<PAGE> 1
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON JUNE 22, 1998
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
Commission file number 1-13879
OCTEL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 98-0181725
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. Box 17,
Oil Sites Road,
Ellesmere Port,
South Wirral,
United Kingdom L65 4HF
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 011-44-151-355-3611
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X
-------
No
-------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Class - Common Stock, par value $0.01 Outstanding as at May 26, 1998
14,762,417 Shares
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
March 31 December 31
1998 1997
(Unaudited)
----------- -----------
(millions of dollars)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 33.3 $ 29.7
Accounts receivable, less allowance
of $0.9 (1997 - $0.9) 156.7 169.8
Inventories
Finished products 37.4 35.7
Work in progress 10.3 10.2
Raw materials and supplies 30.1 32.9
------ ------
Total inventories 77.8 78.8
Prepaid Expenses 4.4 4.4
------ ------
Total current assets 272.2 282.7
Plant and Equipment 128.3 122.8
Less allowance for depreciation 22.6 16.8
------ ------
Net plant and equipment 105.7 106.0
Goodwill 376.1 379.3
Other Assets 65.6 64.9
------ ------
$819.6 $832.9
====== ======
</TABLE>
The accompanying footnotes are an integral part of these condensed financial
statements.
2
<PAGE> 3
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
March 31 December 31
1998 1997
(Unaudited)
----------- -----------
(millions of dollars)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 25.9 $ 40.0
Accrued expenses 8.6 9.0
Income taxes payable 66.7 53.8
------ ------
Total current liabilities 101.2 102.8
Other Liabilities 51.9 57.2
Deferred Income Taxes 20.0 20.1
Great Lakes investment 646.5 652.8
------ ------
$819.6 $832.9
====== ======
</TABLE>
These accompanying footnotes are an integral part of these condensed financial
statements.
3
<PAGE> 4
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------
1998 1997
---- ----
(millions of dollars
except per share data)
<S> <C> <C>
Net Sales $123.2 $123.5
Cost of Goods Sold 63.7 64.4
------ ------
Gross Profit 59.5 59.1
Operating Expenses
Selling, administrative and research
expenses 9.9 10.9
Amortization of intangible assets 8.6 6.7
------ ------
18.5 17.6
------ ------
Income from Operations 41.0 41.5
Interest Expense 2.1 0.4
Interest Income (0.6) (0.9)
Other Expense (Income) 1.3 (4.9)
------ ------
Income before Income Taxes
and Minority Interest 38.2 46.9
Minority Interest - 6.6
------ ------
Income Before Income Taxes 38.2 40.3
Income Taxes 12.6 13.9
------ ------
Net Income $ 25.6 $ 26.4
Proforma basic and diluted earnings per share $ 1.74 $ 1.79
====== ======
Shares used to compute basic earnings
per share (based on the number of
shares distributed on May 26, 1998) 14,762,417 14,762,417
</TABLE>
These accompanying footnotes are an integral part of these condensed financial
statements.
4
<PAGE> 5
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
1998 1997
---- ----
(millions of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $25.6 $26.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13.6 11.4
Changes in deferred items and other (0.1) 0.6
----- -----
Cash provided by operations excluding changes
in working capital 39.1 38.4
Changes in working capital other than debt 15.4 34.8
Other noncurrent liabilities (6.6) (10.4)
----- -----
Net Cash Provided by Operating Activities 47.9 62.8
INVESTING ACTIVITIES
Plant and equipment additions (2.9) (2.6)
Business combinations (4.5) -
Other (0.6) -
----- -----
Net Cash Used in Investing Activities (8.0) (2.6)
FINANCING ACTIVITIES
Net Cash paid to Great Lakes (34.2) (49.6)
Minority interest - (0.8)
----- -----
Net Cash Used in Financing Activities (34.2) (50.4)
Effect of Exchange Rate Changes on Cash and Cash (2.1) (9.7)
Equivalents
----- -----
Increase in Cash and Cash Equivalents 3.6 0.1
Cash and Cash Equivalents at Beginning of Period 29.7 54.9
----- -----
Cash and Cash Equivalents at End of Period $33.3 $55.0
</TABLE>
These accompanying footnotes are an integral part of these condensed financial
statements.
5
<PAGE> 6
OCTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION
Octel Corp. (the "Company") is a major manufacturer and distributor of fuel
additives and other specialty performance chemicals. Its primary manufacturing
operation is located at Ellesmere Port in the United Kingdom. The Company's
products are sold globally, primarily to oil refineries. Principal product
lines are lead alkyl antiknock compounds (TEL), other petroleum additives and
performance chemicals.
At March 31, 1998, the Company was a wholly-owned subsidiary of Great Lakes
Chemical Corporation ("Great Lakes"). On May 22, 1998, Great Lakes completed
the spin off of its petroleum additives business by distributing shares in the
Company to Great Lakes' stockholders in the ratio of one share in the Company
for every four Great Lakes shares held (the "Distribution"). As a result of
the Distribution, 14,762,417 shares of the Company's common stock were issued
on May 26, 1998.
In connection with the Distribution, the Company entered into a $300 million
senior secured credit facility (the "Credit Facility") and issued $150 million
of Senior Notes due 2006 (the "Notes"). The Credit Facility consisted of a
$280 million senior secured term loan and a $20 million senior secured
revolving credit facility. The Credit Facility will mature on December 31,
2001, with the term loan amortizing in quarterly installments. The loans under
the Credit Facility will bear interest at LIBOR plus 1.75%, subject to
adjustment under certain circumstances. The Notes will mature in 2006. The
Company is required to redeem $37.5 million principal amount of Notes in each
of the years 2003, 2004 and 2005. Both the Credit Facility and the Notes
contain substantial restrictions on the Company's operations. The proceeds of
the borrowings, along with available cash of $53.7 million were used to repay a
$116.8 million intercompany loan used to purchase a 10.65% interest in
subsidiaries of the Company from Chevron Chemical Company and pay a special
dividend to Great Lakes of $350.9 million.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position and
results of operations.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring accruals) have been made which are necessary for a fair
financial statement presentation. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10/A which was filed
6
<PAGE> 7
on May 6, 1998, in connection with the Distribution. The results for the
interim period are not necessarily indicative of the results to be expected for
the year due to the levels of borrowings incurred by the Company on spin off.
NOTE 2 - GREAT LAKES INVESTMENT AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Millions)
<S> <C> <C>
Balance at December 31, 1997 $652.8
Comprehensive Income:
Net Income 25.6
Net change in cumulative translation account 1.9
-----
Total comprehensive income 27.5
Net amount paid to Great Lakes including
exchange effect of $0.4 (33.8)
------
Balance at March 31, 1998 $646.5
======
</TABLE>
NOTE 3 - INCOME TAXES
The provision for income taxes at the effective tax rates reconciles with the
statutory US Federal tax rate as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
------ ------
<S> <C> <C>
Statutory US Federal tax rate 35.0% 35.0%
Increase (decrease) resulting from:
Foreign tax rate differential (4.1) (2.9)
Amortization of goodwill 3.0 2.1
Other (0.9) 0.3
------ ------
33.0% 34.5%
====== ======
</TABLE>
7
<PAGE> 8
NOTE 4 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standard No. 128
"Earnings Per Share" for the first quarter of 1998. The Statement establishes
standards for computing and presenting earnings per share ("EPS") by replacing
the presentation of primary EPS with a presentation of basic EPS.
The Company intends to adopt Statement of Financial Accounting Standard No. 131
"Disclosures about Segments of an Enterprise and Related Information" during
the fourth quarter of 1998. The Statement establishes standards for reporting
information about operating segments including related disclosure about
products, geographic areas and major customers.
In December 1997, Statement of Financial Accounting Standard No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" was
issued and is effective for the Company's 1998 fiscal year. The statement
revises current disclosure requirements for employers' pension and other
retiree benefits.
Implementation of these standards will not affect the Company's financial
position or results of operations.
NOTE 5 - RELATED PARTY TRANSACTIONS
Sales of product between the Company and Great Lakes are reported in the
financial statements at estimated market value. In the current quarter and in
the first quarter of 1997, the value of sales from the Company to Great Lakes
amounted to $2.0 million and $1.9 million respectively and the value of
purchases by the Company from Great Lakes amounted to $4.1 million and $3.7
million respectively.
Interest charges from Great Lakes in respect of funding provided for
acquisitions amounted to $2.1 million and $0.4 million in the first quarter of
1998 and 1997 respectively. At March 31, 1998, the balance owing to Great
Lakes was $111.2 million.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Some of the information presented in the following discussion constitutes
forward-looking comments within the meaning of the Private Litigation Reform
Act of 1995. Although the Company believes its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include, without limitation, the timing of orders
received from customers, the gain or loss of significant customers, competition
from other manufacturers and changes in the demand for the Company's products.
In addition, increases in the cost of the product, changes in the market in
general and significant changes in new product introduction could result in
actual results varying from expectations.
RESULTS OF OPERATIONS
First quarter sales amounted to $123.2 million, a decline of $0.3 million from
the $123.5 million recorded in 1997. Net sales by business are shown in the
following table (in millions):
<TABLE>
<CAPTION>
1998 1997 CHANGE
---- ---- ------
<S> <C> <C> <C>
TEL $101.3 $ 99.3 2 %
Petroleum Specialties 15.5 17.0 (9)%
Performance Chemicals 6.4 7.2 (11)%
------ ------ ------
Total $123.2 $123.5 -
====== ====== ======
</TABLE>
TEL net sales increased by $2.0 million to $101.3 million from the prior-year
quarter, attributable mainly to an increase in sales volumes of $3.1 million,
which was partly offset by a reduction in average prices of $1.0 million and
foreign exchange losses of $0.1 million. Retail sales volumes in the first
quarter 1998 increased by 13% to 13.5 thousand metric tons, compared with the
relatively low volume of retail sales achieved in the first quarter of 1997.
Increased sales to the Middle East and South America were partly offset by
reductions in Eastern Europe and Asia. Average retail sales prices of TEL
reduced by 1% from last year, mainly as a result of changes in customer mix.
Sales volumes of TEL on a wholesale basis in the quarter were 47% below 1997,
due partly to the low first quarter phasing of
9
<PAGE> 10
customers' requirements during 1998 and also due to the Mexican phase-out of
leaded gasoline in mid-1997, which DuPont had supplied with TEL purchased from
the Company.
Petroleum Specialties (non-lead fuel additives) net sales at $15.5 million
declined 9% from the first quarter 1997 mainly due to the loss of a major
customer in mid-1997.
Performance Chemical sales of $6.4 million during first quarter 1998 were 11%
down from 1997 resulting from reduced sales of Octaquest due to a maintenance
shut-down of the facility in preparation for the expansion of the plant.
Gross Profit in the first quarter 1998 of $59.5 million was $0.4 million
improved from the previous year. This improvement reflects the increased sales
of TEL partly offset by increased charges for rationalisation provisions and
reduced non-lead profits. As a percentage of sales, gross profit for the first
quarter 1998 was 48. 3 percent, an improvement of 0.4 percentage points on
1997.
Selling, Administration and Research expenses at $9.9 million were reduced by
$1.0 million, as a result of cost savings. At 8.0 percent of sales, SAR costs
are 0.8 percentage points reduced from the prior year.
Amortization of intangible assets at $8.6 million has increased by $1.9 million
following the acquisition of minority interests in the Company at the end of
1997.
Interest Expense at $2.1 million is increased from $0.4 million in 1997 due to
interest payable to Great Lakes on a loan for the acquisition of minority
interests.
Interest Income decreased to $0.6 million from $0.9 million in 1997.
Other Expense and Income decreased from an income of $4.9 million in the first
quarter 1997 to an expense of $1.3 million in 1998. This change was due to the
inclusion of a $4.8 million profit on exchange in 1997 and a $1.1 million loss
on exchange in the first quarter 1998.
The minority interests in the Company had been acquired from Chevron during
1997 resulting in an improvement of $6.6 million in profit attributable to the
Company in the quarter compared with the prior-year quarter.
LIQUIDITY AND FINANCIAL CONDITION
Cash provided from operations amounted to $47.9 million, $14.9 million less
than the prior year amount, due mainly to a smaller reduction in working
capital than during first quarter 1997.
10
<PAGE> 11
Trade accounts receivable were $13.1 million lower than at December 1997 due to
slightly lower sales in the first quarter and normal fluctuations in the
customer sales pattern. Days sales outstanding at March 31, 1998, increased by
9 days to 118 days from December 31, 1997, reflecting this fluctuation.
Inventory levels were virtually unchanged from the position at December 1997.
The inventory turnover in the quarter of approximately 3.1 times compared with
approximately 3.2 times in the prior-year quarter.
Plant and equipment additions amounted to $2.9 million, similar to last year,
and spending was mainly for capacity maintenance.
RECENT DEVELOPMENTS
On May 6 1998 the Board of Directors of Great Lakes approved the spin-off of
its Petroleum Additives business, establishing the new independently traded
public company - Octel Corp. The company created by the spin-off consists of
Great Lakes tetraethyl lead antiknock compound (TEL) business, its non-lead
petroleum additive business and the performance chemical business operated by
Octel.
To effect the spin-off, the Board of Directors of Great Lakes declared a
dividend payable to holders on record of Great Lakes Common Stock at the close
of business on the Record Date of one share of Octel Corp. Common Stock for
every four shares of Great Lakes Common Stock held on the Record Date. The
Distribution was effective on May 22, 1998.
As part of the spin-off, Octel has raised $430 million through borrowings in
the public and private sectors which will mature or be repaid over eight years.
A portion of the proceeds ($116.8 million) has been used to finance the
acquisition of the Chevron interest, with the remainder of the net proceeds and
available cash distributed to Great Lakes in the form of a $350.9 million
Special Dividend.
Further details about the spin-off are contained in the Company's Form 10/A,
filed with the Securities and Exchange Commission on May 6, 1998.
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company did not file, nor was it required to file, a Form 8-K because of a
change in independent auditors or because of any material unusual charges or
credits to income occurring during the quarter for which this report was filed.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorised.
Date: June 10, 1998 By /s/ Dennis J Kerrison
------------- ----------------------
Dennis J Kerrison
President and
Chief Executive Officer
Date: June 10, 1998 By /s/ Alan G Jarvis
------------- -----------------
Alan G Jarvis
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
BALANCE SHEETS, STATEMENTS OF INCOME, AND STATEMENTS OF CASH FLOWS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 33,300
<SECURITIES> 0
<RECEIVABLES> 157,600
<ALLOWANCES> 900
<INVENTORY> 77,800
<CURRENT-ASSETS> 272,200
<PP&E> 128,300
<DEPRECIATION> 22,600
<TOTAL-ASSETS> 819,600
<CURRENT-LIABILITIES> 101,200
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 646,500
<TOTAL-LIABILITY-AND-EQUITY> 819,600
<SALES> 123,200
<TOTAL-REVENUES> 124,000
<CGS> 63,700
<TOTAL-COSTS> 82,200
<OTHER-EXPENSES> 1,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,100
<INCOME-PRETAX> 38,200
<INCOME-TAX> 12,600
<INCOME-CONTINUING> 25,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,600
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.74
</TABLE>
