SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 17, 1994
ETHYL CORPORATION
(Exact name of as specified in charter)
Virginia 1-5112 54-0118820
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
330 South Fourth Street, Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 804-788-5000
Item 2. Acquisition or Disposition of Assets.
On February 17,1994, Ethyl Corporation, a Virginia corporation
("Ethyl" or the "Company") announced that it would distribute to its
shareholders all of the outstanding shares of its wholly-owned subsidiary,
Albemarle Corporation, a Virginia corporation ("Albemarle"). Following the
Distribution, Albemarle will own, directly or indirectly, the olefins and
derivatives, bromine chemicals and specialty chemicals businesses (the
"Chemicals Businesses") formerly owned, directly or indirectly, by Ethyl.
Ethyl's ongoing operations will consist of its petroleum additives and
pharmaceutical businesses (the "Ethyl Businesses").
At the close of business on February 28, 1994 (the "Distribution
Date"), Ethyl will deliver certificates representing all of the common
stock of Albemarle, without par value ("Albemarle Common Stock"),
outstanding as of the Distribution Date to Harris Trust and Savings Bank
(the "Distribution Agent"), for distribution (the "Distribution") to the
holders of record of the Company's common stock, par value $1.00 per share
("Ethyl Common Stock"), as of the Distribution Date. The Distribution
Agent is expected to mail certificates representing the distributed
Albemarle Common Stock to the holders of shares of Ethyl Common Stock on or
about March 10, 1994. The Distribution ratio is one share of Albemarle
Common Stock for every two shares of Ethyl Common Stock.
Additional information concerning the Distribution is contained in an
information statement dated February 17, 1994 (the "Information
Statement"), copies of which are being mailed to holders of Ethyl Common
Stock, and a copy of which is filed as an Exhibit to this Form 8-K.
* * * * *
Item 5. Other Events.
The following information is provided with respect to Ethyl and its
operations following the Distribution:
Description of Business
The Company will continue to be a major producer of petroleum
additives. It also will continue to own Whitby, Inc. ("Whitby"), which
markets and distributes finished pharmaceuticals. Following the
Distribution, the Company will employ approximately 1,700 people.
Petroleum Additives. The Company's petroleum additives business
includes fuel additives and lubricant additives. Fuel additives increase
the quality of gasolines and diesel fuel by raising the level of octane and
cetane, retain the quality of fuel over time, maintain engine cleanliness,
protect metals and reduce friction and wear and reduce emissions. Fuel
additives are used in fuels for over-the-road and off-highway vehicles,
prop and jet aircraft, railroad, marine and other gasoline, diesel or
synfuel powered engines as well as home heating oil. Lubricant additives
extend the useful life of an oil, provide protection against wear and
corrosion of metallic parts, protect seals, withstand extremely high
temperatures and pressures, maintain viscosity and increase the adhesion of
oils to metallic parts. Lubricant additives are used in oils, fluids and
greases for over-the-road and off-highway vehicles, aircraft, power tools,
marine, railroad, industrial and other equipment, machinery and processes
requiring lubrication.
Gasoline fuel additive products include lead and manganese antiknock
compounds to increase octane and prevent power loss due to early or late
combustion (engine knock); hindered phenolic antioxidants to prevent
thermal degradation during storage and transport; corrosion inhibitors to
prevent fuel storage and pumping system failures; detergent packages to
keep carbon deposits from forming on fuel injectors, intake valves or
carburetors and in combustion chambers; and dyes to provide color
differentiation.
Lead antiknock compounds, which are sold worldwide 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.
Lead antiknock compounds have been subject to regulations restricting
the amount that can be used in gasoline in the United States for a number
of years and in Canada since 1990. The North American market for these
products in motor vehicles has effectively been eliminated, but the market
for their use in piston aircraft and certain other applications has
remained at about the same level for years and is expected to remain
stable. As the Company has forecasted and planned, the market for these
products in other major markets, particularly Western Europe, continues to
decline as the use of unleaded gasoline grows.
After excluding the Chemical Businesses, the operating profit
contribution of lead antiknock compounds is estimated to have declined to
approximately 70% in 1993 from approximately 80% in 1992 which had increased
from approximately 75% in 1991. The decline in 1993 percentage contribution
primarily reflected an increase in profits from non-lead antiknock products
and a 1993 charge resulting from the planned cessation of lead antiknock
compound production at the Company's Canadian plant. 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 will
adversely affect profit and sales 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 (i) an agreement with The Associated Octel
Company Limited ("Octel") of London in which Octel has agreed to allocate a
portion of its production capacity of lead antiknock compounds to the
Company for sale and distribution through the Company's worldwide network
and (ii) that the Company's Canadian subsidiary would cease production of
lead antiknock compounds at its Canadian plant 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 antiknock compounds
estimated to be sufficient to cover the Company's 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 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"),
which are 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
(the "EPA") 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 to resolve this last remaining issue.
The Company also produces diesel fuel additive products, including
cetane improvers for consistent combustion and power delivery; amine
stabilizers and hindered phenolic antioxidants to prevent degradation
during storage and transport; cold flow improvers to enhance fuel pumping
under cold-weather conditions; detergent packages to keep carbon deposits
from forming on fuel injectors and in combustion chambers; dyes for fuel
identification and leak detection; lubricity agents; and a conductivity
modifier to neutralize static charge build-up in fuel and products for home
heating oils.
In addition to fuel additives, the Company's petroleum additives
products consist of lubricant additives. Lubricant additive products
include (i) engine oil additive packages for passenger car motor oils for
gasoline engines, heavy-duty diesel oils for diesel powered vehicles,
diesel oils for locomotive, marine and stationary power engines and two-
stroke oils for two-cycle engines, (ii) specialty additive packages for
automatic transmission fluids, automotive and industrial gear oils,
hydraulic fluids and industrial oils, and (iii) components for engine oil
and specialty additive packages such as antioxidants to resist high-
temperature degradation, antiwear agents to protect metal surfaces from
abrasion, detergents to prevent carbon and varnish deposits from forming on
engine parts, dispersants to keep engine parts clean by suspending
insoluble products of fuel combustion and oil oxidation, friction reducers
to facilitate movement, pour point depressants to enable oils to flow at
cold temperatures, corrosion inhibitors to protect metal parts, and
viscosity-index improvers to control oils' rate of flow at low and high
temperatures.
The market for lubricant additives is experiencing significant changes
as a result of market and regulatory demands for better fuel economy,
reduced emissions and cleaner oils that have led to new equipment design
and more stringent performance requirements. Such requirements mean
reformulation of many products, new product development and more product
qualification tests. A major petroleum additives research complex in
Richmond, Virginia is scheduled for completion in the summer of 1994. The
June 1992 acquisition of the petroleum additive products and technologies
of Amoco Petroleum Additives Company ("Amoco") and their subsequent
integration into the Company's product lines also has been part of a major
ongoing effort to expand and improve the product lines of the petroleum
additives business.
A majority of the Company's production of petroleum additives is in
the United States. The Company also has production facilities in Feluy,
Belgium.
Fuel additives for gasoline, diesel fuels and heating oils are sold
directly to petroleum refiners and marketers, terminals and blenders.
Lubricant additive packages are sold directly to companies producing
finished oils and fluids.
Major raw materials used by the petroleum additives business include
polybutenes, process oils, sodium and lead metals, 2-ethyl-1-hexanol and
isobutylene as well as electricity and natural gas as fuels, which are
purchased at prices the Company believes are competitive.
The Company's petroleum additives businesses operate in highly
competitive markets, most of which involve a limited number of competitors.
The competitors are both larger and smaller than the Company in terms of
resources and market share. Competition in connection with all of the
Company's petroleum additive products requires continuing investments in
research and development of new products or leading technologies, in
continuing product and process improvements and in providing specialized
customer services.
Pharmaceuticals. Whitby offers a complete line of hydrocodone-based
analgesic products, including LORTAB(TM) products, which compete in the
codeine combinations subsegment of the narcotic analgesic market, VICON(TM)
products, which include prescription and over-the-counter vitamin and
mineral products, and THEO-24(TM) products, which consist of a series of
varying dosage bronchodilators in the theophylline class. Other products
include WINSOR(TM) brand prescription dosage ibuprofen and over-the-counter
products such as vitamin supplements and CORTICAINE(TM), a cortisone cream.
Third-party manufacturers inspected by the United States Food and Drug
Administration formulate and produce Whitby's products according to
Whitby's specifications.
Whitby sells its products to wholesalers, large pharmacy chains and
institutional purchasers such as hospital chains and health maintenance
organizations.
Research and Patents. With respect to the petroleum additives
businesses, the Company spent approximately $45 million, $42 million and
$34 million in 1993, 1992 and 1991, respectively, on research and
development, which qualified under the technical accounting definition of
research and development. Total research and development and technical
support spending with respect to the petroleum additives businesses for
1993 was approximately $76 million, including $31 million related to
technical services support to customers, testing of existing products, cost
reduction, quality improvement and environmental studies. In December,
1993, the Company announced that it was discontinuing Whitby's
pharmaceutical research operations.
Excluding the Chemicals Businesses, the Company owns over 800 active
United States and foreign patents, including 29 United States patents and
83 foreign patents issued in 1993. Some of these patents are licensed to
others. In addition, rights under the patents and inventions of others
have been acquired by the Company through licenses. The Company will
transfer to Albemarle patents and patent applications relating to the
Chemicals Businesses, will license Albemarle to use technology relating to
the Chemicals Businesses and will grant Albemarle limited rights to
manufacture and sell MMT. Albemarle will license the Company to use
certain patents and technology owned by Albemarle the use of which has
application to the Ethyl Businesses. The Company's patent position is
actively managed and is deemed by it to be adequate for the conduct of its
business.
Environmental Requirements. The Company is subject to federal, state
and local requirements regulating the handling, manufacture or use of
materials (some of which are 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 for employees that
are safe, healthful and environmentally sound and that will not adversely
affect the safety, health or environment of communities in which the
Company 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.
The Clean Air Act Amendments of 1990 ("the Amendments") became law on
November 15, 1990. Because the EPA and the states are still in the process
of completing and implementing definitive regulations interpreting the
Amendments and establishing detailed requirements, the Company is unable at
this time to make any detailed assessment of the effect of the Amendments
on its earnings or operations.
Among other environmental requirements, the Company is subject to the
federal Comprehensive Environmental Response, Compensation and Liability
Act ("Superfund"), and similar state laws, under which the Company has been
designated as a potentially responsible party ("PRP") that may be liable
for a share of the costs associated with cleaning up various hazardous
waste sites, some of which are on the EPA's Superfund national priority
list. In most cases where the Company has been identified as a PRP,
participation is de minimis. Further, almost all of the sites represent
environmental issues that are quite mature and that 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 expected to be immaterial. The Company accrues and expenses
its proportionate share of PRP costs in accordance with Statement of
Financial Accounting Standards No. 5 and Financial Accounting Standards
Board Interpretation No. 14. Because the Company's 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
should not be material.
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. With
respect to the Ethyl Businesses, operating and remediation costs charged to
expense were approximately $13 million in 1993 versus $12 million in 1992
and $6 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. Capital expenditures for pollution-abatement and safety
projects, including such costs that are included in other projects, were
approximately $4 million in 1993 compared with $7 million and
$6 million for the years 1992 and 1991, respectively. For each
of the next few years, capital expenditures for these types of projects are
likely to be in the same range as in recent years. Management's estimates of
the effects of compliance with governmental pollution-abatement and safety
regulations are subject to (i) the possibility of changes in the applicable
statutes and regulations or in judicial or administrative construction of
such statutes and regulations, and (ii) uncertainty as to whether
anticipated solutions to pollution problems will be successful, or whether
additional expenditures may prove necessary.
In connection with the Distribution, Albemarle will assume
environmental liabilities of the Chemicals Businesses, and the Company will
retain such liabilities relating to the Ethyl Businesses.
Properties. The following is a brief description of the principal
plants and related facilities of the Company, all of which are owned except
as stated below.
LOCATION PRINCIPAL OPERATIONS
Bracknell, Berkshire, England Research activities
Feluy, Belgium Production of lubricant additives
Houston, Texas Production of lubricant additive
dispersants and blends; research activities
Natchez, Mississippi Production of lubricant additives,
including mainly detergents
Orangeburg, South Carolina Production of fuel additives,
(leased land) including antioxidants*, diesel fuel cetane
improver and manganese antiknocks*
St. Louis, Missouri Research and product-development activities
Sarnia, Ontario, Canada Production of lead antiknock compounds**,
lubricant additives, cold flow improvers
and diesel fuel cetane improvers
Sauget, Illinois Production of lubricant additives,
including detergents, dispersants, antiwear
agents, crankcase packages, transmission
and gear packages and friction reducers
___________________________________
* Will be produced for the Company by Albemarle.
** The Company will cease production of lead antiknock compounds by March
31, 1994.
The Company believes that its plants are more than adequate at current
sales levels. Operating rates of plants vary with product mix and normal
seasonal sales swings. The Company believes that its plants generally are
in good operating condition. The Company is constructing a new research
and product-development facility in Richmond, Virginia scheduled for
startup in the summer of 1994. At that time, research and product-
development activities at St. Louis, Missouri will be phased out. All
losses in connection with the discontinuance of the St. Louis operations
have been fully provided for. The Company also is partially replacing the
manufacturing capacity of Amoco's Wood River, Illinois lubricant and fuel
additives plant from which the Company currently is receiving product under
a supply agreement. The new, more efficient facilities are scheduled for
start-up in 1995.
Legal Proceedings. The Company and its subsidiaries are involved from
time to time in legal proceedings of types regarded as common in the
Company's businesses, particularly administrative or judicial proceedings
seeking remediation under environmental laws, such as Superfund, and
products liability litigation.
A 1992 products liability suit is pending in a Minnesota state court
against the Company, another chemical company, and the owner and leasing
agent of a residence in Minneapolis at which two children are claimed to
have been injured by ingesting soil and dust containing lead from peeling
paint and automotive emissions. In recent years, many suits have been
brought against paint manufacturers and landlords alleging personal injury
caused by ingesting lead from paint found in paint chips, dirt and dust.
Like these suits, the Minnesota suit just mentioned involves alleged injury
from paint lead in chips, dirt and dust, but also involves alleged injury
from gasoline lead in dirt and dust, as well. The Company believes the
Minnesota suit is without merit with respect to the Company, but since the
suit partially rests on a theory of harm to children from eating dirt
containing automotive lead emissions, the Company is vigorously defending
it.
While it is not possible to predict or determine the outcome of the
proceedings presently pending, in the Company's opinion they will not
ultimately result in any liability that would have a material adverse
effect upon the results of operations or financial condition of the Company
and its subsidiaries on a consolidated basis.
Albemarle will assume the defense of a number of pending legal and
administrative proceedings that are related to the Chemicals Businesses and
will assume any liability attributable to those businesses.
Financings. In connection with the Distribution, the Company has
refinanced its existing $700 million credit facility, with a $1 billion
credit facility that will be split at the time of the Distribution into a
$500 million facility for Albemarle and a $500 million facility for the
Company. The Company's $500 million credit facility is with major
commercial banks, has a five-year term and is not collateralized. Two
options will be available under the Company's new Credit Facility: (i) a
competitive advance option provided on an uncommitted basis through an
auction mechanism and (ii) a revolving credit option provided on a
committed basis. Availability under each option will be reduced by usage
under the other option on a dollar-for-dollar basis. The Credit Facility
provides for a facility fee to be payable based on the face amount of the
Credit Facility, irrespective of usage and a fixed annual administrative
fee. The Credit Facility contains certain restrictive financial covenants
applicable to the Company. Among other things, the Credit Facility
requires the Company to maintain certain financial ratios and contains
customary financial and operating covenants, including maintenance of
consolidated indebtedness at not more than 60% of the sum of shareholders'
equity and consolidated indebtedness, maintenance of minimum shareholders'
equity of $250 million and restrictions on the ability of the Company to
incur indebtedness, to merge or consolidate, to sell certain assets, and to
create, incur or permit the existence of certain liens.
MANAGEMENT
In connection with the Distribution, the Company's Board of Directors
has elected Thomas E. Gottwald as a director effective immediately
following the Distribution Date. In addition, the following changes will
be made in the Company's executive officers in connection with the
Distribution: Bruce C. Gottwald will become Chairman of the Board,
Chairman of the Executive Committee and Chief Executive Officer; Thomas E.
Gottwald will become President and Chief Operating Officer; F. D. Gottwald,
Jr. will become Vice Chairman of the Board while assuming the duties of
Chairman of the Board and Chief Executive Officer of Albemarle; Charles B.
Walker will become Vice Chairman of the Board and Chief Financial Officer
while also assuming the position of Vice Chairman of the Board and Chief
Financial Officer of Albemarle; Dr. William M. Gottwald, President of
Whitby, also will become a Senior Vice President of the Company; and E.
Whitehead Elmore will become Special Counsel to the Company's Executive
Committee and Corporate Secretary, while also becoming Senior Vice
President, Secretary and General Counsel of Albemarle. Other officers of
the Company will include:
Sampson H. Bass, Jr. Vice President Secretary to the Executive
Committee
David A. Fiorenza Vice President Finance and Controller
C. S. Warren Huang Vice President Research and Development
Donald R. Lynam Vice President Air Conservation
Steven M. Mayer Vice President and General Counsel
Ian A. Nimmo Vice President Lubricant Additives
Henry C. Page, Jr. Vice President Human Resources
Newton A. Perry Vice President Fuel Additives
A. Prescott Rowe Vice President External Affairs
Certain Transactions with Albemarle
The Chemicals Businesses have in the past engaged in numerous
transactions with the Ethyl Businesses. Such transactions have included,
among other things, the provision of various types of financial support by
the Company. Although the Company will continue to provide certain support
services to Albemarle and Albemarle will provide certain support services
to the Company for a limited period of time after the Distribution,
most of such services are expected ultimately to be discontinued. In
addition to these services, for a more extended period of time, Albemarle
will provide services to the Company at Orangeburg, South Carolina, and
Feluy, Belgium and Albemarle and the Company will exchange services at
Houston, Texas.
Orangeburg, South Carolina Agreements
The Orangeburg, South Carolina plant consists of facilities for the
production of petroleum additives and specialty chemicals. After the
Distribution, Albemarle will operate for the Company the facilities that
produce petroleum additives (the "Orangeburg Additives Facility") for a
period of ten years, with an option by the Company to extend for an
additional ten years. The operating agreement relating to the Orangeburg
Additives Facility (the "Orangeburg Operating Agreement") provides that
Albemarle will produce certain petroleum additive products meeting the
Company's specifications and provide certain services and utilities
customarily used by or reasonably necessary to maintain the Orangeburg
Additives Facility in accordance with design capacity. At its option and
upon 180 days' notice, the Company may assume responsibility for the
operation of the Orangeburg Additives Facility, in which event Albemarle
would continue to provide certain services and utilities for that facility.
The Company will reimburse Albemarle for certain costs specified in the
Orangeburg Operating Agreement and will pay to Albemarle a monthly
operating fee based on a percentage of such reimbursable costs. Albemarle
will produce under a supply contract MMT for the Company in facilities
owned by Albemarle. Albemarle also will be licensed by the Company,
subject to certain restrictions, to produce and sell MMT for its own
account to the extent of any excess not set aside for the Company under the
supply contract.
Albemarle will own the land on which the Orangeburg Additives Facility
is located. In conjunction with Albemarle's operation of the Orangeburg
Additives Facility for the Company, Albemarle will lease the land to the
Company for a period of ten years, with an option by the Company to extend
for an additional ten years. Albemarle and the Company will have a
separate blending services agreement (the "Orangeburg Blending Agreement"),
pursuant to which Albemarle will provide storage, blending and packaging
services to the Company in connection with the operation of the Orangeburg
Additives Facility. The term of the Orangeburg Blending Agreement will be
for ten years, and the Company will have the option to extend for an
additional ten years. Pursuant to the Orangeburg Blending Agreement, the
Company will reimburse Albemarle for specified costs associated with the
blending operations and will pay to Albemarle a monthly operating fee based
on a percentage of such reimbursable costs. Pursuant to an antioxidant
supply agreement, Albemarle will produce antioxidants for the Company at
the Orangeburg plant. The Company will reimburse Albemarle for specified
production costs and pay a monthly fee. The antioxidant supply agreement
will be for ten years, and the Company will have the option to extend for
an additional ten years.
Houston, Texas Agreement
The Houston, Texas plant consists of facilities for the production of
petroleum additives, olefins and derivatives and specialty chemicals.
After the Distribution, the Company will own the petroleum additives
facility at the Houston plant (the "Houston Additives Facilities"), and
Albemarle will own the facilities that produce olefins and derivatives and
specialty chemicals.
Albemarle and the Company will have a reciprocal agreement (the
"Houston Services Agreement"), with respect to the operation of the
Company's Houston Additives Facilities and Albemarle's chemical operations
adjoining the Houston Additives Facilities. Pursuant to the Houston
Services Agreement, the Company will provide to Albemarle certain services
and utilities related to Albemarle's chemicals operations in Houston, while
Albemarle will provide to the Company certain services and utilities
related to the Company's petroleum additives operations in Houston. The
term of the Houston Services Agreement is ten years, but any party
receiving services and utilities may terminate one or more of such services
or utilities upon giving 60 days' notice to the other party or may
terminate all of such services and utilities upon giving 180 days' notice
to the other party. Each party also has the right to extend for an
additional ten years the Houston Services Agreement with respect to the
services and utilities that it is receiving. Each party providing services
will receive from the other party reimbursement of specified costs and a
monthly service fee based on a percentage of such reimbursable costs.
Feluy, Belgium Agreement
The Feluy, Belgium plant consists of facilities for the production of
petroleum additives, olefins and derivatives and specialty chemicals.
After the Distribution, the Company will own and operate the petroleum
additives facility at the Feluy, Belgium plant (the "Feluy Additives
Facility"), and Albemarle will own the facilities that produce olefins and
derivatives and specialty chemicals at the Feluy plant.
Albemarle and the Company will have an agreement (the "Feluy Services
Agreement"), with respect to the operation of the Company's Feluy Additives
Facility. Pursuant to the Feluy Services Agreement, Albemarle will provide
to the Company certain services and utilities related to the Company's
petroleum additives operation in Feluy. The term of the Feluy Services
Agreement is ten years, but the Company may terminate one or more of such
services or utilities upon giving 60 days' notice to Albemarle or may
terminate all of such services and utilities upon giving 180 days' notice
to Albemarle. The Company also has the right to extend the Feluy Services
Agreement for an additional ten years. Albemarle will receive from the
Company reimbursement of specified costs and a monthly service fee based on
a percentage of such reimbursable costs.
Indemnification and Tax-Sharing Agreements
Pursuant to an indemnification agreement between the Company and
Albemarle, the Company will indemnify Albemarle for losses to Albemarle
after the Distribution Date resulting from the conduct of the Ethyl
Businesses, including environmental liabilities, before and after the
Distribution Date, and Albemarle will indemnify the Company for losses to
the Company after the Distribution Date resulting from the conduct of the
Chemicals Businesses, including environmental liabilities, before and after
the Distribution Date. Tax liabilities, and related indemnification, are
covered under a tax sharing agreement. Under that agreement the Company
will be responsible for the taxes of the Ethyl Businesses and the Chemicals
Businesses for periods prior to the Distribution, except with respect to
taxes attributable to subsidiaries of the Company that will become
subsidiaries of Albemarle in connection with the Distribution. Albemarle
will be responsible for the taxes of the Chemicals Businesses for post-
Distribution periods.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
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.
For ease of understanding, the pro forma adjustments, presented in the
columns entitled "Adjustments Increases (Decreases)",
consist of those adjustments which identify (i) the
impact of dividing the Ethyl credit facility, transferring a portion of the
debt under the credit facility to Albemarle and adjusting Ethyl's interest
expense (including the impact of interest capitalization) for debt absorbed
by Albemarle and (ii) the historical accounts of Albemarle (eliminated as a
result of the Distribution), for which such balances for the year ended
December 31, 1992 are set forth in the Form 10/A filed with the
Securities and Exchange Commission on February 11, 1994. In the opinion of
management, the pro forma condensed financial statements include all
material adjustments necessary to restate the historical amounts to
accommodate these assumptions. Each period presented should be treated as
a stand-alone period.
No pro forma adjustments are made to the condensed statements of income
for selling, general and administrative expenses with respect to Ethyl, because
following the Distribution, in the opinion of management, such expenses of
Ethyl will not differ from the amounts remaining in the Ethyl condensed
consolidated financial statements after eliminating those expenses attributable
to Albemarle. The pro forma information presented is for information purposes
only and may not necessarily be indicative of future results of operations
and financial position or what results of operations or financial position
would have been had Ethyl operated without Albemarle during the periods
presented.
ETHYL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
(In thousands of dollars)(Unaudited)
December 31, 1993
Adjustments
Increases (Decreases)
Historical NoteB(i) ProForma
Assets
Current assets:
Cash and cash equivalents $ 48,201 $ $ (32,922) $ 15,279
Accounts receivable, less
allowance for doubtful 345,160 (140,304) 204,856
accounts
Inventories 290,814 (136,415) 154,399
Deferred income taxes
and prepaid expenses 48,620 (17,756) 30,864
------- ------ ------- ------
Total current assets 732,795 (327,397) 405,398
------- ------ ------- -------
Property, plant and
equipment 1,908,630 (1,363,942) 544,688
Less accumulated
depreciation and
amortization (910,360) 686,652 (223,708)
------- ------ ------- -------
Net 998,270 (677,290) 320,980
------- ------ ------- -------
Other assets and deferred
charges 164,382 (48,544) 115,838
Goodwill and other
Intangibles - net of 112,849 (34,095) 78,754
amortiization ------- ------ ------ ------
Total assets $2,008,296 $ $ (1,087,326) $ 920,970
========== ====== ========= =======
Liabilities and
Shareholders' Equity
Current liabilities:
Accounts payable $ 154,971 $ $ (80,941) $ 74,030
Accrued expenses 123,327 (53,320) 70,007
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 324,138 (148,304) 175,834
------- ------ ------- -------
Long-term debt 686,986 (305,034) (81,404) 300,548
Other noncurrent liabilities 101,617 (29,544) 72,073
Deferred income taxes 142,774 (120,902) 21,872
Redeemable preferred stock 200 200
Shareholders' equity:
Common stock 118,405 118,405
Other shareholders'
equity 634,176 305,034 (707,172) 232,038
------- ------- ------- -------
752,581 305,034 (707,172) 350,443
------- ------- ------- -------
Total liabilities and
shareholders' equity $2,008,296 $ $(1,087,326) $ 920,970
========= ======= ========= =======
See accompanying notes to the pro forma condensed financial statements.
ETHYL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENTS OF INCOME
For the Years Ended December 31, 1993 and 1992
(In Thousands Except Per-Share Amounts)
(Unaudited)
1993 1992
-------------------------------------------------------- ----------------------------------------------------
Adjustments Adjustments
Increases (Decreases) Increases (Decreases)
Historical Note B(ii) NoteB(iii)/ Note B(iii)/
(iv) ProForma Historical Note B(ii) (iv) ProForma
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
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
and administra-
tive expenses 272,760 (106,161) 166,599 236,333 (92,884) 143,449
Research and
development
expenses 72,624 (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 and
financing
expenses 44,085 (7,797) (9,561) 26,727 62,279 (4,923) (11,030) 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 and
cumulative effect
of accounting
changes 133,507 (42,505) 9,561 100,563 206,618 (58,514) 11,030 159,134
Income taxes 43,485 (20,695) 3,597 26,387 99,373 (16,771) 4,114 86,716
------ ------ ----- ------ ------ ------ ----- ------
Income from
continuing
operations
before extra-
ordinary item
and cumulative
effect of
accounting
changes $90,022 $ (21,810) $ 5,964 $ 74,176 $ 107,245 $(41,743) $ 6,916 $ 72,418
====== ====== ===== ====== ======= ======= ===== ======
Earnings per
share - income
from continuing
operations before
extraordinary
item and
cumulative effect
of accounting
changes $ 0.76(C) $ 0.63(C) $ 0.90(C) $ 0.61(C)
==== ==== ==== ====
See accompanying notes to the proforma condensed financial statements.
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO THE PRO FORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A. The pro forma information presented is not necessarily indicative of
the future results or financial position of Ethyl or the net income
and financial position that would have resulted had the Distribution
occurred prior to the periods presented.
B. The adjustments in the pro forma condensed financial statements are
described below:
(i) To record, as if the distribution occurred on December 31, 1993,
the planned transfer from Ethyl to Albemarle Corporation
("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).
(ii) To eliminate the historical income and expenses of Albemarle
for the respective periods presented.
(iii) To eliminate interest expense which would have been incurred by
Albemarle on debt transferred to Albemarle, 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 which 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.
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO THE PRO FORMA CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(iv) To record the estimated tax benefits for the pro forma
adjustment described in Note B(iii) at an assumed combined
state and federal income tax rate of 37.6% and 37.3%,
for the years ended December 31, 1993 and 1992, respectively.
C. 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.
* * * * *
(c) Exhibits.
Exhibit No. Description
20. Albemarle Corporation Information Statement, dated
February 17, 1994
99. Supply Agreement, dated as of December 22, 1993,
between Ethyl Corporation and The Associated Octel
Company Limited*
______________
*Subject to a request for confidential treatment, certain provisions of the
Supply Agreement have been intentionally omitted.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ETHYL CORPORATION
Date: February 21, 1994 By: /s/ E. Whitehead Elmore
---------------------------
E. Whitehead Elmore
Vice President, Secretary
and General Counsel