $500-million facilities upon the
scheduled spin-off of the Company's Chemicals Businesses as contained in a
wholly owned subsidiary, Albemarle Corporation (Albemarle). The initial
proceeds from the Albemarle credit facility will be utilized by Albemarle to
absorb the planned transfer from the Company to Albemarle of a portion of the
Company's borrowing under the 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 indebtedness (as defined) of not more than 60% of the sum of
shareholders' equity and consolidated indebtedness and maintenance of minimum
shareholders' equity after the spin-off of at least $250 million.
Spin-Off of Albemarle Corporation - On February 17, 1994, the Company
announced it would distribute (through the Distribution) to its common
shareholders all of the outstanding shares of its wholly owned subsidiary,
Albemarle, a Virginia corporation. Following the Distribution, Albemarle will
own, directly or indirectly, the olefins and derivatives, bromine chemicals
and specialty chemical businesses formerly owned directly or indirectly by
the Company. The Distribution will be made in the form of a tax-free spin-off
to shareholders of record at the close of business on February 28, 1994. One
share of Albemarle common stock will be distributed on or about March 10,
1994, to Ethyl common shareholders for every two shares of Ethyl common stock
held.
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 financial position and results of
operations. The pro forma financial statements presented at right 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 or financial position of
Ethyl or what the earnings, results of operations, or financial position of
Ethyl would have been had Albemarle operated as a separate, independent
company.
The pro forma condensed balance sheet of Ethyl as of December 31, 1993,
presents the financial position of Ethyl assuming that the Distribution, the
split of the Ethyl credit facility (such that Albemarle absorbs the transfer
from Ethyl of a portion of Ethyl's borrowing under a credit facility), and
the reduction of Ethyl's shareholders' equity as a result of such transfer
had occurred as of that date. The pro forma condensed statements of income
for the years ended December 31, 1993 and 1992, present the results of
operations of Ethyl assuming that the Distribution had occurred as of
January 1, 1992.
Pro Forma Condensed Balance Sheet (Unaudited)
(In Thousands)
Pro Forma
December 31, 1993 Historical Adjustments(a)
Assets
Current assets:
Cash & cash equivalents $ 48,201 $ (32,922) $ 15,279
Accounts receivable,
less allowance for
doubtful accounts 345,160 (140,304) 204,856
Inventories 290,814 (136,415) 154,399
Deferred income taxes
& prepaid expenses 49,522 (17,756) 31,766
Total current assets 733,697 (327,397) 406,300
Property, plant & equipment 1,908,630 (1,363,942) 544,688
Less accumulated depreciation
and amortization (910,360) 686,652 (223,708)
Net property, plant & equipment 998,270 (677,290) 320,980
Other assets & deferred charges 164,382 (48,544) 115,838
Goodwill & other intangibles -
net of amortization 112,849 (34,095) 78,754
Total assets $2,009,198 $(1,087,326) $921,872
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable $ 154,971 $ (80,941) $ 74,030
Accrued expenses 125,704 (53,320) 72,384
long-term debt, current portion 14,056 (14,043) 13
Dividends payable 17,764 17,764
Income taxes payable 14,020 14,020
Total current liabilities 326,515 (148,304) 178,211
Long-term debt 686,986 (386,438) 300,548
Other noncurrent liabilities 99,240 (29,544) 69,696
Deferred income taxes 143,676 (120,902) 22,774
Redeemable preferred stock 200 200
Shareholders' equity 752,581 (402,138) 350,443
Total liabilities & shareholders' equity $2,009,198 $(1,087,326) $921,872
See Note (a) under Pro Forma Condensed Statements of Income on Page 45.
Pro Forma Condensed Statements of Income (Unaudited)
(In Thousands Except Per-Share Amounts)
1993 1992
Pro Pro
Years Ended December 31 Historical Adjustments(b) Forma Historical Adjustments(b) Forma
Net sales $1,938,390 $(903,418) $1,034,972 $1,692,582 $(818,223) $874,359
Cost of goods sold 1,386,251 (710,970) 675,281 1,199,096 (631,903) 567,193
Gross profit 552,139 (192,448) 359,691 493,486 (186,320) 307,166
Selling, general & administrative
expenses 272,760 (106,161) 166,599 236,333 (92,884) 143,449
Research & development expenses 75,624 (30,303) 45,321 73,831 (31,997) 41,834
Special charges 36,150 (7,322) 28,828 9,500 - 9,500
Operating profit 167,605 (48,662) 118,943 173,822 (61,439) 112,383
Interest & financing expenses 44,085 (17,358)(c) 26,727 62,279 (15,953)(c) 46,326
Gain on sale of 20% of First Colony
Corporation - - - (93,600) - (93,600)
Other (income) expenses, net (9,987) 1,640 (8,347) (1,475) 1,998 523
Income from continuing
operations before income taxes &
extraordinary item & cumulative
effect of accounting changes 133,507 (32,944) 100,563 206,618 (47,484) 159,134
Income taxes 43,485 (17,098)(d) 26,387 99,373 (12,657)(d) 86,716
Income from continuing operations
before extraordinary item &
cumulative effect of accounting
changes $ 90,022 $ (15,846) $ 74,176 $ 107,245 $(34,827) $ 72,418
Earnings per share based on
income from continuing
operations before extraordinary &
cumulative effect of accounting
changes $ .76(e) $ .63(e) $ .90(e) $ .61(e)
Introduction To Notes: The following is a summary of the adjustments
reflected in the pro forma condensed financial statements. Following the
Distribution, in the opinion of management, expenses of Ethyl will not differ
from the amounts remaining in the Ethyl consolidated financial statements
after eliminating those expenses attributable to Albemarle.
Notes:
(a) To record, as if the Distribution occurred on December 31, 1993, the
planned transfer from Ethyl to Albemarle of a portion of an Ethyl borrowing
under a credit facility necessary to achieve a planned debt-to-total-
capitalization ratio and the simultaneous elimination of the historical
assets, liabilities and equity of Albemarle. Also, to record the proposed
Distribution to holders of Ethyl common stock, par value $1.00 per share, of
all of the outstanding Albemarle common stock, without par value.
Approximately 59.2 million shares of Albemarle common stock are expected to
be distributed (one share of Albemarle for every two shares of Ethyl).
(b) To eliminate the historical income and expenses of Albemarle for
the respective periods presented, as if the Distribution had occurred on
January 1, 1992.
(c) 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, 1992), including debt under the credit facility
transferred from Ethyl. Interest eliminated under the credit facility was
computed at the weighted-average interest rates of 3.6% and 4.2% for the
years ended December 31, 1993 and 1992, respectively, less capitalized
interest of $1,101,000 and $949,000, respectively. Interest rates utilized 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 utilized 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.
(d) To record the estimated tax benefits for the pro forma adjustments
described in Note (c) at assumed combined state and federal income tax rates
of 37.6% and 37.3% for the years ended December 31, 1993 and 1992,
respectively.
(e) Historical and pro forma earnings per share, based on income from
continuing operations before extraordinary item and cumulative effect of
accounting changes, 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.
Management's Report on the Financial Statements
Ethyl Corporation's management has prepared the financial statements and
related notes appearing on pages 30 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,
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 in principal areas of
901 East Byrd Street the world
Suite 1200
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, 1993 and 1992,
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1993.
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, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Notes 14 and 15 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.
COOPERS & LYBRAND
January 31, 1994
(except as to the information presented in Note 21,
for which the date is February 17, 1994)