<PAGE>
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, 2000
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.)
Global House
Bailey Lane
Manchester
United Kingdom M90 4AA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 011-44-161-498-8889
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 Outstanding as of April 30, 2000
Common Stock, par value $0.01 13,151,376 Shares
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
(Unaudited)
------------- -------------
(millions of dollars)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 43.0 $ 37.2
Accounts receivable, less allowance
of $2.2 (1999 - $2.2) 107.6 150.5
Inventories
Finished products 42.7 34.8
Raw materials and work in progress 25.1 29.5
-------- --------
Total inventories 67.8 64.3
Prepaid expenses 2.8 3.8
-------- --------
Total current assets 221.2 255.8
Property, plant and equipment 142.6 143.9
Less accumulated depreciation 42.6 39.4
-------- --------
Net property, plant and equipment 100.0 104.5
Goodwill 367.4 379.2
Intangible asset 19.8 22.7
Deferred finance costs 11.6 12.7
Prepaid pension cost 73.0 72.2
Other assets 2.4 2.4
-------- --------
$ 795.4 $ 849.5
======== ========
</TABLE>
The accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements.
-2-
<PAGE>
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
(Unaudited)
-------------- -------------
(millions of dollars)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 61.0 $ 78.5
Accrued expenses 18.0 17.0
Accrued income taxes 27.4 31.3
Current portion of long-term debt 68.3 80.0
---------- ----------
Total current liabilities 174.7 206.8
Plant closure provisions (note 4) 50.9 55.6
Deferred income taxes 36.3 35.8
Long-term debt 220.0 233.3
Other liabilities 1.8 1.7
Minority interest 2.1 2.4
Stockholders' equity
Common stock, $0.01 par value (note 2) 0.1 0.1
Additional paid-in capital 276.1 276.1
Treasury stock (note 2) (19.8) (18.9)
Retained earnings 85.7 82.5
Accumulated other comprehensive income (32.5) (25.9)
---------- ----------
Total stockholders' equity 309.6 313.9
---------- ----------
$ 795.4 $ 849.5
========== ==========
</TABLE>
The accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements.
-3-
<PAGE>
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
2000 1999
---- ----
(millions of dollars except
------------------------------
per share data)
----------------
<S> <C> <C>
Net sales $ 91.0 $ 128.0
Cost of goods sold 54.7 78.6
-------- ---------
Gross profit 36.3 49.4
Operating expenses
Selling, general and admin. 11.2 12.2
Research and development 0.9 1.1
Amortization of intangible assets 15.8 12.0
-------- ---------
27.9 25.3
-------- ---------
Operating income 8.4 24.1
Interest expense 9.1 7.0
Other expenses/(income) (3.5) (2.1)
Interest income (3.2) (0.4)
-------- ---------
Income before income taxes and minority interest 6.0 19.6
Minority interest 0.6 0.1
-------- ---------
Income before income taxes 5.4 19.5
Income taxes (note 3) 2.2 9.1
-------- ---------
Net income $ 3.2 $ 10.4
========= =========
Earnings per share:
Basic $ 0.24 $ 0.74
--------- ---------
Diluted $ 0.24 $ 0.73
--------- ---------
Weighted average shares
outstanding (in thousands)
Basic (note 2) 13,427 13,934
--------- ---------
Diluted (note 2) 13,678 14,109
--------- ---------
</TABLE>
The accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements.
-4-
<PAGE>
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
------------------------
2000 1999
---- ----
(millions of dollars)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 3.2 $ 10.4
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 20.6 16.8
Deferred income taxes 0.6 0.4
Other (0.2) -
Changes in operating assets and liabilities:
Accounts receivable and prepaid expenses 43.1 (18.0)
Inventories (4.2) 3.7
Accounts payable and accrued expenses (15.2) 3.8
Income taxes and other current liabilities (3.7) 9.0
Other non-current assets and liabilities (5.4) (3.4)
-------- --------
Net cash provided by operating activities 38.8 22.7
Cash Flows from Investing Activities
Capital expenditures (1.7) (3.3)
Other (0.8) (2.4)
-------- --------
Net cash used in investing activities (2.5) (5.7)
Cash Flows from Financing Activities
Receipt of long-term borrowings - 6.0
Repayment of long-term borrowings (25.0) (15.0)
Repurchase of common stock (0.9) -
Minority interest (0.3) 0.7
-------- --------
Net cash used in financing activities (26.2) (8.3)
Effect of exchange rate changes on cash (4.3) (3.9)
-------- --------
Net change in cash and cash equivalents 5.8 4.8
Cash and cash equivalents at beginning of period 37.2 26.5
-------- --------
Cash and cash equivalents at end of period $ 43.0 $ 31.3
======== ========
</TABLE>
The accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements.
-5-
<PAGE>
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(millions of dollars)
<TABLE>
<CAPTION>
Additional Total
Common Treasury Paid-in Retained CTA* Comprehensive
Stock Stock Capital Earnings Income
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 2000 $0.1 $(18.9) $276.1 $82.5 $(25.9) $56.6
Net Income - - - 3.2 - 3.2
Net CTA* change - - - - (6.6) (6.6)
Share buy-back - (0.9) - - - -
---------- ---------- ----------- ---------- --------- -------------
Balance at March
31, 2000 $0.1 $(19.8) $276.1 $85.7 $(32.5) 53.2
---------- ---------- ----------- ---------- ---------- -------------
</TABLE>
* Cumulative translation adjustment
The accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements.
OCTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION
Octel Corp., a Delaware corporation (the Company) is a major manufacturer and
distributor of fuel additives and other specialty chemicals. Its primary
manufacturing operation is located at Ellesmere Port, Cheshire, United Kingdom.
The Company's products are sold globally, primarily to oil refineries. Principal
product lines are lead alkyl antiknock compounds (TEL), and specialty chemicals.
Until May 22, 1998, the Company was a wholly-owned subsidiary of Great Lakes
Chemical Corporation, a Delaware corporation (GLCC). On May 22, 1998, GLCC
consummated the spin off of its petroleum additives business by distributing
shares in the Company to the stockholders of GLCC in a ratio of one Company
share for every four GLCC shares held (the spin off). In connection with the
spin off, the Company issued 14,762,417 shares of common stock on May 26, 1998.
A further 969 shares were subsequently issued in respect of late notified
changes in GLCC stockholders at the record date of the spin off issue.
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-K filed on March 27, 2000.
The results for the interim period are not necessarily indicative of the results
to be expected for the full year.
-6-
<PAGE>
NOTE 2 - STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
At March 31, 2000, the Company had authorised common stock of 40 million shares
(December 31, 1999 - 40 million). Issued shares at March 31, 2000, were
14,777,250 (December 31, 1999 - 14,766,386) and treasury stock amounted to
1,407,574 (December 31, 1999 - 1,314,864). During the first quarter 2000, 10,864
new shares were issued on the exercise of options under the Octel Corp. Time
Restricted Stock Option Plan at zero cost.
Basic earnings per share is based on the weighted average number of common
shares outstanding during the period, while diluted earnings per share includes
the effect of options and restricted stock that are dilutive and outstanding
during the period.
NOTE 3 - INCOME TAXES
A reconciliation of the U.S. statutory income tax rate to the effective income
tax rate is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
---- ----
<S> <C> <C>
Statutory US Federal tax rate 35.0% 35.0%
Increase (decrease) resulting from:
Foreign tax rate differential (10.7) (4.7)
Amortization of goodwill 25.9 15.8
Other (9.8) 0.7
--------- ---------
40.4% 46.8%
========= =========
</TABLE>
NOTE 4 - PLANT CLOSURE PROVISIONS
<TABLE>
<CAPTION>
(millions of dollars) 2000 1999
---- ----
<S> <C> <C>
Balance at January 1 $55.6 $47.1
Exchange effect (0.9) (2.6)
Charge for the period (0.7) 3.7
Expenditure (3.1) (8.1)
--------- ---------
Balance at March 31 $50.9 40.1
========= =========
</TABLE>
Expenditure of $2.0 million in the first three months of 2000 related to
personnel severance costs incurred as part of the Company's ongoing program of
downsizing and restructuring of operations to respond to declining demand for
TEL. The balance of $1.1 million related to environmental remediation
activities.
NOTE 5 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. In June 1999, FASB issued FAS 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective Date of
FASB Statement No.133". This Statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company is at present evaluating
the impact of SFAS 133 on its operations.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE THREE MONTHS ENDED MARCH 31, 2000
-------------------------------------------------------------
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, including
the rate of decline in demand for TEL. In addition, increases in the cost of
product, changes in the market in general and significant changes in new product
introduction could result in actual results varying from expectations.
RECENT DEVELOPMENTS
The Company continues to reduce TEL costs and capacity in line with the market
decline in demand. The fourth phase of the UK voluntary severance program,
announced in the fourth quarter 1999, will result in a planned headcount
reduction of 323 by June 30, 2000. Of this total 108 employees have already left
the Company. Further cost savings are expected to result from the outsourcing of
sodium and ethyl chloride, intermediates which were formerly manufactured by the
Company.
On November 9, 1999 the acquisition of the OBOAdler group was completed.
Effective January 1, 2000 OBOAdler entered into sales and marketing agreements
with Ethyl Corporation similar to those already in place between Octel and
Ethyl. On April 19, 2000 an amount of $39 million was received by OBOAdler as a
prepayment for services provided under the marketing agreements.
RESULTS OF OPERATIONS
Operating income for the first quarter of 2000 and 1999 may be analyzed as
follows:-
(millions of dollars)
<TABLE>
<CAPTION>
2000 1999
TEL Specialty Total TEL Specialty Total
Chemicals Chemicals
<S> <C> <C> <C> <C> <C> <C>
Net Sales $58.1 $32.9 $91.0 $98.4 $29.6 $128.0
---------- -------------- ----------- ----------- ------------- ----------
Gross Profit 26.4 9.9 36.3 40.9 8.5 49.4
---------- -------------- ----------- ----------- ------------- ----------
Operating Income $7.4 $3.8 $ 11.2 $24.9 $1.8 $26.7
---------- -------------- ----------- ----------- ------------- ----------
</TABLE>
Operating income noted above excludes corporate costs of $2.8 million in 2000
and $2.6 million in 1999. Comparatives have been restated for the separate
disclosure of corporate costs.
-8-
<PAGE>
Overall TEL sales for the first quarter, 2000 were $40.3 million (41%) below
1999 levels. Sales volumes were 9,582 metric tons (mt) compared to 14,256 mt in
the same period in 1999. The long term decline in demand and increased
competition in the TEL market was compounded by short term factors including the
timing of bulk deliveries and stocking up by customers in late 1999. Although
the 2000 sales included OBOAdler sales, the net adverse volume variance was
$32.2 million. Gross profit for the three months was 45.4% of net sales compared
to 41.5% for the equivalent period in 1999. The effect of reduced net sales has
been mitigated by cost savings, but the increase in margins mainly arose through
rationalization costs, with $3.7 million charged in 1999 compared to a credit of
$0.7 million in 2000.
Specialty Chemicals sales for the first three months of 2000 were $3.3 million
(11.1%) above 1999 levels, and gross profit on net sales was 30.0% compared to
28.7% in 1999, continuing the trend in this growth business in line with the
company's strategy.
Sales, general and administrative costs have decreased by $1.0 million (8.2%)
compared to 1999 levels, reflecting the significant headcount reductions and
cost reduction initiatives over the year.
Amortization costs have increased from $12.0 million to $15.8 million,
reflecting the incremental goodwill arising from the OBOAdler acquisition.
Interest expense has increased from $7.0 million to $9.1 million reflecting the
effect of the additional $100 million debt entered into in respect of the
OBOAdler acquisition.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Cash inflow from operating activities in the first quarter 2000 was $38.8
million, an increase of $16.1 million (71%) over the equivalent period in 1999.
The most significant contribution is the $61.1 million movement in accounts
receivable from an outflow of $18.0 million to an inflow of $43.1 million in
2000. Debtors reflected 100 days' sales, an improvement over the 104 days at
December 31, 1999.
In the first quarter 2000 further senior debt repayments of $25 million were
made, bringing total debt repayments to $232 million, 83% of the original $280
million bank debt entered into in May 1998. The Company incurred an additional
$100 million of senior debt in 1999 to fund the OBOAdler acquisition. At March
31, 2000 $90 million of this additional debt was outstanding.
YEAR 2000
- ---------
No significant date discontinuity problems arose during the transition from 1999
to 2000 or as a result of 2000 being a leap year.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------------
There has been no material change in the Company's exposure to market risk as
described in the Form 10-K filed on March 27, 2000.
-9-
<PAGE>
PART II - OTHER INFORMATION
- ----------------------------
ITEM 6 - Exhibits and reports on FORM 8-K
- -------------------------------------------
(a) Exhibits
27 Consolidated Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K/A was filed on January 20, 2000 which
provided audited financial statements and proforma financial
statements related to the November 9, 1999 acquisition of OBOAdler
Company Limited.
-10-
<PAGE>
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: May 10, 2000 By /s/ Dennis J Kerrison
-----------------
Dennis J Kerrison
President and
Chief Executive Officer
Date May 10, 2000 By /s/ Alan G Jarvis
-------------
Alan G Jarvis
Chief Financial Officer
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
27 Consolidated Financial Data Schedule 12
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, STATEMENTS OF INCOME, AND STATEMENTS OF CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 43,000
<SECURITIES> 0
<RECEIVABLES> 109,800
<ALLOWANCES> 2,200
<INVENTORY> 67,800
<CURRENT-ASSETS> 221,200
<PP&E> 142,600
<DEPRECIATION> 42,600
<TOTAL-ASSETS> 795,400
<CURRENT-LIABILITIES> 174,700
<BONDS> 220,000
0
0
<COMMON> 100
<OTHER-SE> 309,500
<TOTAL-LIABILITY-AND-EQUITY> 795,400
<SALES> 91,000
<TOTAL-REVENUES> 97,700
<CGS> 54,700
<TOTAL-COSTS> 82,600
<OTHER-EXPENSES> 9,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,100
<INCOME-PRETAX> 5,400
<INCOME-TAX> 2,200
<INCOME-CONTINUING> 3,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,200
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
</TABLE>
