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
<PAGE>
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.
<PAGE>
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.<PAGE>
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.
<PAGE>
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.
<PAGE>
<TABLE>
ETHYL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
(In thousands of dollars)(Unaudited)
December 31, 1993
<CAPTION>
Adjustments
Increases (Decreases)
Historical NoteB(i) ProForma
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
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
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
EXHIBIT INDEX
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.
<PAGE>
ALBEMARLE CORPORATION
INFORMATION STATEMENT
COMMON STOCK
This Information Statement is being furnished by Ethyl Corporation, a
Virginia corporation (Ethyl), in connection with the distribution (the
Distribution) to holders of record of Ethyl common stock, $1.00 par value (Ethyl
Common Stock), of all of the shares of common stock, without par value (the
Company's Common Stock) of Albemarle Corporation, a Virginia corporation (the
Company), outstanding at the time of the Distribution. The Company is a newly
formed subsidiary of Ethyl, which, at the date and time of the Distribution,
will engage directly or through subsidiaries in the olefins and derivatives,
bromine chemicals and specialty chemicals businesses presently conducted by
Ethyl.
The Distribution will be made effective on February 28, 1994 (the
Distribution Date) to holders of record of Ethyl Common Stock at the close of
business on that date and certificates evidencing the Company's Common Stock
will be mailed to shareholders on or about March 10, 1994. Ethyl shareholders
will not be required to pay any consideration or exchange or surrender their
shares of Ethyl Common Stock in order to receive the Company's Common Stock.
There currently is no public market for the Company's Common Stock, although it
is expected that a when-issued trading market will begin prior to the
Distribution Date. The Company's Common Stock has been approved for listing on
the New York Stock Exchange upon official notice of issuance. Because the New
York Stock Exchange will provide for when-issued trading for the Company's
Common Stock commencing February 22, 1994, any Ethyl shareholder who desires to
sell any shares of the Company's Common Stock that he will receive in the
Distribution may do so even though certificates representing those shares will
not be mailed until on or about March 10, 1994. The market price for the
Company's Common Stock at the time the share certificates are received by the
Company's shareholders may be higher or lower than the price at which the shares
trade during the when-issued trading period.
In reviewing this Information Statement, you should consider carefully the
matters described under the caption SPECIAL CONSIDERATIONS.
NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Ethyl shareholders with inquiries relating to the Distribution should
contact Harris Trust and Savings Bank (the Distribution Agent) at 311 West
Monroe Street, 11th Floor, Chicago, Illinois 60606. After the Distribution Date,
shareholders of the Company with inquiries relating to the Distribution or their
investment in the Company should contact Albemarle Corporation, 330 South Fourth
Street, Richmond, Virginia 23219, Attention: Corporate Secretary, or Harris
Trust and Savings Bank, the Company's transfer agent and registrar, at the
address listed above.
The date of this Information Statement is February 17, 1994.
<PAGE>
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY................................................................................................................ 4
SELECTED FINANCIAL DATA................................................................................................ 7
RECENT DEVELOPMENTS 9
SPECIAL CONSIDERATIONS................................................................................................. 11
Operating History and Future Prospects............................................................................... 11
Financing Sources.................................................................................................... 11
Stock Ownership of the Gottwalds..................................................................................... 11
Restrictive Covenants................................................................................................ 11
Environmental Liabilities............................................................................................ 12
General Litigation................................................................................................... 12
Competition.......................................................................................................... 12
Absence of Ethyl Financial Support................................................................................... 12
International Operations............................................................................................. 12
Absence of Prior Trading Market for the Company's Common Stock....................................................... 12
Certain Antitakeover Effects......................................................................................... 13
Preferred Stock...................................................................................................... 13
Uncertainty of Equity Sale........................................................................................... 13
No Preemptive Rights................................................................................................. 13
Shared Facilities.................................................................................................... 13
Shared Executives.................................................................................................... 13
Business Trends...................................................................................................... 14
THE DISTRIBUTION....................................................................................................... 15
General.............................................................................................................. 15
Background and Reasons for the Distribution.......................................................................... 15
Financial Advisor.................................................................................................... 16
Certain Significant Aspects of the Distribution...................................................................... 16
Manner of Effecting the Distribution................................................................................. 16
Federal Income Tax Aspects of the Distribution....................................................................... 17
Listing and Trading of the Company's Common Stock.................................................................... 17
Dividend Policy...................................................................................................... 18
Executive Officers of the Company.................................................................................... 19
The Company's Common Stock Repurchases............................................................................... 19
Conditions; Termination.............................................................................................. 19
Distribution Costs................................................................................................... 19
FINANCING.............................................................................................................. 19
Absence of Ethyl Financial Support................................................................................... 19
Sale of the Company's Common Stock................................................................................... 19
Credit Facility...................................................................................................... 21
RELATIONSHIP BETWEEN ETHYL AND THE COMPANY AFTER THE DISTRIBUTION...................................................... 21
Reorganization Agreement............................................................................................. 21
Benefits Agreement................................................................................................... 22
Tax Sharing Agreement................................................................................................ 22
Master Services Agreement............................................................................................ 22
Operating, Services and Blending Agreements.......................................................................... 23
Indemnification Agreement............................................................................................ 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................. 25
Introduction......................................................................................................... 25
Results of Operations................................................................................................ 25
Outlook.............................................................................................................. 28
Financial Condition and Liquidity.................................................................................... 28
BUSINESS............................................................................................................... 30
<PAGE>
<PAGE>
PAGE
Background........................................................................................................... 30
Olefins and Derivatives.............................................................................................. 31
Bromine Chemicals.................................................................................................... 31
Specialty Chemicals.................................................................................................. 32
Research and Development............................................................................................. 32
International Operations............................................................................................. 33
Patents, Licenses and Trademarks..................................................................................... 33
Backlogs............................................................................................................. 33
Legal Proceedings.................................................................................................... 33
Environmental Regulation............................................................................................. 33
Competition.......................................................................................................... 34
Raw Materials........................................................................................................ 34
Major Customers...................................................................................................... 35
Insurance............................................................................................................ 35
Employees............................................................................................................ 35
Properties........................................................................................................... 35
MANAGEMENT............................................................................................................. 37
Directors............................................................................................................ 37
Committees of the Board of Directors................................................................................. 39
Compensation of Directors............................................................................................ 39
Executive Officers................................................................................................... 40
Compensation of Executive Officers................................................................................... 40
CERTAIN TRANSACTIONS................................................................................................... 46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........................................................................ 47
BENEFICIAL OWNERSHIP OF MANAGEMENT..................................................................................... 47
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK............................................................................. 49
Authorized Capital Stock............................................................................................. 49
The Company's Common Stock........................................................................................... 49
The Company's Preferred Stock........................................................................................ 49
Preemptive Rights.................................................................................................... 49
Transfer Agent and Registrar......................................................................................... 49
PURPOSES AND ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND THE COMPANY'S
BYLAWS............................................................................................................... 49
General.............................................................................................................. 49
Removal of Directors; Filling Vacancies.............................................................................. 50
Special Meetings..................................................................................................... 50
Advance Notice Provisions for Shareholder Proposals and Shareholder Nominations of Directors......................... 50
Preferred Stock...................................................................................................... 51
Certain Voting Requirements.......................................................................................... 51
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF
THE COMPANY.......................................................................................................... 52
AUDITORS............................................................................................................... 52
INDEX TO FINANCIAL STATEMENTS.......................................................................................... F-1
INDEX TO FINANCIAL STATEMENT SCHEDULES................................................................................. S-1
/TABLE
<PAGE>
<PAGE>
ALBEMARLE CORPORATION
SUMMARY
THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION SET FORTH
ELSEWHERE IN THIS INFORMATION STATEMENT, WHICH SHOULD BE READ IN ITS ENTIRETY.
UNLESS THE CONTEXT OTHERWISE REQUIRES, (I) REFERENCES IN THIS INFORMATION
STATEMENT TO ETHYL AND THE COMPANY SHALL INCLUDE ETHYL'S AND THE COMPANY'S
RESPECTIVE SUBSIDIARIES AND (II) REFERENCES IN THIS INFORMATION STATEMENT TO THE
COMPANY PRIOR TO THE DISTRIBUTION DATE SHALL REFER TO BUSINESSES OF THE COMPANY
AS OPERATED BY ETHYL.
THE DISTRIBUTION
<TABLE>
<S> <C>
DISTRIBUTING COMPANY.......... Ethyl Corporation, a Virginia corporation (Ethyl).
SHARES TO BE DISTRIBUTED...... Approximately 59,200,000 shares of common stock, without par value (the Company's Common
Stock), of Albemarle Corporation, a Virginia corporation (the Company), will be distributed
based on approximately 118,400,000 shares of common stock, par value $1.00 per share, of Ethyl
(Ethyl Common Stock). No holder of Ethyl Common Stock will be required to pay any cash or other
consideration or to exchange his Ethyl Common Stock for the Company's Common Stock that he will
receive in the Distribution. The Distribution will not affect the holder's number of shares of
Ethyl Common Stock, which will remain outstanding. All currently valid certificates
representing shares of Ethyl Common Stock will continue to be valid and should not be
destroyed.
BACKGROUND OF THE
DISTRIBUTION................ The Board of Directors of Ethyl first considered the Distribution in September, 1993 and
appointed a Special Committee to study the advisability of the proposed Distribution. The
Company retained CS First Boston Corporation (the Financial Advisor) to advise it on financial
matters relating to the proposed Distribution. On February 7, 1994, the Special Committee
recommended to the Ethyl Board that it approve the spin-off of the Chemicals Businesses to the
Company and on February 8, 1994, Ethyl's Board of Directors approved the Distribution. No vote
of the shareholders of Ethyl is required to approve the Distribution. See THE
DISTRIBUTION -- Background and Reasons for the Distribution and THE DISTRIBUTION -- Financial
Advisor.
REASONS FOR THE
DISTRIBUTION................ Ethyl believes that separating the olefins and derivatives, bromine chemicals and specialty
chemicals businesses (the Chemicals Businesses) from Ethyl's petroleum additives and
pharmaceutical businesses (the Ethyl Businesses) will maximize the development of those
businesses and will allow the financial markets to better focus on the individual strengths of
the Ethyl Businesses and the Chemicals Businesses and more accurately evaluate the performance
of the Company compared to companies in the same or similar businesses. The Company also
expects to realize cost savings as a result of the separation of the two businesses and will be
in a position to strengthen its financial position by issuing $100 million of additional equity
through the proposed sale of the Company's Common Stock. See FINANCING -- Sale of the Company's
Common Stock. The Distribution will eliminate internal competition for capital between the
Chemicals Businesses and the Ethyl Businesses and conflicts among the companies relating to
their customers and competitors. See THE DISTRIBUTION -- Background and Reasons for the
Distribution.
DISTRIBUTION RATIO............ One share of the Company's Common Stock for every two shares of Ethyl Common Stock.
TRADING MARKET................ The Company's Common Stock has been approved for listing on the New York Stock Exchange (the
NYSE) upon official notice of issuance. See THE DISTRIBUTION -- Listing and Trading of the
Company's Common Stock.
DISTRIBUTION DATE............. On or about March 10, 1994, the Distribution Agent will mail certificates representing the
Company's Common Stock distributed to holders of record of Ethyl Common Stock at the
</TABLE>
4
<PAGE>
<PAGE>
ALBEMARLE CORPORATION
<TABLE>
<S> <C>
close of business on February 28, 1994 (the Distribution Date). See THE DISTRIBUTION -- Manner
of Effecting the Distribution.
DISTRIBUTION AGENT............ Harris Trust and Savings Bank
FRACTIONAL SHARE
INTERESTS................... No fractional shares of the Company's Common Stock will be distributed. Fractional share
interests will be bought by the Company at a per share price equal to the average closing price
of the Company's Common Stock on the NYSE on the first through the fourth trading days after
the Distribution Date, and the cash proceeds will be distributed to those shareholders who
otherwise would be entitled to a fractional interest. See THE DISTRIBUTION -- Manner of
Effecting the Distribution.
FEDERAL INCOME TAX
CONSEQUENCES................ Ethyl has received from the Internal Revenue Service a ruling to the effect that, among other
things, the Distribution will be non-taxable to Ethyl and the Company and the receipt of shares
of the Company's Common Stock by shareholders of Ethyl will be non-taxable to the shareholders,
except for the receipt of cash in lieu of fractional shares. In the request for the tax ruling,
Ethyl covenanted to sell to the Gottwalds or to the public approximately $100 million of the
Company's Common Stock prior to March 1, 1995. See THE DISTRIBUTION -- Federal Income Tax
Aspects of the Distribution.
PRINCIPAL BUSINESSES TO BE
RETAINED BY ETHYL........... Ethyl will retain its petroleum additives and pharmaceutical businesses.
THE COMPANY................... The Company is a newly-formed, wholly-owned subsidiary of Ethyl that will engage directly or
through subsidiaries in the the Chemicals Businesses presently conducted by Ethyl. At September
30, 1993 and for the nine months ended on that date, total assets, net sales and net income on
a pro forma basis before cumulative effect of accounting changes for the Chemicals Businesses
were approximately $1,110,500,000, $668,400,000 and $13,800,000, respectively, representing
approximately 54.9%, 46.0% and 17.9%, respectively, of the total assets, net sales and net
income of the combined Ethyl operations. The disparity between the percentage of combined net
sales and combined net income is attributable to higher profit margins on Ethyl's sales of
antiknock compounds and to depressed pricing in the Company's linear alpha olefins business
resulting from excess capacity as more fully described under BUSINESS -- Olefins and
Derivatives. In connection with the Distribution, approximately 3,800, or 69%, of the Ethyl
employees will be transferred to the Company. See BUSINESS.
PRINCIPAL EXECUTIVE
OFFICE...................... 330 South Fourth Street, Richmond, Virginia 23219.
SALE OF EQUITY................ The Company has agreed to sell approximately $50 million of the Company's Common Stock to Bruce
C. Gottwald and members of his family, including Bruce C. Gottwald, Jr., or an investment
entity owned by them, and approximately $50 million of the Company's Common Stock to Floyd D.
Gottwald, Jr. and members of his family, including John D. Gottwald and William M. Gottwald,
M.D., or an investment entity owned by them. The purchase price for the shares will be the
average weighted trading price of the Company's Common Stock as determined by the Financial
Advisor for the third through the twelfth business day following release of the Company's
earnings for the first quarter of 1994. Floyd D. Gottwald, Jr. will be the Chairman of the
Board and Chief Executive Officer of the Company, and Bruce C. Gottwald, Bruce C. Gottwald,
Jr., John D. Gottwald and William M. Gottwald, M.D. will be directors of the Company. See
FINANCING -- Sale of the Company's Common Stock.
In evaluating the proposed Distribution, the Ethyl Board of Directors determined that the
Company would benefit by raising additional capital through the issuance of common stock in
order to decrease the Company's debt to equity ratio, thereby better positioning the Company to
develop its businesses. After consultation with the Financial Advisor, the Company's Board
</TABLE>
5
<PAGE>
<PAGE>
ALBEMARLE CORPORATION
<TABLE>
<S> <C>
of Directors concluded that the best form of equity capital was common stock and that a private
placement to Bruce C. Gottwald and Floyd D. Gottwald, Jr. and members of their families would
be the least costly method of raising such equity capital (due to the absence of underwriting
and other expenses associated with public offerings) and would provide less market risk than a
public offering. See FINANCING -- Sale of the Company's Common Stock.
DIVIDEND POLICY............... It is anticipated that, following the Distribution, the Company will pay initially a quarterly
cash dividend of $.05 per share on the Company's Common Stock, commencing with the dividend
normally payable on April 1. However, no such dividend has been declared, and the payment of
dividends will be at the discretion of the Company's Board of Directors. See THE
DISTRIBUTION -- Dividend Policy.
CERTAIN PROVISIONS OF
THE COMPANY'S ARTICLES OF
INCORPORATION AND THE
COMPANY'S BYLAWS............ Some of the provisions of the Company's Articles of Incorporation and the Company's Bylaws have
been designed to enable the Company, especially in its initial years, to develop its businesses
and foster its long-term growth without disruptions caused by the threat of a takeover not
deemed by the Company's Board of Directors to be in the best interests of the Company and its
shareholders. The Company's Articles of Incorporation provide that directors may be removed
only for cause and require the affirmative vote of at least 75% of the outstanding shares of
the Company's Common Stock in order to approve a merger or other significant transaction with a
holder of more than 10% of any class of voting shares, other than the Gottwalds, which in
practical effect means that such transactions will require the approval of the Gottwalds.
Ethyl's Articles of Incorporation contain no such provisions. While Ethyl has a shareholder
rights plan that is designed to deter a purchase of a potentially controlling block of stock
without the prior approval of Ethyl's Board of Directors, the Company's Board of Directors
concluded that such a plan was not needed at this time for the Company because Floyd D.
Gottwald, Jr. and Bruce C. Gottwald and members of their families will hold a significant
percentage of the Company's Common Stock. See PURPOSES AND ANTITAKEOVER EFFECTS OF CERTAIN
PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND THE COMPANY'S BYLAWS. The Company's
Articles of Incorporation would limit monetary liabilities of the Company's directors and
officers in connection with the performance of their duties. See LIABILITY AND INDEMNIFICATION
OF OFFICERS AND DIRECTORS OF THE COMPANY.
SPECIAL CONSIDERATIONS........ Shareholders should carefully consider the matters discussed under the section entitled SPECIAL
CONSIDERATIONS in this Information Statement.
</TABLE>
6
<PAGE>
<PAGE>
ALBEMARLE CORPORATION
SELECTED FINANCIAL DATA
The following is a summary of certain historical and pro forma financial
information with respect to the Chemicals Businesses, the predecessor businesses
of Albemarle Corporation, and is based upon the combined financial statements of
the Chemicals Businesses. Historical and pro forma financial information may not
be indicative of the future performance of the Chemicals Businesses as an
independent company. The Chemicals Businesses' financial statements and the
related financial data for each of the three years in the period ended December
31, 1992 have been audited by Coopers & Lybrand, independent public accountants,
whose report with respect to such combined financial statements and selected
financial data appears elsewhere in this Information Statement. The Chemicals
Businesses' combined financial statements for the years ended December 31, 1989
and 1988 and for the nine months ended September 30, 1993 and 1992 (including
the related notes) and the related selected financial data have not been audited
by independent public accountants. However, in the opinion of management, the
selected financial data for such periods include all adjustments (which include
only normal recurring adjustments) necessary for a fair presentation of the
data. Also, the Chemicals Businesses' pro forma financial statements for the
year ended December 31, 1992 and for the nine months ended September 30, 1993
(including the related notes) and the related selected financial data have not
been audited by independent public accountants. The information set forth below
should be read in conjunction with MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS which begins on page 25 and the
combined financial statements and related notes which begin on page F-3.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEARS ENDED DECEMBER 31 30
1992 1991 1990 1989 1988 1993
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF DOLLARS EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL COMBINED INFORMATION (1)
INCOME STATEMENT DATA (2)(3)
Net sales........................................ $818,223 $790,988 $783,174 $798,991 $752,692 $ 668,453
Operating profit (4)(5)(6)....................... 61,439 73,581 96,326 108,831 126,026 40,784
Income before income taxes and cumulative effect
of accounting changes.......................... 58,514 74,666 98,516 110,153 127,248 35,491
Income before cumulative effect of accounting
changes........................................ 41,743 52,558 65,697 74,583 83,204 18,215
Cumulative effect of accounting changes for (7):
Postretirement health benefits (net of tax).... (18,548) -- -- -- -- --
Deferred income taxes.......................... 16,632 -- -- -- -- --
Net income (8)................................... 39,827 52,558 65,697 74,583 83,204 18,215
WORKING CAPITAL.................................. 163,221 132,148 178,310 113,415 122,847 194,440
TOTAL ASSETS..................................... 937,524 893,337 847,345 657,984 638,917 1,110,465
LONG-TERM DEBT, EXCLUDING CURRENT PORTION (9).... 100,521 118,663 96,608 9,680 788 94,442
TOTAL EQUITY..................................... 589,791 525,691 533,904 460,193 447,824 712,354
PRO FORMA COMBINED INFORMATION (UNAUDITED)(10)
INCOME STATEMENT DATA
Net sales........................................ 913,996 676,819
Operating profit................................. 69,560 40,777
Income before income taxes and cumulative effect
of accounting changes.......................... 56,560 28,341
Income before cumulative effect of accounting
changes........................................ 40,370 13,776
TOTAL ASSETS..................................... 1,110,465
LONG-TERM DEBT, EXCLUDING CURRENT PORTION (11)... 382,442
TOTAL EQUITY..................................... 424,354
EARNINGS PER SHARE (BASED ON INCOME BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGES)
(12)........................................... $ 0.68 $ 0.23
<CAPTION>
1992
<S> <C>
HISTORICAL COMBINED INFORMATION (1)
INCOME STATEMENT DATA (2)(3)
Net sales........................................ $605,293
Operating profit (4)(5)(6)....................... 55,235
Income before income taxes and cumulative effect
of accounting changes.......................... 54,008
Income before cumulative effect of accounting
changes........................................ 35,804
Cumulative effect of accounting changes for (7):
Postretirement health benefits (net of tax).... (18,548)
Deferred income taxes.......................... 16,632
Net income (8)................................... 33,888
WORKING CAPITAL.................................. 181,758
TOTAL ASSETS..................................... 960,777
LONG-TERM DEBT, EXCLUDING CURRENT PORTION (9).... 122,893
TOTAL EQUITY..................................... 589,850
PRO FORMA COMBINED INFORMATION (UNAUDITED)(10)
INCOME STATEMENT DATA
Net sales........................................
Operating profit.................................
Income before income taxes and cumulative effect
of accounting changes..........................
Income before cumulative effect of accounting
changes........................................
TOTAL ASSETS.....................................
LONG-TERM DEBT, EXCLUDING CURRENT PORTION (11)...
TOTAL EQUITY.....................................
EARNINGS PER SHARE (BASED ON INCOME BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGES)
(12)...........................................
</TABLE>
(1) Historical results of operations for the nine months ended September
30, 1993, include the results of operations of Potasse et Produits Chimiques SA
(PPC) since its date of acquisition, February 8, 1993 (see Note 16 Subsequent
Events -- Acquisition of Potasse et Produits Chimiques SA to the combined
financial statements). Financial position information at September 30, 1993 also
includes the impact of this acquisition.
(2) Historical results of operations includes interest primarily on foreign
long-term debt instruments expected to be transferred to the Chemicals
Businesses (see Note 2 Summary of Significant Accounting Policies -- Interest
Expense to the combined financial statements). Consequently, the interest
expense reflected in the historical results of operations is not intended to
reflect interest expense that Chemicals may have incurred had Chemicals been an
independent company. Further, such interest expense does not reflect any
additional interest expense on additional debt which will be assigned to
Chemicals upon completion of the distribution.
(CONTINUED)
7
<PAGE>
<PAGE>
ALBEMARLE CORPORATION
SELECTED FINANCIAL DATA (CONTINUED)
(3) See the combined financial statements of the Chemicals Businesses and
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
(4) Operating profit for the year ended December 31, 1991 includes charges
of $6,350 ($4,000 after income taxes) for expenses and write-offs resulting from
the discontinuance of certain developmental research programs.
(5) Operating profit for the year ended December 31, 1990 includes charges
of $6,033 ($5,066 after income taxes) for write-off of goodwill and for expenses
associated with environmental remediation projects of certain facilities.
(6) Operating profit for the nine months ended September 30, 1993 includes
a charge of $7,700 ($4,700 after income taxes) to cover an announced
work-force-reduction and early-retirement program.
(7) The cumulative effect of accounting changes is the result of changes in
the methods of accounting for postretirement health benefits and deferred income
taxes in accordance with Financial Accounting Standards Board Statement No. 106
Employers Accounting for Postretirement Benefits Other than Pensions and No. 109
Accounting for Income Taxes, respectively, effective January 1, 1992.
(8) No historical earnings per share information is presented because the
Chemicals Businesses were not a separate entity with their own capital structure
during the periods presented.
(9) Long-term debt includes primarily foreign debt instruments expected to
be transferred to the Chemicals Businesses. Such debt is not intended to reflect
the amount of debt which would have been outstanding had Chemicals been an
independent company and such debt does not represent the amount of debt which
would be outstanding upon completion of the distribution (see Note 16 Subsequent
Events -- Credit Facility to the combined financial statements). Transactions
with Ethyl are treated as settled immediately and there are no advances
outstanding. Consequently, the amount of debt is not intended to reflect debt
that the Chemicals Businesses may have had outstanding had they been an
independent company.
(10) See the pro forma combined financial statements beginning on page
F-26. The pro forma financial information presented is for informational
purposes only and may not necessarily reflect future earnings and financial
position or what the earnings or financial position would have been had the
Chemicals Businesses operated as a separate, stand-alone company during the
periods shown.
(11) Pro forma long-term debt reflects the planned borrowing on the
Chemicals Businesses' credit facility necessary to achieve the planned debt to
total capitalization ratio (see note B(i) to the notes to the pro forma combined
financial statements).
(12) Pro forma earnings per share (based on income before cumulative effect
of accounting changes) is computed as if the 59.2 million shares of the
Company's Common Stock proposed to be issued in the Distribution had been
outstanding for the periods presented. Also, no consideration is given to any
(a) stock options that may be granted under the proposed stock option plan of
the Company (see MANAGEMENT -- Compensation of Executive Officers) since,
although the plan has been approved by the Chemicals Board of Directors and
Ethyl, and option grants for approximately 1,500,000 shares of Chemicals' stock
have also been approved by the Chemicals Board of Directors and Ethyl, the
impact of the options cannot be evaluated because neither the option price nor
the market price of the stock is known, and (b) shares of stock issuable in
connection with the planned sale of common stock to members of the Gottwald
family (see FINANCING -- Sale of the Company's Common Stock). The exact number
of shares of the Company's Common Stock to be purchased by the Gottwalds will be
determined by the market price for the Company's Common Stock. Because each of
the stock purchase agreements provides as a condition to closing for the Company
that the number of shares to be sold to the Gottwalds cannot equal or exceed 20%
of the outstanding shares, at the lowest possible sales price permitted under
the terms of the stock purchase agreements the reduction of pro forma earnings
per share (based on income before cumulative effect of accounting changes) for
the nine-month period ended September 30, 1993 would be less than $.02 per
share.
8
<PAGE>
<PAGE>
ALBEMARLE CORPORATION
RECENT DEVELOPMENTS
(UNAUDITED)
Following is certain unaudited summary financial information for the
Company as of December 31, 1993 and for the three months and year ended as of
that date.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1993
<S> <C> <C>
(IN THOUSANDS OF DOLLARS EXCEPT PER-SHARE
AMOUNTS)
HISTORICAL COMBINED INFORMATION (1)
INCOME STATEMENT DATA (2)(3)
Net sales..................................................... $ 234,965 $ 903,418
Operating profit (4).......................................... 7,878 48,662
Income before income taxes.................................... 7,014 42,505
Net income (5)................................................ 3,595 21,810
WORKING CAPITAL............................................... 179,093 179,093
TOTAL ASSETS.................................................. 1,087,326 1,087,326
LONG-TERM DEBT, EXCLUDING CURRENT PORTION (6)................. 81,404 81,404
TOTAL EQUITY.................................................. 707,172 707,172
PRO FORMA COMBINED INFORMATION (7)
INCOME STATEMENT DATA
Net sales..................................................... $ 234,965 $ 911,784
Operating profit.............................................. 7,878 48,655
Income before income taxes.................................... 4,805 33,146
Net income (5)................................................ 1,910 15,686
TOTAL ASSETS.................................................. 1,087,326 1,087,326
LONG-TERM DEBT, EXCLUDING CURRENT PORTION (8)................. 386,438 386,438
TOTAL EQUITY.................................................. 402,138 402,138
EARNINGS PER SHARE (9)........................................ $ .03 $ .26
</TABLE>
(1) Historical results of operations for the year ended December 31, 1993,
include the results of operations of PPC since its date of acquisition, February
8, 1993 (see Note 16 Subsequent Events-Acquisition of Potasse et Produits
Chimiques to the combined financial statements). Financial position information
at December 31, 1993 also includes the impact of this acquisition.
(2) Historical results of operations includes interest primarily on foreign
long-term debt instruments expected to be transferred to the Chemicals
Businesses which are specifically related to the Chemicals businesses' assets
(see Note 2 Summary of Significant Accounting Policies-Interest Expense to the
combined financial statements). Consequently, the interest expense reflected in
the historical results of operations is not intended to reflect interest expense
that the Chemicals Businesses may have incurred had the Chemicals Businesses
been an independent company. Further, such interest expense does not reflect any
additional interest expense on additional debt which will be assigned to
Chemicals upon completion of the distribution.
(3) See the combined financial statements of the Chemicals Businesses.
(4) Operating profit for the year includes charges of $7,300 ($4,550 after
income taxes) to cover the work force reduction, retirement programs and other
separation costs and relocation costs associated with employee transfers.
(5) No historical earnings per share information is presented because the
Chemicals Businesses were not a separate entity with their own capital structure
during the periods presented.
(6) Long-term debt includes primarily foreign debt instruments expected to
be transferred to the Chemicals Businesses. Such debt is not intended to reflect
the amount of debt which would have been outstanding had Chemicals been an
independent company and such debt does not represent the amount of debt which
would be outstanding upon completion of the distribution (see Note 16 Subsequent
Events -- Credit Facility to the combined financial statements). Transactions
with Ethyl are treated as settled immediately and there are no advances
outstanding. Consequently, the amount of debt is not intended to reflect debt
that the Chemicals Businesses may have had outstanding had they been an
independent company.
(7) The pro forma financial information presented is for informational
purposes only and may not necessarily reflect future earnings and financial
position or what the earnings or financial position would have been had the
Chemicals Businesses operated as a separate, stand-alone company during the
periods shown.
9
<PAGE>
<PAGE>
ALBEMARLE CORPORATION
RECENT DEVELOPMENTS (CONTINUED)
(UNAUDITED)
(8) Pro forma long-term debt reflects the planned borrowing on the
Chemicals Businesses' credit facility necessary to achieve the planned debt to
total capitalization ratio.
(9) Pro forma earnings per share (based on income before cumulative effect
of accounting changes) is computed as if the 59.2 million shares of the
Company's Common Stock proposed to be issued in the Distribution had been
outstanding for the periods presented. Also, no consideration is given to any
(a) stock options that may be granted under the proposed stock option plans of
the Company (see MANAGEMENT -- Compensation of Executive Officers) since,
although the plan has been approved by the Chemicals Board of Directors and
Ethyl, and option grants for approximately 1,500,000 shares of Chemicals' stock
have also been approved by the Chemicals Board of Directors and Ethyl, the
impact of the options cannot be evaluated because neither the option price nor
the market price of the stock is known, and (b) shares of stock issuable in
connection with the planned sale of common stock to members of the Gottwald
family (see FINANCING -- Sale of the Company's Common Stock).
10
<PAGE>
<PAGE>
THE DISTRIBUTION
GENERAL
The board of directors (the Ethyl Board of Directors or the Ethyl Board) of
Ethyl Corporation, a Virginia corporation (Ethyl), has approved a distribution
(the Distribution) to holders of Ethyl common stock, par value $1.00 per share
(Ethyl Common Stock), of all of the outstanding shares of capital stock of
Albemarle Corporation, a Virginia corporation (the Company), a wholly-owned
subsidiary of Ethyl. At the date and time of the Distribution, the Company will
own directly or through one of its subsidiaries the olefins and derivatives,
bromine chemicals and specialty chemicals businesses that now are owned by Ethyl
directly or through one of its subsidiaries (collectively, the Chemicals
Businesses). See BUSINESS. On or about March 10, 1994, Harris Trust and Savings
Bank, as the distribution agent (the Distribution Agent), will mail certificates
representing the distributed Common Stock of the Company (the Company's Common
Stock) to the holders of record of Ethyl Common Stock at the close of business
on February 28, 1994 (the Distribution Date). Following the Distribution,
Ethyl's operations will consist primarily of its petroleum additives and
pharmaceutical businesses (collectively, the Ethyl Businesses). The Company's
principal executive offices will be located at 330 South Fourth Street,
Richmond, Virginia 23219. The telephone number for the Company's executive
offices will be (804) 788-6000.
Ethyl and the Company desire to maintain continuity in the management
philosophy of both companies following the Distribution. To help maintain this
continuity, the following executive officers of the Company will continue to
have management positions with Ethyl after the Distribution: Floyd D. Gottwald,
Jr., Chairman of the Board of Directors and Chief Executive Officer of the
Company and Vice Chairman of the Ethyl Board of Directors; Charles B. Walker,
Vice Chairman of the Board of Directors and Chief Financial Officer of the
Company and Ethyl; and E. Whitehead Elmore, Senior Vice President, Secretary and
General Counsel of the Company and Special Counsel to the Executive Committee of
the Ethyl Board and Corporate Secretary. Ethyl and the Company view continuity
in the management of both companies as particularly important in the period
immediately following the Distribution due to the interrelationship of the
operations of the Ethyl Businesses and the operations of the Chemicals
Businesses.
Shareholders of Ethyl with inquiries relating to the Distribution should
contact Harris Trust and Savings Bank, 311 West Monroe Street, 11th Floor,
Chicago, Illinois 60606. After the Distribution Date, shareholders of the
Company with inquiries relating to the Distribution or their investment in the
Company should contact the Company, 330 South Fourth Street, Richmond, Virginia
23219, Attention: Corporate Secretary, or Harris Trust and Savings Bank, the
Company's transfer agent and registrar, at the address listed above.
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Ethyl believes that separating the Chemicals Businesses from the Ethyl
Businesses will maximize the development of those businesses. Ethyl also has
concluded that the Distribution will provide cost savings by reducing the cost
to the Company of obtaining needed equity capital, by reducing administrative
expenses and by permitting the Company to forgo planned construction of a new
corporate headquarters. Ethyl's management had previously considered
constructing a new office building in Richmond, Virginia to accommodate
employees of the Baton Rouge, Louisiana operations as a result of inefficiencies
of managing decentralized operations in three different locations -- Richmond,
Baton Rouge and St. Louis, Missouri. The Distribution obviates the need for
relocating the Baton Rouge employees and will save the Company the cost of a new
building as well as employee relocation expenses.
Further, the Distribution will avoid internal competition for capital,
which has hindered the growth and expansion of the Chemicals Businesses in
recent years. It will also improve the operations of both Ethyl and the Company
by eliminating conflicts that are created by (i) certain customers of the
Chemicals Businesses also being customers of the Ethyl Businesses, (ii) certain
customers of the Chemicals Businesses also being competitors of the Ethyl
Businesses and (iii) certain customers of the Ethyl Businesses also being
competitors of the Chemicals Businesses.
The Company also should benefit from the positive effects the Distribution
will have for the Company's employees. The value of the Company's Common Stock
will more closely correspond to the performance of employees in the Chemicals
Businesses than Ethyl Common Stock currently does. Consequently, employee
benefit plans that hold the Company's Common Stock will be more directly related
to the Company's performance and compensation than Ethyl Common Stock for the
key employees and plan participants of the Company. The Company should also
benefit from the value to the Company's employees of being associated with a
relatively large independent business, instead of a part of Ethyl's total
enterprise.
15
<PAGE>
<PAGE>
The Distribution should permit Ethyl to experience the benefit of a similar
positive effect on its employees. It also will enable Ethyl to concentrate the
attention of its management and financial resources on its core businesses
without regard to the concerns and needs of the Chemicals Businesses.
Ethyl's management also believes that following the Distribution the
financial markets will be able to focus better on the individual strengths of
the Ethyl Businesses and the Chemicals Businesses and more accurately evaluate
the performance of the Company compared to companies in the same or similar
businesses.
FINANCIAL ADVISOR
CS First Boston Corporation has served as financial advisor to Ethyl in
connection with the Distribution. CS First Boston Corporation is referred to in
this Information Statement as the Financial Advisor.
CERTAIN SIGNIFICANT ASPECTS OF THE DISTRIBUTION
The Distribution will occur pursuant to a Reorganization and Distribution
Agreement, dated as of February 28, 1994, between Ethyl and the Company (the
Reorganization Agreement). Immediately following the Distribution Date, the
holders of Ethyl Common Stock on that date will own all of the outstanding
shares of the Company's Common Stock as described in -- Manner of Effecting the
Distribution.
The Company has agreed to sell approximately $50 million of the Company's
Common Stock to Bruce C. Gottwald and members of his family, including Bruce C.
Gottwald, Jr., or an investment entity owned by them, and approximately $50
million of the Company's Common Stock to Floyd D. Gottwald, Jr. and members of
his family, including John D. Gottwald and William M. Gottwald, M.D., or an
investment entity owned by them. Each of Bruce C. Gottwald and Floyd D.
Gottwald, Jr. expects to assign his stock purchase agreement with the Company to
an investment entity that he and members of his family will own. The purchase
price for the shares will be the average weighted trading price of the Company's
Common Stock as determined by the Financial Advisor for the third through the
twelfth business day following release of the Company's earnings for the first
quarter of 1994. Floyd D. Gottwald, Jr. will be the Chairman of the Board and
Chief Executive Officer of the Company, and Bruce C. Gottwald, Bruce C.
Gottwald, Jr., John D. Gottwald and William M. Gottwald, M.D. will be directors
of the Company. See FINANCING -- Sale of the Company's Common Stock and SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
Following the Distribution, the Company's board of directors (the Company's
Board of Directors or the Company's Board) will consist of 14 individuals,
including 12 individuals who are currently serving as, and immediately after the
Distribution will be, directors of Ethyl. See MANAGEMENT -- Directors.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution was approved on February 8, 1994, and will be made on the
Distribution Date to holders of record of Ethyl Common Stock at the close of
business on that date. The holders of Ethyl Common Stock will not be mailed
certificates representing shares of the Company's Common Stock until on or about
March 10, 1994. At that time, certificates representing these shares will be
mailed by the Distribution Agent to holders of record of Ethyl Common Stock as
of the close of business on the Distribution Date on the basis of one share of
the Company's Common Stock for every two shares of Ethyl Common Stock held on
that date. All such shares will be fully paid and nonassessable. The holders of
the Company's Common Stock will not be entitled to any preemptive rights to
purchase any additional shares of the Company's capital stock. See DESCRIPTION
OF THE COMPANY'S CAPITAL STOCK -- Preemptive Rights.
No certificates or scrip representing fractional shares of the Company's
Common Stock will be issued to holders of Ethyl Common Stock as part of the
Distribution. In lieu of receiving fractional shares, each holder of Ethyl
Common Stock who would otherwise be entitled to receive a fractional share of
the Company's Common Stock will receive cash for such fractional interest. The
Company will purchase such fractional share interests at a per share price equal
to the average closing price of the Company's Common Stock on the NYSE on the
first through the fourth trading days after the Distribution Date.
The Company's Common Stock and cash in lieu of fractional shares will be
distributed directly to each participant in Ethyl's Dividend Reinvestment Plan
based upon the aggregate number of shares of Ethyl Common Stock credited to such
participant's account under such plan and any additional shares of Ethyl Common
Stock registered in such participant's name as of the Distribution Date.
The Savings Plan for the Employees of Ethyl Corporation (the Ethyl Savings
Plan), as the recordholder of shares of Ethyl Common Stock, will receive shares
of the Company's Common Stock in the Distribution. To accommodate these
16
<PAGE>
<PAGE>
shares, a new inactive investment fund consisting of the Company's Common Stock
and cash has been established in the Ethyl Savings Plan. Cash dividends paid on
shares of the Company's Common Stock held in the Ethyl Savings Plan will be
invested in the Company's Common Stock. As of the Distribution Date, each Ethyl
Savings Plan participant's interest in the new investment fund will equal his
proportionate interest in the Ethyl Common Stock held by the Ethyl Savings Plan.
Ethyl Savings Plan participants may retain their investment in the Company's
Common Stock fund or may liquidate all or part of such investment and transfer
the funds directly or indirectly to other investment options in accordance with
the terms of the Ethyl Savings Plan.
Options to purchase shares of Ethyl Common Stock awarded prior to the
Distribution Date to employees of Ethyl and Ethyl's subsidiaries under the Ethyl
Corporation Incentive Stock Option Plan (the Ethyl Option Plan) will be adjusted
pursuant to the terms of the Ethyl Option Plan to reflect the Distribution.
NO HOLDER OF ETHYL COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH OR OTHER
CONSIDERATION OR TO EXCHANGE HIS ETHYL COMMON STOCK FOR THE SHARES OF THE
COMPANY'S COMMON STOCK THAT HE WILL RECEIVE IN THE DISTRIBUTION. THE
DISTRIBUTION WILL NOT AFFECT THE NUMBER OF THE HOLDER'S SHARES OF ETHYL COMMON
STOCK, ALL OF WHICH WILL REMAIN OUTSTANDING. CERTIFICATES REPRESENTING
OUTSTANDING SHARES OF ETHYL COMMON STOCK WILL CONTINUE TO BE VALID AND SHOULD
NOT BE DESTROYED. Each such certificate will continue to represent the right to
purchase shares of Ethyl preferred stock pursuant to the rights agreement, dated
as of September 24, 1987, between Ethyl and NationsBank of Virginia, N.A., as
rights agent (the Ethyl Rights Agreement). As a result of the Distribution, the
purchase price payable upon exercise of the rights and the number of shares of
Ethyl preferred stock covered by each right will be adjusted in accordance with
the Ethyl Rights Agreement. Holders of Ethyl Common Stock will be notified in
due course of the specifics of such adjustment.
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
Ethyl has received from the Internal Revenue Service a ruling (the Tax
Ruling) to the effect that, among other things, the Distribution will qualify as
a non-taxable spin-off under Section 355 of the Internal Revenue Code of 1986,
as amended (the Code), and accordingly, for federal income tax purposes:
(1) No gain or loss will be recognized by (and no amount will be includable
in the income of) a holder of Ethyl Common Stock solely as a result of the
receipt of the Company's Common Stock upon the Distribution, other than in
respect of cash received in lieu of a fractional share of the Company's Common
Stock. A shareholder receiving cash in lieu of a fractional share of the
Company's Common Stock will be treated as if the fractional share had been
received and then sold for the cash. Such a shareholder therefore will recognize
gain or loss measured by the difference between the amount of cash received and
the tax basis of the fractional share interest. Provided that the Ethyl Common
Stock is held as a capital asset, such gain or loss will be a capital gain or
loss.
(2) A shareholder's tax basis in Ethyl Common Stock on which the
Distribution is made will be apportioned in accordance with the relative market
values at the time of the Distribution between such Ethyl Common Stock and the
Company's Common Stock received by the shareholder in the Distribution.
Shareholders will receive with the certificates representing the Company's
shares a notice explaining such apportionment.
(3) A shareholder's holding period for the Company's Common Stock received
in the Distribution will include the holding period for his Ethyl Common Stock,
provided that the shareholder holds such Ethyl Common Stock as a capital asset.
(4) No gain or loss will be recognized by Ethyl or the Company upon the
Distribution.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE DISTRIBUTION UNDER CURRENT LAW AND IS INTENDED FOR GENERAL INFORMATION
ONLY. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE
PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREHOLDER, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS, AS WELL AS HOW TO REPORT THE
RECEIPT OF THE COMPANY'S COMMON STOCK AND CASH IN LIEU OF ANY FRACTIONAL SHARE
INTEREST ON INCOME TAX RETURNS.
For a description of the Tax Sharing Agreement, dated as of February 28,
1994, (the Tax Sharing Agreement), pursuant to which Ethyl and the Company have
provided for various tax matters, see RELATIONSHIP BETWEEN ETHYL AND THE COMPANY
AFTER THE DISTRIBUTION -- Tax Sharing Agreement.
LISTING AND TRADING OF THE COMPANY'S COMMON STOCK
Although the Company's Common Stock has been approved for listing on the
New York Stock Exchange upon official notice of issuance, there currently is no
public market for the Company's Common Stock. A when-issued trading market is
17
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<PAGE>
expected to develop prior to the Distribution Date and continue until the
certificates have been mailed by the Distribution Agent. The term when-issued
means that shares can be traded prior to the time certificates actually are
available or issued. Because the New York Stock Exchange will provide for
when-issued trading for the Company's Common Stock commencing February 22, 1994,
any Ethyl shareholder who desires to sell any of the Company's Common Stock that
he will receive in the Distribution may do so even though certificates
representing those shares will not be mailed until on or about March 10, 1994.
Because of when-issued trading, the market price for the Company's Common Stock
at the time the share certificates are received by the Company's shareholders
may be higher or lower than the price at which the shares trade during the
when-issued trading period. Prices at which the Company's Common Stock may trade
cannot be predicted. Until the Company's Common Stock is fully distributed and
an orderly market develops, the prices at which such stock trades may fluctuate
significantly. The prices at which the Company's Common Stock trades will be
determined by the marketplace and may be influenced by a number of factors,
including, among others, the depth and liquidity of the market for the Company's
Common Stock, investor perceptions of the Company and the markets in which the
Chemicals Businesses operate, the Company's dividend policy and general economic
and market conditions. In addition, the planned sale by the Company of
approximately $100 million of the Company's Common Stock to the Gottwalds,
described in FINANCING -- Sale of the Company's Common Stock, could have an
impact on the market prices for the Company's Common Stock. Such prices may also
be affected by certain provisions of the Articles of Incorporation and Bylaws of
the Company, which may have an antitakeover effect. See -- Dividend Policy and
PURPOSES AND ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S
ARTICLES OF INCORPORATION AND THE COMPANY'S BYLAWS.
Shares of the Company's Common Stock distributed to Ethyl shareholders will
be freely transferable, except for shares received by persons who may be deemed
to be affiliates of the Company under the Securities Act of 1933, as amended
(the Securities Act). Persons who may be deemed to be affiliates of the Company
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with, the Company and may include
certain officers and directors of the Company as well as principal shareholders
of the Company. Persons who are affiliates of the Company will be permitted to
sell their shares of the Company's Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Section 4(1) of the Securities Act and Rule 144 thereunder. The Company
believes that at the time of the Distribution the only persons who may be deemed
affiliates of the Company will be the Gottwalds, who initially will own
approximately 17.8% of the outstanding shares of the Company's Common Stock.
That percentage would increase if the Company sells approximately $100 million
of the Company's Common Stock to the Gottwalds. See SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS and FINANCING -- Sale of the Company's Common Stock.
DIVIDEND POLICY
It is anticipated that, following the Distribution, the Company will pay
initially a quarterly cash dividend of $.05 per share on the Company's Common
Stock commencing with the dividend normally payable on April 1. However, no such
dividend has been declared by the Company's Board of Directors and all decisions
with respect to the payment of dividends will be made by the the Company's Board
from time to time based upon the Company's earnings, financial condition,
anticipated cash needs and such other considerations as the Company's Board
deems relevant.
The Company's Board of Directors has adopted a dividend reinvestment plan
effective July 1, 1994 that will permit shareholders to reinvest dividends in
shares of the Company's Common Stock.
18
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<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company will be:
<TABLE>
<CAPTION>
POSITION WITH ETHYL
NAME POSITION WITH THE COMPANY PRIOR TO SPIN-OFF
<S> <C> <C>
Floyd D. Gottwald, Jr. Chairman of the Board and Executive Chairman of the Board and the
Committee and Chief Executive Executive Committee
Officer
E. Gary Cook President and Chief Operating Senior Vice President
Officer
Charles B. Walker Vice Chairman of the Board and Chief Executive Vice President and Chief
Financial Officer Financial Officer
E. Whitehead Elmore Senior Vice President, Secretary and Vice President, Secretary and
General Counsel General Counsel
Thomas G. Avant Senior Vice President Vice President
</TABLE>
In order to provide continuity with Ethyl's operations, Floyd D. Gottwald,
Jr. will serve as Vice Chairman of the Ethyl Board of Directors; Charles B.
Walker will serve as Vice Chairman of the Board and Chief Financial Officer of
Ethyl; and E. Whitehead Elmore will serve as Special Counsel to the Executive
Committee of the Ethyl Board and Corporate Secretary. The management of the
Company will formulate its business strategy and pursue business opportunities
designed to enhance the quality of the Company's products and the results of its
operations.
THE COMPANY'S COMMON STOCK REPURCHASES
The Company may purchase shares of the Company's Common Stock from time to
time when, among other things, it believes that acquiring the Company's Common
Stock is the best use of available cash. The Company's Board has authorized the
purchase from time to time of up to 6,000,000 shares of the Company's Common
Stock. Purchases of shares of the Company's Common Stock ordinarily will be
effected in open-market transactions. The Company, however, may buy shares of
the Company's Common Stock in negotiated transactions when appropriate. In
addition, after the Distribution, certain officers and directors of the Company
may purchase shares of the Company's Common Stock from time to time in the open
market. See FINANCING -- Sale of the Company's Common Stock.
CONDITIONS; TERMINATION
The Distribution is subject to certain conditions, and even if these
conditions are met, the Ethyl Board of Directors may determine at any time prior
to the Distribution Date not to proceed with the Distribution. See RELATIONSHIP
BETWEEN ETHYL AND THE COMPANY AFTER THE DISTRIBUTION -- Reorganization
Agreement.
DISTRIBUTION COSTS
Ethyl and the Company will bear their own costs and expenses in connection
with the Distribution and related transactions.
FINANCING
ABSENCE OF ETHYL FINANCIAL SUPPORT
Prior to the Distribution, the Chemicals Businesses had the benefit of
access to Ethyl's borrowing capacity through intercompany advances and other
types of financial support. Following the Distribution Date, the Chemicals
Businesses will be required to procure any needed financing based on their own
creditworthiness. The management of Ethyl and the Company have endeavored with
the assistance of the Financial Advisor to structure the capitalization and
operations of the Chemicals Businesses in such a way as to permit access to
external sources of capital on acceptable terms and conditions. There can be no
assurance that the Company will be able to do so after the Distribution except
pursuant to the Credit Facility.
SALE OF THE COMPANY'S COMMON STOCK
In evaluating the proposed Distribution, the Ethyl Board of Directors
determined that the Company would benefit by raising additional capital through
the issuance of common stock in order to decrease the Company's debt to equity
ratio,
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thereby better positioning the Company to develop its businesses. After
consultation with the Financial Advisor, the Company's Board of Directors
concluded that the best form of equity capital was common stock and that a
private placement to Bruce C. Gottwald and Floyd D. Gottwald, Jr. and members of
their families would be the least costly method of raising such equity capital
(due to the absence of underwriting and other expenses associated with public
offerings) and would provide less market risk than a public offering.
Because Ethyl, in contrast to most publicly held corporations, retains
preemptive rights in connection with the issuance of Ethyl Common Stock for
cash, the Financial Advisor advised that it would be less expensive for the
Chemicals Businesses to raise additional capital if such businesses existed as
an entity separate from Ethyl without preemptive rights. Since the Company's
Articles of Incorporation eliminate preemptive rights, the Company can sell the
Company's Common Stock in a public offering or in a private placement without
the necessity of providing each shareholder the preemptive right to purchase his
proportionate share. The Financial Advisor advised that in a rights offering
either (i) the sale price of the new common shares to existing shareholders
would have to be set at a discount to the then-existing market price in order to
create a rights value to insure that such an offering would be successful, or
(ii) the rights could be offered with a smaller rights value with a commitment
by the Gottwalds or another third party to purchase any shares that were not
taken up, in which case a stand-by fee would be reasonable and customary. The
Financial Advisor concluded that under either alternative the net proceeds to
the Company would be reduced.
The Financial Advisor also reviewed with the Company's Board the optimal
level of additional capital taking into account (i) the impact on the Company's
financial leverage and (ii) the possible dilutive effect on earnings per share.
The Board reviewed the potential consequences of equity issuances of varying
amounts and concluded that $100 million of additional equity was the appropriate
amount to achieve the objective of reducing the Company's financial leverage
while minimizing the dilutive impact, if any, on earnings per share. The Board
also considered the costs of issuing common stock as well as various types of
preferred stocks, including a variety of convertible preferred stocks, and
concluded that sale of common stock was the most beneficial way to raise the
additional capital.
After consultation with the Financial Advisor, the Company's Board of
Directors concluded, with Floyd D. Gottwald, Jr., Bruce C. Gottwald, Bruce C.
Gottwald, Jr., John D. Gottwald and William M. Gottwald, M.D. abstaining, that
the Company should seek to raise $100 million through the sale of the Company's
Common Stock and that a private placement to the Gottwalds was less costly and
more advantageous to the Company than a public offering because of the
underwriting and other expenses and the increased market risk associated with a
public offering. On this basis, the remaining directors unanimously approved a
stock purchase agreement between the Company and Bruce C. Gottwald and a stock
purchase agreement between the Company and Floyd D. Gottwald, Jr. (the
agreements are referred to individually as a Stock Purchase Agreement and
collectively as the Stock Purchase Agreements). Bruce C. Gottwald expects to
assign his Stock Purchase Agreement to an investment entity to be formed and to
be owned by him and members of his family, including Bruce C. Gottwald, Jr.
Floyd D. Gottwald, Jr. expects to assign his Stock Purchase Agreement to an
investment entity to be formed and to be owned by him and members of his family,
including John D. Gottwald and William M. Gottwald, M.D.
Under each of the Stock Purchase Agreements, the Company agrees to sell and
the purchasers agree to purchase that number of whole shares of the Company's
Common Stock determined by dividing $50 million by the average weighted trading
price of the Company's Common Stock as determined by the Financial Advisor for
the third through the twelfth business day following release of the Company's
earnings for the first quarter of 1994. The purchase price is payable in cash at
the closing, which is scheduled for the first business day after the purchase
price is determined.
Each of the Stock Purchase Agreements provides that if the average weighted
trading price of the Company's Common Stock as determined by the Financial
Advisor for the period from March 16, 1994 through April 15, 1994 (the Initial
Trading Period) does not in the opinion of the Financial Advisor or another
investment banker acceptable to both parties fall within a range that reflects
the reasonable value of the Company's Common Stock in line with comparable
companies as of the end of the Initial Trading Period, the parties shall agree
on new time periods for pricing the shares of the Company's Common Stock, and if
no agreement is reached either party may terminate the Stock Purchase Agreement.
Each Stock Purchase Agreement also gives the Company the right not to close if
the average weighted trading price of the Company's Common Stock as determined
by the Financial Advisor for the third through the twelfth business day
following the release of the Company's earnings for the first quarter of 1994 is
less than 90% of the average weighted trading price of the Company's Common
Stock as determined by the Financial Advisor for the Initial Trading Period.
Each Stock Purchase Agreement gives the purchasers the right not to close if the
average weighted trading price of the Company's Common Stock as determined by
the Financial Advisor for the third through the twelfth business day following
the release of the Company's earnings for the
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first quarter of 1994 is more than 110% of the average weighted trading price of
the Company's Common Stock as determined by the Financial Advisor for the
Initial Trading Period. The Company's Board of Directors did not attempt to
determine in advance an acceptable range of selling prices to the Gottwalds and
no discussions were held with the Gottwalds regarding such a range; rather the
Board required that the average price during the Initial Trading Period, in the
opinion of the Financial Advisor, be within a range that reflects the reasonable
value of the Common Stock. For each party, closing under the Stock Purchase
Agreement is conditioned on the closing of the other Stock Purchase Agreement.
Each Stock Purchase Agreement includes other customary representations,
warranties, covenants and conditions, including the obtaining of financing by
the purchasers.
The net proceeds from the sale of the Company's Common Stock will be used
for general corporate purposes, including working capital, reduction of
indebtedness and possible expansion of the Chemicals Businesses.
CREDIT FACILITY
Additional funds necessary for working capital and other financing needs of
the Company and its subsidiaries may be obtained through a $500 million,
five-year unsecured Credit Facility with major commercial banks. Two options
will be available under the 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 achieve and 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 $300 million (which minimum increases by 50% of the net proceeds of
the proposed sale of $100 million of equity (see FINANCING -- Sale of the
Company's Common Stock)) 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. Such financial ratios,
restrictions and covenants may affect the operating flexibility of the Company.
In the Credit Facility and in accordance with the IRS Ruling, the Company has
covenanted to sell to the Gottwalds or to the public approximately $100 million
of the Company's Common Stock prior to March 1, 1995.
RELATIONSHIP BETWEEN ETHYL AND THE COMPANY
AFTER THE DISTRIBUTION
For the purpose of governing certain of the ongoing relationships between
Ethyl and the Company after the Distribution and to provide mechanisms for an
orderly transition, Ethyl and the Company have entered into various agreements,
including the Reorganization Agreement, the Benefits Agreement, the Tax Sharing
Agreement, the Master Services Agreement and the Indemnification Agreement, that
provide for the allocation of assets, resources, employees, benefit plans,
taxes, liabilities and certain administrative and other services between Ethyl
and the Company. In addition, Ethyl and the Company entered into agreements
relating to plant facilities of Ethyl and the Company that will be
interconnected after the Distribution as well as supply agreements and related
licensing agreements. Because of the interrelationship between the adjoining
operations of Ethyl and the Company, agreements were necessary to provide for
the ongoing operation of these plants. These agreements cover the provision of
administrative, manufacturing, storage and other services and utilities and, in
some cases, the lease of real property at the shared facilities.
REORGANIZATION AGREEMENT
Ethyl and the Company have entered into the Reorganization Agreement, which
provides for, among other things, the principal corporate transactions required
to effect the Distribution: (i) the transfer to the Company of the Chemicals
Businesses and of certain related assets, (ii) the issuance by the Company to
Ethyl of the shares of the Company's Common Stock to be distributed in the
Distribution, (iii) the division between Ethyl and the Company of certain
liabilities and (iv) the execution of certain other agreements governing the
relationship between Ethyl and the Company following the Distribution. See THE
DISTRIBUTION -- Certain Significant Aspects of the Distribution. The
Reorganization Agreement also sets forth procedures for the administration of
claims made in connection with the Chemicals Businesses that are insured under
existing Ethyl insurance policies.
In order to avoid affecting adversely the intended tax consequences of the
Distribution and its related transactions, the Reorganization Agreement provides
that neither the Company nor Ethyl may take any action that would affect
adversely any
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ruling obtained from any taxing authority regarding the Distribution and its
related transactions. The Company does not expect this limitation to inhibit its
financing activities or its ability to pursue additional business opportunities
or to respond to unanticipated developments. See THE DISTRIBUTION -- Federal
Income Tax Aspects of the Distribution and THE DISTRIBUTION -- Executive
Officers of the Company.
Additionally, the Reorganization Agreement requires the Company and Ethyl
to cooperate in order to ensure that the Distribution is effected in a timely
and orderly manner. The Reorganization Agreement provides that in addition to
any services contemplated to be provided by the Master Services Agreement, dated
as of February 28, 1994 (the Master Services Agreement), or any subsidiary
agreement thereto, each party shall make available to the other party certain
specified services and facilities on an arms-length basis.
The Reorganization Agreement provides that the Distribution will not be
made until all of the following conditions are satisfied: (i) the transfer of
assets and liabilities contemplated by the Reorganization Agreement has been
consummated in all material respects; (ii) additional shares of the Company's
Common Stock have been issued to Ethyl in order to effect the Distribution;
(iii) the Company's Common Stock has been approved for listing on the NYSE
subject to official notice of issuance; (iv) the Company's Board of Directors,
comprised as described herein, has been elected by Ethyl (as sole shareholder of
the Company) and the the Company's Articles of Incorporation and the Company's
Bylaws, as each will be in effect after the Distribution, have been adopted and
are in effect; and (v) the Company's Registration Statement on Form 10 (the Form
10) filed by the Company with the Securities and Exchange Commission (the SEC)
under the Securities Exchange Act of 1934, as amended (the Exchange Act), has
become effective. Additionally, in order for the Distribution to occur, the
representations made in the Tax Ruling must remain true in all material
respects. Even if the remaining conditions are satisfied, however, the Ethyl
Board of Directors may determine at any time prior to the Distribution not to
proceed with the Distribution.
BENEFITS AGREEMENT
Ethyl and the Company have entered into an employee benefits agreement,
dated as of February 28, 1994 (the Benefits Agreement), providing for certain
employee compensation and benefit matters.
The Benefits Agreement provides for the establishment of the Company's
employee benefit plans. As more fully described herein, those plans are, except
as otherwise described herein, substantially the same as the counterpart plans
maintained by Ethyl and its subsidiaries. See MANAGEMENT -- Compensation of
Executive Officers.
The Benefits Agreement also provides for the allocation of assets and
liabilities between the Company's and Ethyl's plans. For example, assets and
liabilities will be transferred from the Ethyl salaried pension plan, the Ethyl
savings plans and certain defined benefit pension plans covering hourly
employees to the Retirement Income Plan for Employees of the Company (the
Retirement Plan) and the Company's Employees Savings Plan (the Savings Plan) and
to the corresponding Company hourly plans. The Company, or a subsidiary of the
Company, will assume sponsorship of several other defined benefit pension plans
covering eligible hourly employees. New welfare benefit plans (and related
insurance contracts), similar to plans maintained by Ethyl and its subsidiaries,
will be established by the Company.
Pursuant to the Benefits Agreement, Ethyl will assist the Company in the
administration of the Company's benefit plans during a transition period that
may extend into 1995. As of March 1, 1994, the Company, however, will serve as
the plans' named fiduciary and plan administrator under the Employee Retirement
Income Security Act of 1974, as amended (ERISA).
TAX SHARING AGREEMENT
Through the Distribution Date and for prior calendar years, the results of
the Company's domestic operations have been and will be included in the Ethyl
consolidated U.S. federal income tax returns. As part of the plan of
Distribution, the Company and Ethyl have entered into a tax sharing agreement,
dated as of February 28, 1994 (the Tax Sharing Agreement).
Under the Tax Sharing Agreement, Ethyl 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 Ethyl subsidiaries
that will become subsidiaries of the Company in connection with the
Distribution. The Company will be responsible for the taxes of the Chemicals
Businesses for post-Distribution periods and for the taxes of the Ethyl
subsidiaries that become subsidiaries of the Company. Ethyl and the Company will
cooperate with each other in the filing of tax returns and other related
documents and in the defense and settlement of tax claims.
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MASTER SERVICES AGREEMENT
Ethyl and the Company have entered into the Master Services Agreement,
pursuant to which Ethyl will provide to the Company for varying periods of time
after the Distribution Date office space and certain services, including, among
other services, data processing, transportation, order processing, cash
management, employee benefits and tax administration and legal services that may
be necessary for the conduct of the Chemicals Businesses, and the Company will
provide to Ethyl for varying periods of time after the Distribution Date office
space and certain services, including, among other services, engineering,
research and development, legal and patent, health and environment and data
processing services that may be necessary for the conduct of the Ethyl
Businesses. All of such office space and services will be provided on an
arms-length basis, which generally will be at least equal to the respective cost
to Ethyl or the Company of providing such space or rendering such services.
OPERATING, SERVICES AND BLENDING AGREEMENTS
The Company and Ethyl have entered into agreements pursuant to which the
Company and Ethyl have agreed to coordinate certain facilities and services of
adjacent operating facilities at plants in Orangeburg, South Carolina, Houston,
Texas and Feluy, Belgium. In addition, the Company and Ethyl have entered into
agreements providing for the blending by the Company of Ethyl's additive
products and the production of antioxidants and manganese based antiknock
compounds (MMT) at the Orangeburg, South Carolina plant.
ORANGEBURG, SOUTH CAROLINA AGREEMENTS
The Orangeburg, South Carolina plant consists of facilities for the
production of petroleum additives and specialty chemicals. The Company will
operate for Ethyl the Orangeburg petroleum additives facility (the Orangeburg
Additives Facility) for a period of ten years, with an option by Ethyl to extend
for an additional ten years. The Orangeburg Operating Agreement provides that
the Company will produce certain petroleum additive products meeting Ethyl'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, Ethyl may assume
responsibility for the operation of the Orangeburg Additives Facility, in which
event the Company would continue to provide certain services and utilities for
that facility. Ethyl will reimburse the Company for certain costs specified in
the Orangeburg Operating Agreement and will pay to the Company a monthly
operating fee based on a percentage of such reimbursable costs. The Company will
produce MMT for Ethyl in facilities owned by the Company under a supply
contract. The Company also will be licensed by Ethyl, subject to certain
restrictions, to produce and sell MMT for its own account to the extent of any
excess not set aside for Ethyl under the supply contract.
The Company will own the specialty chemicals facilities and the land on
which the Orangeburg Additives Facility is located. In conjunction with the
Company's operation of the Orangeburg Additives Facility for Ethyl, the Company
will lease the land to Ethyl for a period of ten years, with an option by Ethyl
to extend for an additional ten years. The Company and Ethyl also have entered
into a separate blending services agreement, dated as of February 28, 1994 (the
Orangeburg Blending Agreement), pursuant to which the Company will provide
storage, blending and packaging services to Ethyl in connection with the
operation of the Orangeburg Additives Facility. The Orangeburg Blending
Agreement is coterminous with that of the Orangeburg Operating Agreement.
Pursuant to the Orangeburg Blending Agreement, Ethyl will reimburse the Company
for specified costs associated with the blending operations and will pay to the
Company a monthly operating fee based on a percentage of such reimbursable
costs. Pursuant to an antioxidant supply agreement, the Company will produce
antioxidants for Ethyl at the Orangeburg plant. Ethyl will reimburse the Company
for specified production costs and pay a monthly fee. The antioxidant supply
agreement will be for ten years, and Ethyl 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, Ethyl will own the petroleum additives facility at the Houston
plant (the Houston Additives Facilities), and the Company will own the
facilities that produce olefins and derivatives and specialty chemicals located
at the Houston plant.
The Company and Ethyl have entered into a reciprocal agreement, dated as of
February 28, 1994 (the Houston Services Agreement), with respect to the
operation of Ethyl's Houston Additives Facility and the Company's chemical
operations adjoining the Houston Additives Facilities. Pursuant to the Houston
Services Agreement, Ethyl will provide to the Company
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certain services and utilities related to the Company's chemicals operations in
Houston, while the Company will provide to Ethyl certain services and utilities
related to Ethyl'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 the Houston Services Agreement with respect to the services
and utilities that it is receiving for an additional ten years. 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, Ethyl will own and operate the petroleum additives facility at the
Feluy, Belgium plant (the Feluy Additives Facility), and the Company will own
the facilities that produce olefins and derivatives and specialty chemicals at
the Feluy plant.
The Company and Ethyl have entered into an agreement, dated as of February
28, 1994 (the Feluy Services Agreement), with respect to the operation of
Ethyl's Feluy Additives Facility. Pursuant to the Feluy Services Agreement, the
Company will provide to Ethyl certain services and utilities related to Ethyl's
petroleum additives operation in Feluy. The term of the Feluy Services Agreement
is ten years, but Ethyl may terminate one or more of such services or utilities
upon giving 60 days' notice to the Company or may terminate all of such services
and utilities upon giving 180 days' notice to the Company. Ethyl also has the
right to extend the Feluy Services Agreement for an additional ten years. The
Company will receive from Ethyl reimbursement of specified costs and a monthly
service fee based on a percentage of such reimbursable costs.
INDEMNIFICATION AGREEMENT
Pursuant to an Indemnification Agreement, dated as of February 28, 1994,
between Ethyl and the Company, Ethyl will indemnify the Company for losses to
the Company after the Distribution Date resulting from the conduct of the Ethyl
Businesses, including environmental liabilities, before and after the
Distribution Date, and the Company will indemnify Ethyl for losses to Ethyl
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 the Tax Sharing Agreement. See -- Tax Sharing Agreement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(HISTORICAL)
INTRODUCTION
The following is management's discussion and analysis of certain
significant factors affecting the Chemicals Businesses' results of operations
and financial condition. The discussion and analysis should be read in
conjunction with the combined financial statements beginning at page F-3.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1993 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1992
NET SALES. Net sales for the first nine months of 1993 increased 10% from
the comparable 1992 period due to higher shipments, primarily reflecting the
impact of the acquisition of PPC in February 1993. Flame retardant and
pharmaceutical intermediates revenues increased for the nine month period on
increased volumes. Revenues of polycrystalline silicon were down principally
because of reduced shipments. Revenues of the olefins and derivatives business
increased approximately 2%, reflecting significantly higher shipments at higher
prices for poly alpha olefins and somewhat higher shipments at lower prices for
linear alpha olefins, substantially offset by significantly lower shipments at
lower prices for alcohols.
OPERATING COSTS AND EXPENSES. Cost of goods sold in 1993 increased $64.6
million (14%) over the 1992 period, primarily reflecting increased shipments,
largely due to the recent PPC acquisition, with the result that the gross profit
margin decreased to 21.7% in the 1993 period from 24.2% in the 1992 period. Cost
of goods sold would have increased 17% except for the non-recurrence of $12.7
million of start-up costs at Feluy, Belgium incurred in the 1992 period. The
increase in cost of goods sold in 1993 also reflects higher operating costs
(including depreciation on the new Feluy facilities) associated with operating
olefin facilities at low capacity utilization at the Feluy and Houston, Texas
olefin manufacturing facilities and higher maintenance expenses resulting from
scheduled plant turnarounds at Feluy and Houston, as well as higher costs for
polycrystalline silicon.
Selling, general and administrative expenses, combined with research and
development expenses, increased 14% in 1993 from the 1992 period, including a
$7.7 million special charge in the 1993 third quarter for a planned work-force-
reduction and early-retirement program. The program is expected to result in a
net reduction of approximately 130 salaried employees at affected locations and
should enable the Company to realize annual after-tax savings of approximately
$6 million. Excluding the special charge, 1993 expenses increased 6% due
primarily to the impact of the recent PPC acquisition, higher employee-related
expenses, higher expenses for outside consulting and increased technical
services expenses partly offset by a favorable foreign exchange effect and the
recovery of prior year legal fees resulting from the settlement of a lawsuit in
1993. As a percentage of net sales, selling, general and administrative
expenses, including research and development expenses, increased to 15.6% in
1993 from 15.1% in the 1992 period, but excluding the 1993 special charge, the
percentage of net sales would have been 14.5% in 1993.
Operating profit in the 1993 period decreased 26% from 1992, but excluding
the $7.7 million special charge included in 1993 selling, general and
administrative expenses and $12.7 million start-up costs included in 1992 cost
of goods sold, operating profit would have decreased 29% from the 1992 period.
Most of this decrease came from higher operating costs of olefins and
derivatives and unfavorable results in polycrystalline silicon.
INTEREST AND FINANCING EXPENSES AND OTHER INCOME. Interest expense in 1993
increased $3.4 million from the 1992 period reflecting no capitalized interest
in 1993 versus $4.2 million in 1992 partly offset by lower average debt
outstanding in 1993.
Other income, net, decreased to $0.9 million in 1993 from $1.6 million in
1992, reflecting primarily lower interest income in the 1993 period.
INCOME TAXES. Income taxes in the 1993 nine-month period decreased $0.9
million (5%) compared to the 1992 period, while income before income taxes and
cumulative effect of accounting changes declined 34%. The decrease in income
taxes was due to lower income before income taxes and cumulative effect of
accounting changes offset by a higher 1993 effective income tax rate (48.7% in
1993 versus 33.7% in 1992). The primary factors contributing to the higher 1993
tax rate were the absence of a full tax benefit on operating losses of the
Company's Belgian subsidiary, as well as an increase in deferred income taxes of
$2.2 million required by Financial Accounting Standards Board (FASB) Statement
No. 109, Accounting
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for Income Taxes (FASB Statement No. 109), and $0.4 million higher taxes on 1993
income from operations, resulting from the recently passed federal income tax
legislation which increased the corporate income tax rate retroactive to January
1, 1993. The full tax benefit on the Company's Belgian subsidiary's operating
losses was not recognized because management 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. While the benefit of the losses may be
carried forward indefinitely, continued operating losses during 1993 make the
timing of any realization currently undeterminable. Therefore, a valuation
allowance of approximately $4 million (against a $7.3 million tax benefit
attributable to the operating loss carryforwards of the Belgian subsidiary to be
part of Chemicals), was established.
1992 COMPARED WITH 1991
NET SALES. Net sales for 1992 increased $27.2 million (3%) from 1991. The
increase was due to higher shipments partially offset by lower selling prices
primarily in the olefins and derivatives business. Higher shipments of flame
retardants, amines, polycrystalline silicon and agricultural intermediates were
partly offset by lower zeolite volumes.
OPERATING COSTS AND EXPENSES. Cost of goods sold in 1992 increased $51.3
million (9%) from 1991, primarily reflecting increased shipments and start-up
costs of $12.7 million in 1992 versus $3.9 million in 1991 at the Company's new
olefin facilities in Feluy, with the result that the gross profit margin
decreased to 22.8% in 1992 from 26.6% in 1991. The 1992 start-up costs are costs
for a linear alpha olefin facility which began commercial production in the
third quarter of 1992. Excluding the start-up costs in both years, cost of goods
sold would have increased $42.5 million (7%) from 1992. Significant factors
causing the increase were high operating costs (including depreciation on the
new Feluy facilities) due to low capacity utilization at the Feluy and Houston
olefin manufacturing facilities caused by temporary excess capacity in the
market place which has continued into 1993, an unfavorable foreign exchange
effect and higher operating costs for compliance with environmental laws and
regulations, virtually all of which represents on-going costs of operations, see
BUSINESS -- Environmental Regulations, partially offset by slightly lower
per-unit raw-material costs. Start-up costs are composed primarily of the labor
cost of employees being trained to run the new facility, the cost of the
trainers, the utilities and supplies used during the pre-production period and
costs for pre-production testing of the equipment. The Company's policy is to
expense such costs as they are incurred. Start-up was accomplished over a long
period because construction of the facility was done in stages. Training for
each section started as or before the section was completed.
Average raw material costs for ethylene and most other major materials
decreased during 1992 from 1991 despite a moderate upward trend during the
second half of 1992. Average energy unit costs increased in 1992 over 1991.
Selling, general and administrative expenses combined with research and
development expenses decreased 9% in 1992 from 1991, but 1991 expenses reflected
a special charge of $6.4 million ($4 million after income taxes) resulting from
the discontinuation of certain developmental research programs. Excluding the
special charge in 1991, the 1992 expenses decreased 4% mainly reflecting lower
research and development expenses as a result of the discontinued research and
development programs, partly offset by higher employee-related and other
expenses as well as the effect of inflation. Selling, general and administrative
and research and development expenses as a percent of net sales decreased to
15.3% in 1992 from 17.3% in 1991. Excluding the special charge the ratio was
16.5% in 1991.
Operating profit in 1992 decreased 17% but excluding special charges and
start-up costs decreased 12%. This decrease reflected higher production costs at
the olefin manufacturing facilities and lower profit margins, higher operating
costs for environmental compliance, partly offset by improved results in
polycrystalline silicon, performance polymers and flame retardants and lower
research and development and technical services expenses. Foreign operating
profit decreased $20.5 million from 1991. This decrease was due to an $8.8
million increase in start-up costs in 1992 from 1991 and higher operating costs
because of low capacity utilization caused by temporary excess capacity in the
marketplace which has continued into 1993.
INTEREST AND FINANCING EXPENSES AND OTHER INCOME. Interest and financing
expenses in 1992 increased $2.4 million (99%) due to higher average debt
outstanding and a lower amount of interest being capitalized versus 1991.
Other income, net, decreased 44% in 1992 to $2.0 million from $3.6 million
in 1991 due to a lower amount of interest income from a reduction in short-term
securities.
INCOME TAXES. Income tax expense in 1992 decreased 24% from 1991 reflecting
a 22% decrease in income before income taxes and the cumulative effect of
accounting changes and a lower effective income tax rate (28.7% in 1992 versus
29.6% in 1991). The decreased rate is primarily due to lower income taxes on
income from foreign subsidiaries.
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FOURTH QUARTER 1992. The decline in net income for the fourth quarter 1992
from the third quarter 1992 primarily reflects lower profit margins on
approximately the same level of shipments of linear alpha olefins. The lower
profit margins resulted because linear alpha olefin products sold were sourced
from the Company's European plant where costs were higher while in prior
quarters olefin products sold were sourced from the Houston plant where
production costs were lower.
ACCOUNTING CHANGES. In 1992, Ethyl 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 No.
106, Employers Accounting for Postretirement Benefits Other than Pensions, and
FASB Statement No. 109, respectively.
By changing to the accrual method of accounting for postretirement health
benefits, the Company recognized a cumulative non-cash charge of $29.4 million,
or $18.5 million, net of income taxes, and increased its 1992 annual expenses to
approximately $3.8 million from $1.4 million. By changing its method of
accounting for income taxes, the Company also decreased its deferred income tax
liability and increased net income by $16.6 million. The combined cumulative net
charge amounted to $1.9 million. See Notes 11 and 12 of NOTES TO COMBINED
FINANCIAL STATEMENTS.
1991 COMPARED WITH 1990
NET SALES. Net sales for 1991 increased 1% from 1990 primarily due to
higher shipments, which were offset in part by lower selling prices in the
olefins and derivatives business. Shipments of poly alpha olefins,
pharmaceutical intermediates and zeolites increased but were largely offset by
lower shipments of linear alpha olefins, agricultural intermediates and bromine
chemicals.
OPERATING COSTS AND EXPENSES. Cost of goods sold in 1991 increased $17.6
million (3%) from 1990 with the result that the gross profit margin decreased to
26.6% in 1991 from 28.1% in 1990. Excluding the effect of the 1990 special
charges totaling $6.0 million reflecting primarily a write-off of goodwill
related to the performance polymers business and the effect of start-up costs of
$3.9 million in 1991 related to primarily a poly alpha olefin facility which
began commercial production in the first quarter of 1991 versus $4.5 million in
1990 related to new olefin manufacturing facilities in Feluy, cost of goods sold
would have increased $24.2 million (4%) from 1990 primarily due to higher
shipments and increased distribution costs, as well as higher maintenance
expenses from scheduled plant turnarounds in 1991. During 1991, average raw
material unit costs decreased from 1990 and energy costs were also lower.
Start-up costs are composed primarily of the labor cost of employees being
trained to run the new facility, the cost of the trainers, the utilities and
supplies used during the pre-production period and costs for pre-production
testing of the equipment. The Company's policy is to expense such costs as they
are incurred. Start-up was accomplished over a long period because construction
of the facility was done in stages. Training for each section started as or
before the section was completed.
Selling, general and administrative expenses combined with research and
development expenses increased 10% in 1991 over 1990. Excluding a special charge
of $6.4 million in 1991 for discontinuation of certain developmental research
programs, selling, general and administrative expenses combined with research
and development expenses would have increased by 5% in 1991 over 1990. This
increase mainly reflects higher employee-related and other expenses and also
includes the effects of inflation. Selling, general and administrative and
research and development expenses as a percent of net sales increased to 17.3%
in 1991 from 15.8% in 1990. The 1991 ratio would have been 16.5% except for the
special charge.
Operating profit in 1991 decreased 24% from 1990, but excluding special
charges and start-up costs, decreased 22%. The decline primarily reflects lower
margins and shipments in linear alpha olefins and flame retardants and other
bromine chemicals, lower shipments of agricultural intermediates, higher product
costs of polycrystalline silicon, higher maintenance expenses resulting from
scheduled plant turnarounds, and higher selling and administrative expenses,
partly offset by improved results in pharmaceutical intermediates and lower
research and development expenses.
INTEREST AND FINANCING EXPENSES AND OTHER INCOME. Interest and financing
expenses in 1991 increased by $0.7 million (37%) from 1990 due to higher average
debt outstanding partly offset by a higher amount of interest being capitalized
in 1991.
Other income, net, decreased 11% in 1991 (to $3.6 million in 1991 from $4.0
million in 1990) due to lower interest income from a reduction in short-term
securities.
INCOME TAXES. Income taxes in 1991 decreased 33% from 1990, reflecting a
24% decrease in income before income taxes and cumulative effect of accounting
changes as well as a lower 1991 effective income tax rate. The decline in the
effective income tax rate to 29.6% in 1991 from 33.3% in 1990 reflects primarily
lower income taxes on income of foreign subsidiaries.
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OUTLOOK
Historical results included in SELECTED FINANCIAL DATA show the best
performance of the Chemical Businesses in 1988, an unusual year for the
petrochemical industry, with short supply of several critical raw materials
resulting in a high watermark year for the Company's more cyclical businesses.
Growth in net sales since that period has not kept pace with increased cost
burdens.
Since 1988, the Company's operating results have been unfavorably impacted
by special expenses for new plant start-
ups, new product introductions, establishing an important research and
development presence in Europe, starting up Asia-Pacific offices in China and
Japan and provisions for planned work-force-reduction and early-retirement
programs. During this period, total assets increased approximately $470 million,
adding further to the cost burden. A major expansion in research and development
was undertaken in 1988 in order to support several new business initiatives,
which were abandoned in a reversal to more appropriate levels of research and
development spending over the 1992-1993 period. Since 1990, poor worldwide
business conditions have had an additional depressing effect on the Company's
operating results.
These factors have been especially significant in the olefins and
derivatives business where new European production facilities were started up in
1991 and 1992 just as the European business environment began experiencing one
of its worst business recessions since the European Economic Community was
established. Likewise, new flame retardants and a new, enhanced version of
ibuprofen were introduced in 1993 along with new manufacturing facilities for
these products. The cost of these product introductions and the startup expenses
for the new facilities also have contributed to lower earnings. The economic
slowdown coupled with excess capacity placed further pressure on pricing.
The Company expects better results of operations as business conditions
improve and demand in the major markets served increases. Already the signs are
favorable. Poly alpha olefins showed marked improvement in the 1993 third
quarter. Overall operating results in the last five months (June through
October, 1993) were up about 45% over the first five months of 1993 (January
through May, 1993). A similar or better comparison is expected between the
second half versus the first half of 1993.
As business conditions continue to improve in 1994 and beyond, the Company
expects continued improvements in results of operations as operating rates
(especially for alpha olefins) increase, new product introduction and plant
start-up costs are no longer a cost burden and as the savings from the
work-force reduction is realized.
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents at September 30, 1993 approximated $46.6 million,
which represents an increase of about $3.6 million from $43.0 million at
year-end 1992, and which represented an increase of $12.3 million from $30.7
million at year-end 1991.
Cash flows from operations of $76.1 million for the nine months ended
September 30, 1993 were sufficient to cover operating activities in the first
nine months of 1993, including a working capital increase of approximately $11.0
million, reflecting primarily higher accounts receivable and inventories partly
offset by an increase in accrued expenses. The cash flows from operations,
together with $110.8 million in net settlements with Ethyl, were used to cover
expenditures for the acquisition of PPC and for capital expenditures. Cash flows
from operating activities of $96.4 million in 1992, $129.4 million in 1991 and
$117.5 million in 1990, were used primarily to fund capital expenditures, with
any additional amounts required funded by Belgian bank borrowings and additional
net settlements from Ethyl. Excess cash available, if any, was used to repay
Ethyl's equity investment.
The cumulative increase in inventory in the nine month period ended
September 30, 1993 and in the twelve month period ended December 31, 1992
amounted to $24.4 million, of which $17.5 million occurred during 1993. The
increase in inventory amounts resulted primarily from higher inventory
quantities, including $10.2 million acquired as part of the PPC business
acquisition on February 8, 1993, and approximately $17 million of additional
quantities of linear alpha olefin inventory. The additional linear alpha olefin
inventory was used to replenish depleted inventory which was at a low level at
the end of 1991 and also to support increases in linear alpha olefin shipments.
The remaining inventory changes include lower raw materials and a variety of
small and mostly offsetting changes in other quantities and in normal unit
costs.
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. See THE
DISTRIBUTION -- Dividend Policy. With respect to operating expenses, management
expects that because the discount rates used for actuarial
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calculations in connection with the Company's pension and postretirement benefit
plans are expected to decline, pension and postretirement benefit expenses are
expected to increase in 1994.
The non-current portion of the Company's long-term debt equalled $94.4
million at September 30, 1993, compared to $100.5 million at the end of 1992 and
$118.7 million at the end of 1991. Total debt as a percent of total
capitalization at September 30, 1993 of 13.2%, represents a decrease from 16.3%
at the end of 1992. The debt ratio was 20.3% at the end of 1991 and 15.5% at the
end of 1990. After a borrowing under the planned credit facility with a
consortium of banks on the date the Distribution becomes effective and payment
of the proceeds to Ethyl, the Company expects a long-term debt percentage of
total capital of 45-50% at the time of the Distribution.
The capital expenditures for the Chemicals Businesses in 1993 ($66.4
million through September 30) are expected to be below the 1992 level of $99.6
million which was less than the 1991 level of $124.7 million and the 1990 level
of $116.6 million, mainly reflecting the mid-1992 completion of the $140 million
linear alpha olefin manufacturing facility in Feluy, Belgium. The Company has no
present plans for any capital expenditure programs other than expenditures in
the normal course to improve plant efficiencies and expand the production of
existing facilities. Future capital spending is expected to be financed
primarily with cash provided from operating activities, with the balance
provided by additional long-term debt.
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. 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, the Chemicals Businesses currently
are complying with and expect to continue to comply in all material respects
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
earnings or the competitive position of the Chemicals Businesses.
The Company will be subject to the federal Superfund law, and similar state
laws, under which the Company may be designated as a potentially responsible
party (PRP) and may be liable for a share of the costs associated with cleaning
up various hazardous waste sites. 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 Statement of
Financial Accounting Standards 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.
With respect to the Chemicals Businesses, operating costs charged to
expense were approximately $39 million in 1992 versus approximately $32 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. No amount was expensed
by the Chemicals Businesses for one-time cleanup costs for sites where Ethyl has
been named a PRP because almost all such sites remained with Ethyl. Costs for
sites assigned to the Chemicals Businesses had previously been accrued and
payments related to such sites were charged against accrued reserves which at
September 30, 1993 were immaterial.
Capital expenditures for pollution-abatement and safety projects for the
Chemicals Businesses, including such costs that are included in other projects,
were approximately $22.1 million, $19.1 million and $12.2 million in 1992, 1991
and 1990 respectively. For each of the next few years, capital expenditures for
these types of projects are likely to be greater than current levels.
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.
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On February 8, 1993, a subsidiary of Ethyl completed the acquisition of PPC
from Rhone-Poulenc S.A., the Paris-based multinational chemical and
pharmaceutical company for $122 million (before consideration of cash acquired
of $5.4 million). The transaction was financed (for the purposes of the
Chemicals Businesses' combined financial statements) with additional net
settlements with Ethyl. PPC is a producer of organic and inorganic brominated
compounds used mainly as pharmaceutical, photographic and agrochemical
intermediates. PPC also operates an electrolysis unit to produce high-purity
caustic potash and potassium carbonate.
In connection with the Company's acquisition of PPC from Rhone-Poulenc SA
(RP), certain long term supply agreements were entered into between the Company,
PPC and RP whereby RP and certain of its affiliates are committed to purchase
specified quantities of PPC products for periods of twelve (12) to fifteen (15)
years at prices which are adjusted on an annual basis. In addition, non-compete
agreements between the Company and RP and Entreprise Miniere et Chimique (EMC)
assure that RP will not re-enter critical markets for ten years, and EMC will
not re-enter critical markets for five years. These agreements base load the
production facilities, and assure a level of operations which will generate
adequate cash flows to operate and maintain the facilities throughout the terms
of the agreements.
The Company also entered a sales service agreement with RP and certain of
its affiliated companies to continue to market bromide products and potassium
carbonate for PPC. These agreements are cancelable by either party at December
31 each year on six months prior written notice. Bromide agreements have already
been largely terminated, and the Company markets these products directly. The
agreement covering potassium carbonate remains in force, and assures that the
Company maintains its market contacts and presence while it determines its
ultimate marketing strategy.
Ultimately, the overall profitability of PPC and its impact on the Company
will be governed by PPC's reputation as a quality supplier, the Company's
commitment to strengthen and grow these product lines in the world markets which
it serves, and world market forces in the segments which this subsidiary serves.
The Company currently plans to raise $100 million of capital from the sale
of equity during 1994 to the Gottwalds with the proceeds being used for general
corporate purposes, including but not limited to working capital and reduction
of indebtedness. See FINANCING -- Sale of the Company's Common Stock. After the
sale of the stock to the Gottwalds the Company's debt to total capitalization
ratio is expected to be about 35-40%. Beyond that, the Company will have the
flexibility to borrow up to a total of $500 million under the Credit Facility
without significant restrictions as long as the long-term debt to total
capitalization ratio does not exceed 60% and the equity is at least $300 million
($350 million when the additional capital is raised). The amount and timing of
additional borrowing will depend on the Company's specific cash requirements or
the opportunity to refinance present long-term debt in order to realize a lower
cost of borrowing.
The Company has no specific significant acquisitions of facilities or
businesses planned, and no specific understanding, agreement or other
arrangement which could result in such an acquisition. However, the Company will
evaluate on a continuing basis the acquisition of additional facilities or
businesses as well as the disposition of existing businesses. The Company's
acquisitions normally will be for cash and will be funded through external
sources, including the use of lines of credit and long-term debt.
BUSINESS
BACKGROUND
The Company was incorporated by Ethyl under the laws of the Commonwealth of
Virginia on November 24, 1993. Prior to the Distribution, Ethyl will transfer
the Chemicals Businesses to the Company in exchange for the Company's Common
Stock. Following the Distribution, the Company will be a worldwide,
publicly-held operating company, which will engage directly or through
subsidiaries in the olefins and derivatives, bromine chemicals and specialty
chemicals businesses. The Chemicals Businesses had sales of $818.2 million and
operating profit of $61.4 million in 1992. For financial information concerning
the Chemicals Businesses, see the Combined Financial Statements and MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Ethyl traces its history to the founding of the Albemarle Paper
Manufacturing Company in 1887. In 1962, Albemarle Paper Manufacturing Company
acquired Ethyl Corporation, a Delaware corporation founded in 1924, and formed
the current Ethyl, a Virginia corporation. Ethyl is headquartered in Richmond,
Virginia. Ethyl currently is engaged directly and through various subsidiaries
in the chemicals and pharmaceuticals businesses. In 1989, Ethyl transferred its
plastics, aluminum and energy businesses to Tredegar Industries, Inc. and
spun-off that corporation to its shareholders, and in July 1993, Ethyl
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completed a spin-off of its insurance business, which was conducted by First
Colony Life Insurance Company and its subsidiaries.
The Company's businesses will consist of the olefins and derivatives,
bromine chemicals and specialty chemicals businesses. These three businesses
produce a wide range of chemical products, for which broad application is found
in detergents, plastic polymers, agricultural compounds, electronics,
pharmaceuticals and lubricants. These products are produced at various locations
throughout the United States and in Europe and primarily are sold directly to
manufacturers. The Chemicals Businesses compete in all of their markets on the
basis of the quality and prices of their products and their service.
OLEFINS AND DERIVATIVES
The olefins and derivatives business provides intermediates used primarily
in the production of plastic polymers, detergent intermediates, synthetic
lubricants and fluids. The products manufactured by the olefins and derivatives
business include comonomers, plasticizer intermediates and detergent
intermediates such as alpha olefins, fatty alcohols, tertiary amines, amine
oxides and zeolite A. These products have a variety of applications, as
described below.
Products of the olefins and derivatives business include alpha olefins used
as comonomers and plasticizer intermediates to produce thermoplastics; fatty
alcohols for plasticizer intermediates and processing aids and for alcohol
ethoxylates, sulfates and ether sulfates used in detergents; alpha olefins for
linear alkyl benzene sulfonates and alpha olefin sulfonates used in detergents;
alkyl amines for oxides, quaternary ammonium compounds and betaines used in
detergents, biocides, fabric softeners and conditioners; zeolite A (sodium
alumino silicate) used as a phosphate replacement in laundry detergent builders;
polydecenes used in personal care products; poly alpha olefins for use in
synthetic lubricating oils and fluids; and ASA (alkylsuccenic anhydride) used in
paper sizing formulations.
The olefins and derivatives business has many varied customers. Comonomers
and plasticizing intermediates are sold directly to resin producers.
Plasticizing intermediates also are sold to plasticizer manufacturers. Detergent
intermediates are sold to suppliers of household, institutional and industrial
cleaners and personal care products. Poly alpha olefins are sold directly to
companies producing finished oils and fluids.
Recent developments include the mid-1992 completion of the linear alpha
olefin manufacturing facility at Feluy, Belgium to help satisfy European demand
for comonomers, detergent intermediates and poly alpha olefins; completion of a
poly alpha olefins plant at Feluy, Belgium in 1991; the establishment of alpha
olefins distribution terminals in Singapore and Australia; expansion of the
Houston, Texas zeolite A manufacturing plant to supply the growing North
American demand for this detergent phosphate replacement; and completion of a
project to improve amine quality in Magnolia, Arkansas.
Because of additions of new capacity and slow demand growth resulting from
the recession, excess capacity is prevalent in the linear alpha olefins business
and is expected to be a factor for the next two years until demand growth,
especially in Western Europe, is balanced more closely with supply.
BROMINE CHEMICALS
Products of the bromine chemicals business include elemental bromine, flame
retardants, alkyl bromides and inorganic bromides. Applications for these
products primarily exist in chemical synthesis, polymer products, oil and gas
well drilling and completion, water purification, soil fumigation and chemical
intermediates for pharmaceutical, photographic and agricultural chemicals.
PPC was acquired from Rhone-Poulenc S.A. by an Ethyl subsidiary in February
1993. PPC operates a plant in northeast France and is one of the world's largest
producers of organic and inorganic brominated compounds used mainly in
pharmaceutical, photographic and agricultural chemical intermediates. PPC also
operates an electrolysis unit to produce high-purity caustic potash and
potassium carbonate used in the glass, water treatment, detergent and food
industries. The acquisition of PPC augments international sales, strengthens
Chemicals' position in bromine chemicals and provides substantial new
manufacturing capability in Europe.
Recent developments include the introduction of SAYTEX(TM)8010 flame
retardant to satisfy the brominated flame retardant industry's desire for
environmentally friendly flame retardants used in high-impact polystyrene
and engineering plastics. The marketing emphasis for this new product is
aimed initially at overseas markets, especially Japan. A plant is under
construction in Magnolia, Arkansas that will manufacture BT-93(TM)W flame
retardant. Because of its white color, BT-93(TM)W flame retardant can be
used in color-sensitive applications. In response to worldwide market demand
for SAYTEX(TM)RB-100
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flame retardant, used primarily in printed circuit boards, a
multi-million-dollar investment program to increase capacity and improve quality
has been completed at Magnolia.
Excess capacity existed in bromine chemicals and contributed to depressed
earnings in this business during the 1988-1993 period, but such excess capacity
has now significantly abated. Excess capacity is not expected to be a major
factor in this business for the foreseeable future.
SPECIALTY CHEMICALS
The specialty chemicals business produces a broad range of chemicals,
including pharmaceutical and agricultural intermediates, polymer curatives,
catalysts, antioxidants, polysilicon and polyimide foams.
Ibuprofen is one of the most successful pharmaceutical products of the
specialty chemicals business. Ibuprofen is a widely-used pharmaceutical and
provides fever reduction and temporary relief of aches and pains and menstrual
cramps. Bulk ibuprofen is formulated into tablets by pharmaceutical companies
and sold to customers in both the prescription and over-the-counter markets.
Ibuprofen products account for more than 20% of the U.S. over-the-counter
analgesic market. They compete against the painkillers containing aspirin and
acetaminophen. Chemicals is one of the largest worldwide producers of ibuprofen.
Agricultural intermediates are used in the manufacture of pesticides and
herbicides and are sold to chemical companies that supply finished pesticides
and herbicides to farmers, governments and consumers. These products include
orthoalkylated anilines for the acetanilide family of pre-emergent herbicides
used on corn, soybeans and other crops and diethylchlorothiophosphate and
ethylphosphonothioicdichloride for organophosphate insecticides used on cotton,
corn and other crops.
Polymer curatives are used to control polyurethane and epoxy system
polymerization.
The specialty chemicals business also produces aluminum alkyl catalysts
used in the production of polyolefins, elastomers, wire and cable and other
thermoplastic resins.
Antioxidants and alkylated hindered phenolics are used to maintain the
performance integrity of thermoplastic resin.
SOLIMIDE(TM) polyimide foam is a light-weight, fire-resistant thermal and
acoustical insulating foam, which is marketed globally. The product finds broad
use in naval applications, and new applications are developing in aerospace,
automotive and industrial markets.
Polycrystalline silicon (electronic materials) is sold worldwide to
producers of single-crystal silicon wafers and to companies for the fabrication
of solar cells. Semiconductor devices such as microprocessors and memory
circuits are fabricated on silicon wafers. Silane, used in the manufacture of
polysilicon, also is sold to specialty gas companies serving the electronic and
photovoltaic industries. The Company is exploring the possibility of either
entering into a joint venture with a third party with respect to its
polycrystalline silicon and silane business or possibly a sale of that business.
No agreement has been reached with any party and no decision has been made as to
the form that any such agreement might take.
New capacity for ibuprofen was added in 1993 and a new facility for an
enhanced version of ibuprofen was completed in the fourth quarter of 1993 and
currently is beginning operations. New capacity for antioxidants also was added,
and an expansion of alkylated aromatics capacity is expected to be completed by
the second quarter of 1994. All of these facilities are located at the
Orangeburg, South Carolina plant.
RESEARCH AND DEVELOPMENT
The Company's research and development will support all of the three major
business areas. With respect to olefins and derivatives, research and
development efforts will be focused on new poly alpha olefin products, process
and quality improvement in linear alpha olefins and new amine derivatives. With
respect to bromine chemicals, the focus will be on new and improved flame
retardants (such as BT-93(TM)W and SAYTEX(TM)8010) targeted to satisfy
increasing market needs for performance and quality in products manufactured
from polystyrene, ABS and engineered thermoplastics. The primary focus of
specialty chemicals' research will be new pharmaceutical products such as the
enhanced version of ibuprofen and new catalysts.
In the future, the Company's European businesses will be more effectively
supported by a new research and development facility at Louvain-la-Neuve,
Belgium, which opened in mid-1993.
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With respect to the Chemicals Businesses, Ethyl spent approximately $32
million, $35 million and $37 million in 1992, 1991 and 1990, respectively, on
research and development, which qualified under the technical accounting
definition of research and development. For the Chemicals Businesses, total
research and development spending for 1992 was $48 million, including $16
million related to technical services support to customers, testing of existing
products, cost reduction, quality improvement and environmental studies.
INTERNATIONAL OPERATIONS
The Company will operate on a worldwide basis with manufacturing plants
located in Belgium and France in addition to the United States, distribution
terminals in Singapore and Australia and offices in the People's Republic of
China and Japan. The Company will distribute products worldwide. The Company has
no significant assets in countries where those assets would be deemed to be
exposed to material risk.
PATENTS, LICENSES AND TRADEMARKS
The Company considers patents, licenses and trademarks to be of
significance to its business. Ethyl will transfer to the Company patents and
patent applications and will license the Company to use technology relating to
the Chemicals Businesses. In addition, the Chemicals Businesses have licenses
under patents owned by other companies. The patent position of the Chemicals
Businesses is actively being managed and is deemed by the Company to be adequate
for the conduct of its business. The Company may license Ethyl to use certain
patents and technology owned by the Company, the use of which has application to
the Ethyl Businesses, and Ethyl may license the Company to use certain patents
and technology owned by Ethyl.
BACKLOGS
Backlogs are not material to the Chemicals Businesses.
LEGAL PROCEEDINGS
The Company 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. The liabilities assumed
by the Company are of the type common to chemical companies, and none of them at
the present time is deemed material by the Company. Although the outcome of such
proceedings cannot be predicted with certainty, their disposition should not in
the opinion of the Company's management, either individually or in the
aggregate, have a material adverse effect upon the Company's consolidated
financial position or results of operations.
Ethyl or its subsidiaries are, and the Company or its subsidiaries will be,
involved from time to time in legal proceedings of types regarded as common in
the chemical industry, particularly administrative or judicial proceedings
seeking remediation under environmental laws, such as the federal statute known
as Superfund (defined below), and products liability litigation.
ENVIRONMENTAL REGULATION
Laws concerning the environment that affect or could affect the Chemicals
Businesses' domestic operations include, among others, the Clean Water Act, the
Clean Air Act, the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA or Superfund), the Resource Conservation and Recovery Act,
the Occupational Safety and Health Act, the National Environmental Policy Act,
the Toxic Substances Control Act, any regulations promulgated under these Acts,
and any other federal, state, local or foreign laws or regulations governing
environmental matters. To the best of the Company's knowledge, the Chemicals
Businesses currently are complying with and expect to continue to comply in all
material respects with all existing environmental laws, regulations, statutes
and ordinances. 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 earnings or the competitive position
of the Chemicals Businesses.
The Company is subject to federal, state, local and foreign requirements
regulating the handling, manufacture or 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 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
33
<PAGE>
<PAGE>
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 Environmental Protection Agency 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 will be subject to the
federal Superfund law, and similar state laws. With respect to the Chemicals
Businesses, Ethyl has been designated under these laws 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. With respect to the Chemicals Businesses, in
most cases where Ethyl 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, Ethyl's policy is, and the Company's policy
will be, to negotiate a consent decree and to pay any apportioned settlement,
enabling Ethyl or the Company, as the case may be, to be effectively relieved of
any further liability as a PRP, except for remote contingencies. In other than
DE MINIMIS PRP matters, Ethyl's records indicate that unresolved exposures with
respect to the Chemicals Businesses are immaterial. Ethyl accrues and expenses
its proportionate share of PRP costs in accordance with Statement of Financial
Accounting Standards No. 5 and FASB Interpretation No. 14. With respect to the
Chemicals Businesses, because Ethyl'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 are not material.
Compliance with government pollution-abatement and safety regulations
usually increases operating costs, in some cases requires remediation costs that
are charged to expense and requires investment of capital that in some cases
produces no monetary return. With respect to the Chemicals Businesses, operating
costs charged to expense were $39.3 million in 1992 versus $32.5 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. Of the $39.3 million and
$32.5 million mentioned above, virtually all of the cost represents ongoing
costs of operations. No amounts were expensed by the Chemicals Businesses for
one-time cleanup costs for sites where Ethyl has been named a PRP because almost
all such sites remained with Ethyl. Costs for sites assigned to the Chemicals
Businesses had previously been accrued and payments related to such sites were
charged against accrued reserves.
Capital expenditures for pollution-abatement and safety projects for the
Chemicals Businesses, including such costs that are included in other projects,
were approximately $22.1 million, $19.1 million and $12.2 million in 1992, 1991
and 1990, respectively. For each of the next few years, capital expenditures for
these types of projects are likely to be greater than current levels.
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.
COMPETITION
The Company will operate in a highly competitive marketplace, competing
against a number of other companies in each of its product lines. The
competitors of the Company will be both larger and smaller than the Company in
terms of resources and market shares. Competition generally will be based on
product performance, reputation for quality, price and customer service and
support. The degree and nature of competition will depend on the type of product
involved.
In general, the Company will compete by maintaining a broad range of
products and focusing resources on products in which Chemicals has a competitive
advantage. The Company will endeavor to foster its reputation for quality
products, competitive prices and excellent customer service and support. Through
research and development, the Company and its subsidiaries will seek to increase
margins by introducing value-added products and products based on proprietary
technologies.
RAW MATERIALS
Major raw materials used by the Chemicals Businesses include ethylene,
propylene, isobutylene, phenol, aniline, bisphenol-A, aluminum, caustic soda,
chlorine, sodium silicate, aromatic diamines, toluene, ortho-toluidine,
phosphorus chlorides, silicon fluoride and potassium chloride, as well as
electricity and natural gas as fuels, which are readily available from
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<PAGE>
numerous suppliers and are purchased or provided under contracts at prices the
Company believes are competitive. The Company also will produce bromine from its
extensive brine reserves in Arkansas.
MAJOR CUSTOMERS
Due to the diversity of product lines in which the Company competes, no
significant portion of the Company's sales or earnings is generated by one
customer nor is the Company overly reliant on contracts with any one public,
private or governmental entity.
Several of the Company's customers manufacture products for cyclical
industries such as the aerospace, automotive, electronics and building and
construction industries. As a result, demand for the products of the Company
from customers in such industries also is cyclical. In addition, the
profitability of sales of certain of the Company's products depends on the level
of industry plant capacity utilization.
Due to the diversity and size of the Company's operations, there is little
seasonal variation in their revenues or earnings, except for certain
agricultural products.
INSURANCE
The Company has obtained insurance coverage for certain claims arising from
the activities of the Chemicals Businesses prior to the Distribution Date for
which the Company could not look to Ethyl's insurance policies in effect for
such periods. See RELATIONSHIP BETWEEN ETHYL AND THE COMPANY AFTER THE
DISTRIBUTION -- Reorganization Agreement. The Company will have insurance with
amounts and types of coverage that its management considers reasonable for the
Chemicals Businesses.
EMPLOYEES
The Company and its subsidiaries will initially employ approximately 3,800
people. Ethyl employees who worked for the Chemicals Businesses prior to the
spin-off will be transferred to the Company, while Ethyl employees who worked
for the Ethyl Businesses prior to the spin-off will remain employees of Ethyl.
In situations where employees performed substantial duties for both the
Chemicals Businesses and the Ethyl Businesses, Ethyl and the Company evaluated
each situation and determined the best position under the particular
circumstances.
Certain employees of the Chemicals Businesses are represented by unions and
are subject to collective bargaining agreements with the following expiration
dates:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
PLANT EMPLOYEES DATE
<S> <C> <C>
Houston, Texas 680 5/1/96
Orangeburg, South Carolina 165 5/31/95
Baton Rouge, Louisiana 60 6/1/94
Feluy, Belgium 205 12/31/94
Thann, France 296(1) Annually
</TABLE>
(1) Includes 125 salaried employees who can have union representation.
As a result of the Distribution, the Company may be required to renegotiate
certain aspects of certain existing union contracts. Although the Company
expects that it will reach agreement with the unions with respect to these union
contracts, there can be no assurance that this will occur.
PROPERTIES
The production facilities included in the Chemicals Businesses will be
owned by the Company, and none of the owned property is subject to an
encumbrance material to the combined operations of the Chemicals Businesses.
Additionally, the Company considers the geographical location of its plants to
be well suited to satisfying the needs of its customers. The Company believes
that the capacity of its plants is adequate for the immediate needs of its
businesses.
The Company's principal executive offices will be located at 330 South
Fourth Street, Richmond, Virginia 23219, and its principal administrative
offices will be located at 451 Florida Boulevard, Baton Rouge, Louisiana 70801.
35
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<PAGE>
The following is a brief description of the principal plants and related
facilities of the Company, all of which will be owned except as stated below.
<TABLE>
<CAPTION>
LOCATION PRINCIPAL OPERATIONS
<S> <C>
Baton Rouge, Louisiana (2 facilities) Research and product development activities
Elk Grove Village, Illinois (leased) Research and product development activities
Deer Park, Texas (leased land) Production of poly alpha olefins
Feluy, Belgium Production of aluminum alkyls, orthoalkylated
anilines and phenols, poly alpha olefins and
linear alpha olefins
Houston, Texas Production of aluminum alkyls, synthetic primary
alcohols, linear alpha olefins, alkenyl succinic anhydride,
alkylated aromatics, polycrystalline silicon, high-purity
silane and zeolite A
Louvain-la-Neuve, Belgium Research and customer technical service activities
Magnolia, Arkansas (2 facilities) Production of brominated flame retardants, bromine,
alkyl bromides, several inorganic bromides, agricultural
chemical intermediates, tertiary amines and polyimide foam
Orangeburg, South Carolina Production of specialty chemicals, including pharmaceutical
intermediates, orthoalkylated phenols, aluminum alkyls,
antioxidants and petroleum additives
Thann, France Production of organic and inorganic brominated
pharmaceutical, photographic and agricultural chemical
intermediates, high-purity caustic potash and potassium
carbonate; product development
activities
</TABLE>
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<PAGE>
MANAGEMENT
DIRECTORS
Directors of the Company will be elected at each annual meeting of
shareholders beginning in 1995.
Information with respect to the persons who will serve as directors after
the Distribution Date is set forth below:
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION
DURING THE
PAST FIVE
YEARS AND
OTHER
NAMES AGE DIRECTORSHIPS
<S> <C> <C>
Lloyd B. Andrew 70 Retired Executive Vice President of Ethyl. Other
directorship: Ethyl Corporation.
William W. Berry 61 Retired Chairman of the Board of Dominion
Resources, Inc. Other directorships: Ethyl
Corporation; Dominion Resources, Inc.; Virginia
Power; Scott and Stringfellow, Inc.; and
Universal Corporation.
Joseph C. Carter, Jr. 66 Senior Counsel, Hunton & Williams. Other
directorship: Ethyl Corporation.
E. Gary Cook 49 President and Chief Operating Officer of the
Company effective March 1, 1994; Senior Vice
President of Ethyl and President of Ethyl's
Chemicals Group from January 1, 1992 to March 1,
1994; former Vice President and general manager
of the Printing and Publishing Division of E. I.
duPont de Nemours and Company (1991), having
served previously as Vice President and general
manager of the Printing Systems Department of
that company (1990-1991) and Vice President of
the Medical Products Division of that company
(1987-1990).
Bruce C. Gottwald 60 Chairman of the Board and Chief Executive Officer
of Ethyl effective March 1, 1994; President,
Chief Executive Officer and Chief Operating
Officer of Ethyl from April 23, 1992 to March 1,
1994, having previously served as President and
Chief Operating Officer of Ethyl. Other
directorships: CSX Corporation; Dominion
Resources, Inc.; Ethyl Corporation; First Colony
Corporation; James River Corporation; and
Tredegar Industries, Inc.
Bruce C. Gottwald, Jr. 36 Chairman of the Board of First Colony Corporation.
Other directorships: Ethyl Corporation; First
Colony Corporation; and Paragon Portfolio.
Floyd D. Gottwald, Jr. 71 Chairman of the Board and Chief Executive Officer
of the Company and Vice Chairman of the Board of
Ethyl effective March 1, 1994; Chairman of the
Board and of the Executive Committee of the
Ethyl Board of Directors from April 23, 1992 to
March 1, 1994, having previously served as
Chairman of the Board and of the Executive
Committee and Chief Executive Officer of Ethyl.
Other directorships: Ethyl Corporation; First
Colony Corporation; and Tredegar Industries,
Inc.
</TABLE>
37
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION
DURING THE
PAST FIVE
YEARS AND
OTHER
NAMES AGE DIRECTORSHIPS
<S> <C> <C>
John D. Gottwald 39 President and Chief Executive Officer of Tredegar
Industries, Inc. Other directorship: Tredegar
Industries, Inc.
William M. Gottwald, M.D. 45 Vice President, Pharmaceuticals, of Ethyl
Corporation. Other directorships: Ethyl
Corporation; and First Colony Corporation.
Gilbert M. Grosvenor 62 President & Chairman of National Geographic
Society. Other directorships: Ethyl Corporation;
Chesapeake and Potomac Telephone Company;
Charles Allmon Trust, Inc.; Saul Centers, Inc.;
and Marriott International, Inc.
Andre B. Lacy 54 Chairman, Chief Executive Officer and President of
LDI Management, Inc. and Managing General
Partner of LDI, Ltd. Other directorships: Ethyl
Corporation; First Colony Corporation; IPALCO
Enterprises, Inc.; Patterson Dental Co.; and
Tredegar Industries, Inc.
Emmett J. Rice 74 Retired Member of the Board of Governors of the
Federal Reserve System. Other directorships:
Jardine-Fleming China Region Fund; Ethyl
Corporation; and Tredegar Industries, Inc.
Sidney Buford Scott 60 Chairman of the Board of Scott & Stringfellow,
Inc. Other directorships: Ethyl Corporation; and
Great Eastern Energy & Development Corporation.
Charles B. Walker 55 Vice Chairman of the Board and Chief Financial
Officer of the Company and Ethyl effective March
1, 1994; Executive Vice President and Chief
Financial Officer of Ethyl from August 1, 1989
to March 1, 1994, having served as Executive
Vice President, Chief Financial Officer and
Treasurer of Ethyl (February 1, 1989-July 31,
1989) and Executive Vice President and Treasurer
of Ethyl prior thereto. Other directorships:
Ethyl Corporation; First Colony Corporation; and
Nations Fund Trust/Nations Fund, Inc.
</TABLE>
38
<PAGE>
<PAGE>
Floyd D. Gottwald, Jr. and Bruce C. Gottwald are brothers. Bruce C.
Gottwald, Jr. is the son of Bruce C. Gottwald, and John D. Gottwald and William
M. Gottwald, M.D. are the sons of Floyd D. Gottwald. The Gottwalds may be deemed
to be control persons of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Executive Committee,
Audit Committee, Nomination Committee and Executive Compensation Committee.
The Executive Committee acts not only as the executive committee of the
Company's Board of Directors but also as the Company's principal management
committee. The members of this committee are Messrs. Floyd D. Gottwald, Jr.,
Bruce C. Gottwald, Cook, Walker and Dr. William M. Gottwald.
The Audit Committee reviews the Company's internal audit and financial
reporting functions and the scope and results of the audit performed by the
Company's outside independent accountants and matters relating thereto and makes
reports thereon to the Company's Board of Directors. The members of this
committee are Messrs. Grosvenor, Lacy, Rice and Scott.
The Nomination Committee recommends candidates for election as directors.
The members of this committee are Messrs. Carter, Bruce C. Gottwald and Floyd D.
Gottwald, Jr. The Company's shareholders will also be able to nominate
candidates for election as directors. See PURPOSES AND ANTITAKEOVER EFFECTS OF
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND THE COMPANY'S
BYLAWS -- Advance Notice Provisions for Shareholder Proposals and Shareholder
Nominations of Directors.
The Executive Compensation Committee (the Compensation Committee) approves
the salaries of senior management employees. It also approves all bonus awards
to senior management under the Company's Bonus Plan and grant options under the
Company's Incentive Stock Option Plan. The Compensation Committee is comprised
of individuals who are not, and have not been for the preceding year, eligible
to participate in any stock option, stock bonus or stock purchase plans of the
Company. The members of the Executive Compensation Committee are Messrs. Andrew,
Berry and Carter.
The Company's Board of Directors may establish certain other committees as
it deems advisable to facilitate its work.
COMPENSATION OF DIRECTORS
Any Director who is not an employee of the Company or any subsidiary
thereof will receive $1,000 for attendance at each meeting of the Company's
Board of Directors and $600 for attendance at each meeting of a committee of the
Company's Board of which he is a member. In addition, each such director will be
paid a quarterly fee of $5,000. Each outside director also will be reimbursed
for usual and ordinary expenses of meeting attendance. Directors who are
employees of the Company or any subsidiary thereof will not receive any fees for
service on the Company's Board or any of its committees.
Under the retirement policy for directors, any director retiring from the
Company's Board of Directors after age 60 with at least five years' service on
the Company's Board will receive $12,000 per year for life, payable in quarterly
installments. Any director retiring under other circumstances will receive
$12,000 per year, payable in quarterly installments, commencing no earlier than
age 60, for a period not to exceed his years of service on the Company's Board.
Such retirement payments to former directors may be discontinued under certain
circumstances.
The Company has adopted the Non-Employee Directors' Stock Acquisition Plan
(the Directors' Stock Plan), which provides that the Company shall award on each
July 1, beginning July 1, 1994, to each eligible director that number of whole
shares of the Company's Common Stock that when multiplied by the closing price
of the Company's Common Stock on the immediately preceding business day, as
reported in THE WALL STREET JOURNAL, shall as nearly as possible equal, but not
exceed, $2,000. The shares of the Company's Common Stock awarded under the
Directors' Stock Plan are nonforfeitable and the recipient directors immediately
and fully vest in the Company's Common Stock issued under the Plan. Subject only
to such limitations on transfer as may be specified by applicable securities
laws, directors may sell shares received under the Directors' Stock Plan at any
time. The Directors' Stock Plan provides that no awards may be made after July
1, 2003.
39
<PAGE>
<PAGE>
EXECUTIVE OFFICERS
Set forth below are the names, ages and titles of the persons who are
expected to serve as executive officers of the Company following the
Distribution:
<TABLE>
<CAPTION>
NAME AGE TITLE
<S> <C> <C>
Floyd D. Gottwald, Jr. 71 Chairman of the Board, Chairman of the Executive
Committee and Chief Executive Officer
E. Gary Cook 49 President and Chief Operating Officer
Charles B. Walker 55 Vice Chairman of the Board and Chief Financial
Officer
E. Whitehead Elmore 55 Senior Vice President, Secretary and General Counsel
Thomas G. Avant 55 Senior Vice President
</TABLE>
Each of these officers will hold office until his successor is elected or
until his earlier removal or resignation. All of the above other than E. Gary
Cook were engaged in the business of the Company, Ethyl or one of their
subsidiaries in an executive capacity during all of the past five years. Except
for Floyd D. Gottwald, Jr., Charles B. Walker, and E. Whitehead Elmore, those
persons who are currently officers of Ethyl will relinquish their positions with
Ethyl on the Distribution Date. The business experience during the past five
years of Messrs. Gottwald, Cook and Walker is set forth above under
-- Directors. For the past five years, Mr. Elmore has been Vice President,
Secretary and General Counsel of Ethyl. Mr. Avant has been Vice
President-Strategic Planning of Ethyl since December 15, 1989 and prior thereto
served as Director of Strategic Planning of Ethyl.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the initial annual salary that the Company
will pay to its Chief Executive Officer, and the four next most highly
compensated executive officers of the Company and all executive officers as a
group.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION WITH THE COMPANY INITIAL ANNUAL SALARY (1)
Floyd D. Gottwald, Jr. $ 500,000
Chairman of the Board, Chairman of the Executive Committee
and Chief Executive Officer
<S> <C>
E. Gary Cook 400,000
President and Chief Operating Officer
Charles B. Walker 215,000
Vice Chairman of the Board
and Chief Financial Officer
E. Whitehead Elmore 200,000
Senior Vice President, Secretary and General Counsel
Thomas G. Avant 200,000
Senior Vice President
All executive officers as a group (5) 1,515,000
</TABLE>
(1) Messrs. Gottwald, Walker and Elmore will have continuing duties with
Ethyl with annual Ethyl salaries of $300,000, $215,000 and $83,500,
respectively.
None of the executive officers of the Company listed above, including those
who will have continuing duties with Ethyl, will receive a significant increase
in his total compensation as a result of the Distribution.
THE COMPANY'S STOCK OPTION PLAN
GENERAL. The Company's 1994 Omnibus Stock Incentive Plan (the Omnibus
Plan) was adopted by the Company's Board of Directors on February 8, 1994, and
was approved by Ethyl, the Company's sole shareholder, on February 8, 1994. The
more significant features of the Omnibus Plan are summarized below. The summary
is not a complete description of the Omnibus Plan and is subject in all respects
to the text of the Omnibus Plan as set forth in Exhibit 10.6 to the Form 10.
The Omnibus Plan is intended to enable the Company to attract and retain
its officers and key employees and to provide those persons greater incentive to
exert their best efforts on its behalf.
OPERATION. The Compensation Committee will administer the Omnibus Plan. The
Compensation Committee may delegate its authority to administer the Omnibus Plan
to the Executive Committee of the Company's Board or to an officer of the
Company. The Compensation Committee, however, may not delegate its authority
with respect to individuals who are subject
40
<PAGE>
<PAGE>
to Section 16 of the Exchange Act. As used herein, the term Administrator means
the Compensation Committee and any delegate, as appropriate.
The Administrator will select the individuals who will participate in the
Omnibus Plan. An individual may be selected to participate in the Omnibus Plan
if he is an employee of the Company or an affiliate of the Company. The
Administrator may, from time to time, grant stock options or stock appreciation
rights (SARs) or award shares of restricted stock to participants. Except as
described below, the Company is not able to estimate the number of individuals
that the Administrator will select to participate in the Omnibus Plan or the
type or size of awards that the Administrator will approve.
Options granted under the Omnibus Plan may be incentive stock options
(ISOs) or nonqualified stock options. A stock option entitles the participant to
purchase shares of the Company's Common Stock from the Company at the option
price. The option price will be fixed by the Administrator at the time the
option is granted, but in the case of an ISO, the price cannot be less than the
shares' fair market value on the date of grant. The option price may be paid in
cash, or, if the option agreement provides, with shares of the Company's Common
Stock, a combination of cash and the Company's Common Stock or in installments.
SARs generally entitle the participant to receive the excess of the fair
market value of a share of the Company's Common Stock on the date of exercise
over the initial value of the SAR. The initial value of the SAR is the fair
market value of a share of the Company's Common Stock on the date of grant. The
Omnibus Plan provides that the Administrator may prescribe that the participant
will realize appreciation on a different basis than described in the preceding
sentences. For example, the Administrator may limit the amount of appreciation
that may be realized upon the exercise of an SAR.
SARs may be granted in relation to option grants (Corresponding SARs) or
independently of option grants. The difference between these two types of SARs
is that to exercise a Corresponding SAR, the participant must surrender
unexercised that portion of the stock option to which the Corresponding SAR
relates.
Participants also may be awarded shares of restricted stock. Restricted
stock is the Company's Common Stock that is nontransferable or forfeitable, or
both, unless and until certain conditions are satisfied. These conditions may
include, for example, a requirement that the participant continue employment
with the Company for a specified period or that the Company or the participant
achieve stated objectives.
All awards made under the Omnibus Plan will be evidenced by written
agreements between the Company and the participant. The Administrator will
establish guidelines supplementing the provisions of the Omnibus Plan to aid in
the selection of participants and to determine the amounts, times and other
terms of awards.
Under the Omnibus Plan, a maximum of 3,200,000 shares of the Company's
Common Stock may be issued upon the exercise of options and SARs and the award
of restricted stock. This limitation will be adjusted, as the Compensation
Committee determines is appropriate, in the event of a change in the number of
outstanding shares of the Company's Common Stock by reason of a stock dividend,
stock split, combination, reclassification, recapitalization or other similar
events. The terms of outstanding awards also may be adjusted by the Compensation
Committee to reflect such changes.
No option or SAR may be granted and no restricted stock may be awarded
under the Omnibus Plan after February 8, 2004. The Company's Board may, without
further action by shareholders, terminate or suspend the Omnibus Plan in whole
or in part. The Company's Board also may amend the Omnibus Plan except that no
amendment that increases the number of shares of the Company's Common Stock that
may be issued under the Omnibus Plan or changes the class of individuals who may
be selected to participate in the Omnibus Plan will become effective until it is
approved by shareholders.
The Company has been advised by counsel regarding the federal income tax
consequences of the Omnibus Plan. No income will be recognized by a participant
at the time an option is granted. If the option is an ISO, no income will be
recognized upon the participant's exercise of the option. Income is recognized
by a participant when he disposes of shares acquired under an ISO. The exercise
of a nonqualified stock option generally is a taxable event that requires the
participant to recognize, as ordinary income, the difference between the shares'
fair market value and the option price.
No income is recognized upon the grant of an SAR. The exercise of an SAR
generally is a taxable event. The participant generally must recognize income
equal to any cash that is paid and the fair market value of the Company's Common
Stock that is received in settlement of an SAR.
Income is recognized on account of the award of restricted stock on the
first day that the shares are either transferable or not subject to a
substantial risk of forfeiture. The amount of income recognized by the
participant is equal to the fair market value of the shares on such date.
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<PAGE>
<PAGE>
The employer (either the Company or one of its subsidiaries) will be
entitled to claim a federal income tax deduction on account of the exercise of a
nonqualified option or SAR or the vesting of a restricted stock award. The
amount of the deduction is equal to the ordinary income recognized by the
participant. The employer will not be entitled to a federal income tax deduction
on account of the grant or the exercise of an ISO. The employer may claim a
federal income tax deduction on account of certain dispositions of ISO stock.
OPTION GRANTS. The Company's Board of Directors and Ethyl, the Company's
sole shareholder, have approved, initial option grants to be effective on the
day following the Distribution Date to officers and other key employees to
purchase approximately 1,500,000 shares of the Company's Common Stock, including
for the executive officers options to purchase the following shares: E. Gary
Cook, 200,000 shares; Charles B. Walker, 150,000 shares; Thomas G. Avant,
100,000 shares and E. Whitehead Elmore, 75,000 shares. The exercise price of all
options will be equal to the closing price of the Company's Common Stock on the
NYSE on the first trading day following the Distribution Date. The options will
expire ten years from the date of the grant. All of the Company's initial
options become exercisable based on the growth in the operating earnings of the
Company (subject to any adjustments that the Compensation Committee concludes
are necessary to reflect the intent of the plan) as follows:
<TABLE>
<CAPTION>
PERCENT
ANNUAL EARNINGS EXERCISABLE
<S> <C>
1993 Earnings x 1.10 20%
1993 Earnings x 1.21 40%
1993 Earnings x 1.33 60%
1993 Earnings x 1.46 80%
1993 Earnings x 1.61 100%
</TABLE>
The initial options alternatively become exercisable based on the
improvement in the market price for the Company's Common Stock as reflected by
the closing price for the Company's Common Stock on the last trading day of the
calendar year as follows:
<TABLE>
<CAPTION>
PERCENT
MARKET EXERCISABLE
<S> <C>
Option Price on Grant Date x 1.10 20%
Option Price on Grant Date x 1.212 40%
Option Price on Grant Date x 1.333 60%
Option Price on Grant Date x 1.464 80%
Option Price on Grant Date x 1.615 100%
</TABLE>
Options are exercisable in any event beginning thirty days prior to the
expiration date or, if earlier, in the event of retirement, termination as a
result of permanent and total disability or death or upon a change in control.
Initial option grants will include tandem stock appreciation rights, which
may be exercised in substitution for the related options. Upon exercise of any
such right, payment will be made by the Company in the Company's Common Stock or
a combination of such stock and cash, whichever the optionee selects; provided,
however, that any cash payment can not exceed 50% of the total payment.
ETHYL STOCK OPTION PLAN
Following the Distribution, the terms of outstanding options and
Corresponding SARs under the Ethyl Stock Option Plan will be adjusted to reflect
the Distribution. Holders of options under the Ethyl Stock Option Plan who
become employees of the Company have been given the option of retaining those
options or surrendering them in favor of receiving options to purchase shares of
the Company's Common Stock.
THE COMPANY'S BONUS PLAN
The Company's Bonus Plan was adopted by the Company's Board of Directors on
February 8, 1994 and was approved by Ethyl, the Company's sole shareholder, on
February 8, 1994. The more significant features of the Bonus Plan are summarized
below. The summary is not a complete description of the Bonus Plan and is
subject in all respects to the text of the Bonus Plan as set forth in Exhibit
10.8 to the Form 10.
The Bonus Plan is intended to assist the Company in retaining and
recruiting key employees by rewarding those who contribute to the Company's
success by their invention, ability, industry, loyalty and exceptional service.
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The Bonus Plan is administered by the Compensation Committee. The
Compensation Committee may delegate its authority to administer the Company's
Bonus Plan to the Executive Committee of the Company's Board or to an officer of
the Company. The Compensation Committee, however, may not delegate its authority
with respect to individuals who are subject to Section 16 of the Exchange Act.
The Administrator has full authority to interpret and administer the Bonus Plan.
For example, the Administrator determines the individuals who are eligible to
receive bonus awards, the amount of each award, and the terms and conditions of
each bonus award. In addition, the Administrator may adopt, amend, and rescind
rules and regulations pertaining to the administration of the Bonus Plan.
Bonus awards will be payable at such times and subject to such conditions
as the Administrator may prescribe at the time of the award. Amounts paid in
settlement of a bonus award may be paid in cash, the Company's Common Stock, or
a combination of the Company's Common Stock and cash. The Bonus Plan provides
that no more than 100,000 shares of the Company's Common Stock may be awarded
under the Bonus Plan in any calendar year.
The Bonus Plan contains an antidilution provision in the event of a stock
dividend, stock split, reclassification, or similar changes in the
capitalization of the Company. In that event, the maximum number of shares that
may be issued under the Bonus Plan and the number of shares that may be paid
pursuant to outstanding bonus awards will be adjusted as the Administrator
determines is equitably required.
The Company's Board of Directors may amend or terminate the Bonus Plan at
any time but no such action may adversely affect outstanding bonus awards
without the consent of the recipient. In no event, however, may an amendment
increase the maximum number of shares of the Company's Common Stock issuable
under the Bonus Plan or change the Bonus Plan's eligibility provisions without
the approval of the Company's shareholders.
EMPLOYEE PENSION PLANS
The Company's Board of Directors has adopted a number of pension plans for
its salaried and hourly employees, effective as of the day after the
Distribution Date. In the case of the Retirement Income Plan for the Employees
of the Company (the Retirement Plan) and several pension plans for hourly
employees, assets attributable to the Company's employees and designated retired
and terminated employees of Ethyl and its subsidiaries will be transferred from
the corresponding Ethyl salaried or hourly pension plan. Also, the Company or a
subsidiary will assume sponsorship for several defined benefit pension plans
previously sponsored by Ethyl and its subsidiaries. Participants in these plans
who became employees of the Company or any of its subsidiaries and for whom
assets are transferred from the applicable Ethyl plan, will be credited for all
purposes under the plan for covered service prior to the Distribution Date with
Ethyl or any of its predecessors or subsidiaries.
RETIREMENT PLAN. All salaried employees and certain hourly employees of the
Company and its subsidiaries are eligible to participate in the Retirement Plan.
All executive officers of the Company will participate in the Retirement Plan
except Messrs. Floyd D. Gottwald, Jr. and Charles B. Walker, who will remain in
Ethyl's qualified retirement plan. Eligible employees enter the Retirement Plan
on their date of employment.
The Retirement Plan is a noncontributory defined benefit pension plan that
takes into account Social Security. A participant's accrued benefit provides an
annual benefit of 1.1% of the participant's final average earnings times his
pension benefit service plus 1.5% of his final average earnings in excess of his
Social Security covered compensation times his pension benefit service.
Individuals who participated in Ethyl's salaried retirement plan before July 1,
1988, receive benefits that are equal to the greater of their benefit under the
final average formula or under a career average formula. The career average part
of the formula provides an annual benefit calculated by taking, for each year of
service with Ethyl and its affiliates and with the Company, 1.8% of the
participant's base salary rate in effect on January 1 of such year up to that
year's Social Security taxable wage base plus 2.0% of such participant's base
salary rate in excess of that year's Social Security taxable wage base. This
amount is reduced proportionately for any year of participation in which the
participant is credited with less than 2,000 hours of service.
A participant's accrued benefit in the Retirement Plan is nonforfeitable,
I.E., fully vested, upon the completion of five years of service or when he
attains normal retirement age (age 65). Participants can elect to retire at age
55 if they have completed ten years of service or if they are disabled (as
defined in the Retirement Plan). The benefits of participants who retire prior
to age 60 will be actuarially reduced. A participant also may elect to postpone
his retirement. In that case, he will continue to accrue benefits until the date
of his actual retirement.
Benefits under the Retirement Plan generally are payable in one of several
annuity forms. The normal form of benefit for all participants is a straight
life annuity guaranteed for a five-year period. Participants who are married
receive their
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benefits automatically in the form of a joint and 50% survivor annuity with a
five-year certain feature. Several other optional forms of payment are
available. The automatic joint and survivor option for married participants or
the election of an optional form of benefit will result in an actuarial
adjustment to annual pension benefits.
Estimated annual benefits under the Retirement Plan upon retirement at age
65, determined as of December 31, 1992, to persons with specified earnings and
years of pension benefit service are set forth in the table below:
ESTIMATED ANNUAL BENEFITS PAYABLE AT RETIREMENT (1)
<TABLE>
<CAPTION>
YEARS OF PENSION BENEFIT SERVICE (3)
REMUNERATION (2) 10 15 20 25 30 35 40 50
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$100,000........ $ 14,200 $ 21,200 $ 28,300 $ 35,400 $ 42,500 $ 49,500 $ 56,600 $ 70,800
200,000......... 29,200 43,700 58,300 72,900 87,500 102,000 116,600 145,800
300,000......... 44,200 66,200 88,300 110,400 132,500 154,500 176,600 220,800
400,000......... 59,200 88,700 118,300 147,900 177,500 207,000 236,600 295,800
500,000......... 74,200 111,200 148,300 185,400 222,500 259,500 296,600 370,800
600,000......... 89,200 133,700 178,300 222,900 267,500 312,000 356,600 445,800
700,000......... 104,200 156,200 208,300 260,400 312,500 364,500 416,600 520,800
800,000......... 119,200 178,700 238,300 297,900 357,500 417,000 476,600 595,800
900,000......... 134,200 201,200 268,300 335,400 402,500 469,500 536,600 670,800
1,000,000....... 149,200 223,700 298,300 372,900 447,500 522,000 596,600 745,800
</TABLE>
(1) Assumes attainment of age 65 in 1992 and Social Security covered
compensation of $21,192.
(2) Final Average Earnings is the average of the three highest consecutive
calendar year's earnings (base pay plus 50% of incentive bonuses) during the
ten consecutive calendar years immediately preceding the date of
determination.
(3) The years of pension benefit service are: 2, 24, and 23 for Messrs. Cook,
Elmore and Avant, respectively.
The estimated benefits assume retirement on or after age 65 and are
determined as a straight life annuity guaranteed for a five-year period, which
is the normal form of payment under the Retirement Plan. The estimated
retirement benefits reflected above may, in some cases, exceed the maximum
benefit limitations prescribed under the Internal Revenue Code and the excess
amount cannot be paid from the Retirement Plan. Such limitations may change from
time to time before the individuals in question actually retire.
OTHER PENSION PLANS. Hourly employees of the Company and its subsidiaries
will participate in defined benefit pension plans previously sponsored by Ethyl
and its subsidiaries for which the Company or a subsidiary has assumed
sponsorship or in a defined benefit pension plan adopted by the Company and to
which assets will be transferred from corresponding Ethyl hourly pension plans.
A number of the plans are subject to collective bargaining agreements. Plan
participants will receive benefits in accordance with their years of service
with the Company, Ethyl or their subsidiaries, based on the terms of the plan in
which they are a participant at retirement.
The accrued benefit of participants in the hourly plans is determined under
a formula that varies under each plan. Generally, the accrued benefit is
calculated based on a formula using the participant's years of service and his
compensation or using years of service and a dollar amount.
EMPLOYEE SAVINGS PLANS
GENERAL. The Savings Plan for the Employees of the Company (the Savings
Plan) was adopted by the Company's Board of Directors on February 8, 1994, and
was approved by Ethyl, the Company's sole shareholder, on February 8, 1994. The
more significant features of the Savings Plan are summarized below. The summary
is not a complete description of the Savings Plan and is subject in all respects
to the text of the Savings Plan as set forth in Exhibit 10.9 to the Form 10.
The Savings Plan is a profit sharing plan that is intended to be qualified
under Section 401(a) of the Internal Revenue Code. The Savings Plan contains a
compensation reduction feature that is designed to satisfy the requirements of
Internal Revenue Code Section 401(k).
The Savings Plan is identical, in all material respects, to the Ethyl
Savings Plan. The account balances of Ethyl Savings Plan participants who are
eligible to participate in the Savings Plan as of March 1, 1994, will be
transferred to the Savings Plan on that date or as soon as practicable
thereafter.
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OPERATION. The Savings Plan generally will be available to all full-time
salaried and non-union hourly employees of the Company and its subsidiaries and
to employees who are covered by a collective bargaining agreement pursuant to
the terms of such agreement. An eligible employee may begin to participate in
the Savings Plan on the later of (1) 30 days following his date of employment
with the Company or one of its subsidiaries or (2) March 1, 1994, if he is a
participant in the Ethyl Savings Plan on the Distribution Date. For any employee
who is employed by the Company or one of its subsidiaries on March 1, 1994, and
by Ethyl on the Distribution Date, employment with Ethyl will be counted for
purposes of eligibility to participate.
The Savings Plan is funded with contributions by participants and the
participant's employer (the Company or one of its subsidiaries). Participants
may elect to make after-tax contributions to the Savings Plan that are at least
1% but no more than 10% of base pay. A participant's base pay is his base salary
or wages for a payroll period, exclusive of overtime and premium payments, and
determined without regard to a 401(k) election. After-tax contributions are made
by payroll deduction.
Participants may make 401(k) elections to reduce their base pay by at least
1% but no more than 10%. The participant's employer (the Company or one of its
subsidiaries) will contribute to the Savings Plan on behalf of each participant
who makes a 401(k) election and the amount of the employer's contribution will
equal the amount of base pay deferred by the participant.
Participants may elect to make after-tax contributions to the Savings Plan
and elect to have a contribution made on their behalf pursuant to a 401(k)
election. However, the total of the participant's after-tax contributions and
the amount contributed on his behalf pursuant to a 401(k) election cannot exceed
10% of base pay.
In addition to the 401(k) and after-tax contributions described above, each
pay period the Company or one of its subsidiaries will make a matching
contribution equal to 50% of the participant's after-tax contributions and 50%
of the amount contributed on his behalf pursuant to a 401(k) election. The
Company may, but is not required to, make additional discretionary contributions
to the Savings Plan for participants who are not considered to be highly
compensated under the Internal Revenue Code. Discretionary contributions may be
made only as necessary to assure the Savings Plan's qualification.
The provisions described above for 401(k) after-tax and matching
contributions differ for union employees. The amount of contributions for those
employees depends on the terms of the collective bargaining agreement between
the union and the Company.
The Internal Revenue Code contains several rules that may limit the
benefits available to Savings Plan participants. For example, in 1993 no more
than $8,994 may be contributed for a participant pursuant to his 401(k)
election. Another rule limits the amount of participant and employer
contributions that may be allocated to a participant's Savings Plan account
during a year. Finally, compensation in excess of $150,000 per year (for 1994)
is disregarded for Savings Plan purposes.
Each participant may direct that his 401(k) and after-tax contributions be
invested among the five active investment funds offered under the Savings Plan,
one of which is the the Company's Common Stock fund. All employer matching
contributions, will be invested in the Company's Common Stock fund.
Periodically, participants may change their investment direction with respect to
future contributions and may transfer funds from one investment option to
another.
Participants who participated in the Ethyl Savings Plan also may have an
interest in Ethyl Common Stock, the common stock of First Colony Corporation
(First Colony Common Stock), and/or the common stock of Tredegar Industries,
Inc. (Tredegar Common Stock) under the Savings Plan. The Ethyl, First Colony and
Tredegar Common Stock funds are inactive investment options under the Savings
Plan, I.E., no new monies may be invested in these funds, but participants may
liquidate their Ethyl, First Colony or Tredegar Common Stock fund investment and
transfer the funds to another investment option in accordance with the terms of
the Savings Plan.
Dividends and interest paid on securities held under any of the Savings
Plan's investment options are used to purchase additional securities of the same
class under that investment option.
Voting and other rights of ownership are exercisable by the Savings Plan
trustee. Shares of the Company's Common Stock held by the Savings Plan are voted
in accordance with the instructions that the trustee receives from participants.
To the extent consistent with its fiduciary responsibilities under ERISA, the
trustee will vote the shares for which no instructions are received in
accordance with management's recommendations, if any, that are contained in the
proxy materials.
A participant's entire interest in the Savings Plan is distributable upon
his retirement, disability or death. If a participant separates from service for
any other reason, amounts attributable to after-tax contributions and 401(k)
contributions and his vested interest in employer matching and discretionary
contributions will be distributed. A participant will vest in employer
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matching and discretionary contributions in accordance with a graduated
five-year vesting schedule or, if earlier, upon his death, disability or upon
attainment of age 65.
Distributions from the Savings Plan are made in a single sum, in cash,
except that a participant may elect to have his interest in the Company, Ethyl,
First Colony and Tredegar Common Stock funds distributed in kind, with cash
representing the value of any fractional share.
The Savings Plan is administered by the Company and the Employee Savings
Plan Committee which is appointed by the Company's Board of Directors. The
Savings Plan trustee is NationsBank of Georgia, N.A.
NON-DOMESTIC SAVINGS PLANS. The Company has adopted savings plans for
certain employees located in the United Kingdom, Belgium and Canada (the
Non-Domestic Savings Plans). The Non-Domestic Savings Plans are generally
available to all full-time salaried employees who are citizens of the respective
countries. The Non-Domestic Savings Plans generally are funded with
contributions by the participants and the Company or one of its subsidiaries.
The Company's matching contributions, if any, are made in accordance with the
terms of the applicable Non-Domestic Savings Plan and local statutory
requirements.
EXCESS BENEFIT AND SUPPLEMENTAL RETIREMENT PLANS
The Company has adopted excess benefit and supplemental retirement plans in
the form of nonqualified pension plans. These plans provide eligible individuals
the difference between the benefits they actually accrue under the Retirement
Plan and the Savings Plan but for the maximum benefit and annual addition
limitations and the limitation on compensation that may be recognized by the
Company's qualified plans under the Code and the benefits they would have
accrued under the Company's qualified plans. In addition, on the recommendation
of the Executive Committee of the Company's Board of Directors and with the
approval of the Executive Compensation Committee of the Company's Board of
Directors, certain key employees may be granted additional pension benefits in
cases where relatively short service would limit the key employee's career
retirement benefits. Pursuant to his original employment agreement with Ethyl,
E. Gary Cook will be eligible to receive certain additional supplemental
retirement benefits if he works for the Company at least until December 31,
1996. Benefits are generally paid in the form of an annuity. The Company also
has agreed to provide a supplemental retirement benefit to Floyd D. Gottwald,
Jr., Charles B. Walker and E. Whitehead Elmore to ensure that the retirement
benefits of those employees are not less than they would have been had the
individuals remained employed solely with Ethyl. Such benefits are not funded
and are paid by the Company as the benefits become payable. Ethyl and the
Company have agreed that if any of these shared executives becomes solely
employed by one of the companies within five years of the Distribution Date, his
benefits will be adjusted to ensure that his level of benefits is not adversely
affected by the change in employment status.
CERTAIN TRANSACTIONS
The Chemicals Businesses have in the past engaged in numerous transactions
with the Ethyl Businesses. Such transactions have included, among other things,
the extension of intercompany loans and the provision of various other types of
financial support by Ethyl. Although Ethyl will continue to provide certain
support services to the Company and the Company will continue to provide certain
support services to Ethyl for a limited period of time pursuant to the
Reorganization Agreement and the other agreements described under RELATIONSHIP
BETWEEN ETHYL AND THE COMPANY AFTER THE DISTRIBUTION, such services ultimately
will be discontinued. In addition, at Feluy, Belgium, Orangeburg, South
Carolina, and Houston, Texas, special operating and services agreements have
been negotiated to operate certain facilities and provide services to adjacent
operating plants. There also will be a blending agreement, an antioxidant supply
agreement and an MMT supply agreement relating to the Orangeburg, South Carolina
plant.
The Company's transactions with Ethyl are reflected in the accompanying
financial statements as though they were settled immediately through Ethyl's
equity investment and there are no amounts due to or from Ethyl at the end of
any period with the exception of the Company's debt that was specific debt of
the Company prior to and after the Distribution.
See also THE DISTRIBUTION -- Certain Significant Aspects of the
Distribution, and NOTES TO COMBINED FINANCIAL STATEMENTS.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning each person known to
Ethyl who would be the beneficial owner of more than 5% of the Company's Common
Stock upon completion of the Distribution if such person continued to own
beneficially on the Distribution Date the same number of shares of Ethyl Common
Stock believed by Ethyl to be owned beneficially by such person on November 30,
1993. Such information has been obtained from Ethyl's records and a review of
statements filed with the SEC pursuant to Sections 13(d) and 13(g) of the
Exchange Act with respect to Ethyl Common Stock and received by Ethyl prior to
December 31, 1993.
<TABLE>
<CAPTION>
TITLE AMOUNT AND PERCENT
OF NAME AND ADDRESS NATURE OF BENEFICIAL OF
CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS
<S> <C> <C> <C>
Floyd D. Gottwald, Jr. and Bruce C. Gottwald (1) 10,566,777(2) 17.8%(3)
330 South Fourth Street
P.O. Box 2189
Richmond, Virginia 23217
NationsBank Corporation and related entities 5,040,708 8.7%
c/o NationsBank Corporation
NationsBank Plaza
Charlotte, North Carolina 28255
</TABLE>
(1) Floyd D. Gottwald, Jr. and Bruce C. Gottwald together with members of their
immediate families (collectively, the Gottwalds), may be deemed to be a
group for purposes of Section 13(d)(3) of the Exchange Act, although there
is no agreement among them with respect to the acquisition, retention,
disposition or voting of the Company's Common Stock. Shares owned by the
adult children of Floyd D. Gottwald, Jr. and Bruce C. Gottwald are included
in the holdings of the Gottwalds as a group but are not attributed to Floyd
D. Gottwald, Jr. or Bruce C. Gottwald other than in this table.
(2) Because the number of shares will be based on future trading prices and
cannot currently be determined, this number does not include any shares to
be acquired by the Gottwalds in connection with the Company's planned sale
of approximately $100 million of the Company's Common Stock described under
FINANCING -- Sale of Chemicals Common Stock.
The Gottwalds, individually or collectively, have sole voting and investing
power over all of the shares of the Company's Common Stock disclosed except for
2,847,895 shares held by wives, children and in certain trust relationships,
some of which might be deemed to be beneficially owned by the Gottwalds under
the rules and regulations of the SEC, but as to which the Gottwalds disclaim
beneficial ownership.
(3) The percentage shown is calculated based on a total of 118,403,755 shares of
Ethyl Common Stock outstanding on November 30, 1993 and the terms of the
Distribution as described herein.
NationsBank of Georgia, N.A., as trustee of certain savings plans for the
employees of Ethyl and the Company (the Trustee), will be the holder of record
of approximately 4,132,000 shares, or approximately 7%, of the Company's Common
Stock for employees of Ethyl and the Company participating in such plans. The
Trustee disclaims all beneficial ownership in the shares held in these savings
plans, including 238,060 shares of the Company's Common Stock that would be held
for, and are attributed in the above table to, the Gottwalds. Shares held under
the savings plans of Ethyl and the Company are voted by the Trustee in
accordance with instructions solicited from employees participating in the
plans. If a participating employee does not give the Trustee voting
instructions, his shares are voted by the Trustee in accordance with the
recommendations of the Ethyl Board or the the Company's Board to the
shareholders of Ethyl or the Company, as the case may be, to the extent such
instructions are consistent with the Trustee's fiduciary duties under ERISA.
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the shares of
the Company's Common Stock that are expected to be owned beneficially by each
director and each executive officer of the Company named in the table under
Compensation of Executive Officers on page 38 and by all directors and executive
officers of the Company as a group as of the Distribution Date based upon their
respective holdings of Ethyl Common Stock as of November 30, 1993 according to
data furnished by the persons named. Based upon such data and except as set
forth in the following table, no director or executive
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officer will own beneficially, as of the Distribution Date, 1% or more of the
shares of the Company's Common Stock outstanding at that date or any equity
securities of any subsidiaries of the Company. Unless otherwise indicated, all
persons listed below have sole voting and investment power over all shares
beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES WITH TOTAL
WITH SOLE VOTING AND SHARED VOTING AND NUMBER PERCENT OF
NAME(S) INVESTMENT POWER (1) INVESTMENT POWER OF SHARES CLASS (2)
<S> <C> <C> <C> <C>
Lloyd B. Andrew........... 32,615 32,615
Thomas G. Avant........... 18,370 18,370
William W. Berry.......... 700 845(3) 1,545
Joseph C. Carter, Jr...... 4,679 4,679
E. Gary Cook.............. 34,314 34,314
E. Whitehead Elmore....... 94,333 94,333
Bruce C. Gottwald......... 4,114,097 225,633 4,339,730(4)(5) 7.6%
Bruce C. Gottwald, Jr..... 315,613 17,838(6) 333,451(5)
Floyd D. Gottwald, Jr..... 1,803,706 2,884,588 4,688,294(5)(7) 8.1%
John D. Gottwald.......... 180,564 69,277(8) 249,841(5)
William M. Gottwald, 292,342 43,069(9) 335,411(5)
M.D.....................
Gilbert M. Grosvenor...... 1,285 1,285
Andre B. Lacy............. 709 475,000(10) 475,709
Emmett J. Rice............ 335 335
Sidney Buford Scott....... 31,935 19,750(11) 51,685
Charles B. Walker......... 76,122 76,122
All executive officers and 7,001,718 3,736,000 10,737,718 18.1%
directors as a group
(16 persons)............
</TABLE>
(1) The amount includes 127,832 shares of the Company's Common Stock with
respect to which certain persons have the right to acquire beneficial
ownership within 60 days of December 31, 1993, pursuant to the exercise of
outstanding options under the Ethyl Stock Option Plan. Because options to
be initially granted under the Company's Omnibus Plan will not be
exercisable until at least 1995, the amount does not include any Shares
issuable pursuant to the exercise of any options. See
MANAGEMENT -- Compensation of Executive Officers -- THE COMPANY'S STOCK
OPTION PLAN.
(2) The percentages shown are calculated based on a total of 118,403,755 shares
of Ethyl Common Stock outstanding on November 30, 1993 and the terms of the
Distribution as described herein. Except as indicated, each person or group
will own less than 1% of the Company's Common Stock.
(3) Mr. Berry disclaims beneficial ownership of all 845 of such shares.
(4) Mr. Gottwald disclaims beneficial ownership of 1,819,183 of such shares.
(5) Because the number of shares will be based on future trading prices and
cannot currently be determined, this number does not include any shares to
be acquired by the Gottwalds in connection with the Company's planned sale
of approximately $100 million of the Company's Common Stock described under
FINANCING -- Sale of the Company's Common Stock.
(6) Bruce C. Gottwald, Jr. disclaims beneficial ownership of all 17,838 of such
shares. This amount does not include 1,062,033 shares of the Company's
Common Stock that Mr. Gottwald may be deemed to own beneficially. Such
shares constitute Mr. Gottwald's interest as beneficiary of a trust of
which Floyd D. Gottwald, Jr. is trustee.
(7) Mr. Gottwald disclaims beneficial ownership of 2,011,821 of such share.
(8) John D. Gottwald disclaims beneficial ownership of all 69,277 of such
shares. This amount does not include 1,062,033 shares of the Company's
Common Stock that Mr. Gottwald may be deemed to own beneficially. Such
shares constitute Mr. Gottwald's interest as beneficiary of a trust of
which Bruce C. Gottwald is trustee. This amount also does not include
4,931,635 shares of the Company's Common stock that Mr. Gottwald may be
deemed to own beneficially as co-trustee of a trust for the benefit of
Floyd D. Gottwald, Jr.
(9) William M. Gottwald, M.D. disclaims beneficial ownership of all 43,069 of
such shares. This amount does not include 1,062,033 shares of the Company's
Common Stock that Dr. Gottwald may be deemed to own beneficially. Such
shares constitute Dr. Gottwald's interest as beneficiary of a trust of
which Bruce C. Gottwald is trustee. This amount also does not include
4,931,635 shares of the Company's Common Stock that Dr. Gottwald may be
deemed to own beneficially as co-trustee of a trust for the benefit of
Floyd D. Gottwald, Jr.
(10) Mr. Lacy disclaims beneficial ownership of 354,605 of such shares.
(11) Mr. Scott disclaims beneficial ownership of 19,750 of such shares.
48
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DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under the the Company's Articles of Incorporation, the Company has
authority to issue 15,000,000 shares of preferred stock (the Company's Preferred
Stock), and 150,000,000 shares of the Company's Common Stock. No shares of the
Company's Preferred Stock will be issued in connection with the Distribution.
Based on the number of shares of Ethyl Common Stock outstanding at November 30,
1993, approximately 59,202,000 shares of the Company's Common Stock,
constituting approximately 39.5% of the authorized Common Stock of the Company,
will be issued to shareholders of Ethyl in the Distribution.
THE COMPANY'S COMMON STOCK
The holders of the Company's Common Stock will be entitled to one vote for
each share on all matters voted on by shareholders, including elections of
directors, and, will exclusively possess all voting power except as otherwise
required by law or provided in any resolution adopted by the Company's Board of
Directors with respect to any series of the Company's Preferred Stock. The
Company's Articles of Incorporation do not provide for cumulative voting for the
election of directors, which means that the holders of a majority of the
outstanding shares of the Company's Common Stock have the capacity to elect all
of the members of the Company's Board of Directors. Subject to any preferential
rights of any outstanding series of the Company's Preferred Stock designated by
the Company's Board from time to time, the holders of the Company's Common Stock
will be entitled to such dividends as may be declared from time to time by the
Company's Board of Directors from funds available therefor, and upon liquidation
will be entitled to receive PRO RATA all assets of the Company available for
distribution to such holders. See THE DISTRIBUTION -- Dividend Policy.
THE COMPANY'S PREFERRED STOCK
The Company's Board of Directors is authorized to provide for the issuance
of shares of the Company's Preferred Stock, in one or more classes or series,
and to fix for each such class or series such designations, rights and
preferences as are stated in the resolutions adopted by the Company's Board of
Directors providing for the issuance of such class or series and as are
permitted by the Virginia Stock Corporation Act (the Virginia Act).
PREEMPTIVE RIGHTS
No holder of shares of the Company's stock of any class authorized at the
Distribution Date will have any preemptive right to subscribe to any securities
of the Company of any kind or class.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank will serve as transfer agent and registrar
for the Company's Common Stock.
PURPOSES AND ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE
COMPANY'S ARTICLES OF INCORPORATION AND THE COMPANY'S BYLAWS
GENERAL
The Company's Articles of Incorporation and the Company's Bylaws contain
provisions that will make more difficult the acquisition of control of the
Company by means of a tender offer, a proxy contest, open market purchases, or
otherwise. The purpose of the relevant provisions of the Company's Articles of
Incorporation and the Company's Bylaws is to discourage certain types of
transactions, described below, that may involve an actual or threatened change
of control of the Company and to encourage persons seeking to acquire control of
the Company to consult first with the Company's Board of Directors to negotiate
the terms of any proposed business combination or offer. The provisions are
designed to reduce the vulnerability of the Company to an unsolicited proposal
for a takeover of the Company that does not have the effect of maximizing long-
term shareholder value or is otherwise unfair to shareholders of the Company, or
an unsolicited proposal for the restructuring or sale of all or part of the
Company that could have such effects.
Although federal securities laws and regulations applicable to certain
business combinations govern the disclosure required to be made to minority
shareholders in order to consummate such a transaction, they do not assure
shareholders that the terms of the business combination (I.E., what shareholders
will receive for their shares of stock) will be fair from a financial
standpoint. Although certain provisions of the federal regulations applicable to
tender offers impose certain procedural requirements for the conduct of a tender
offer, those provisions are not intended to, and do not, maximize shareholder
value.
49
<PAGE>
<PAGE>
Certain provisions of the Company's Articles of Incorporation and the
Company's Bylaws, in the view of Ethyl and the Company, will help ensure that
the Company's Board of Directors, if confronted by a surprise proposal from a
third party that has acquired a block of the Company's stock, will have
sufficient time to review the proposal as well as appropriate alternatives to
the proposal and to act in what it believes to be the best interests of the
shareholders.
These provisions, individually and collectively, will make more difficult,
and may discourage, certain types of potential acquirors from proposing a
merger, tender offer or proxy contest, even if such transaction or occurrence
may be favorable to the interests of the shareholders, and may delay or
frustrate the assumption of control by a holder of a large block of the
Company's stock and the removal of incumbent management, even if such removal
might be beneficial to shareholders. By discouraging takeover attempts, these
provisions might have the incidental effect of inhibiting certain changes in
management and the temporary fluctuations in the market price of the shares that
often result from actual or considered takeover attempts.
Set forth below is a description of certain provisions in the Company's
Articles of Incorporation and the Company's Bylaws. The description is intended
as a summary only and is qualified in its entirety by reference to the Company's
Articles of Incorporation and the Company's Bylaws, copies of which have been
filed as exhibits to the Form 10 and are available upon request. Capitalized
terms used and not defined herein are defined in the Company's Articles of
Incorporation or the Company's Bylaws, as the case may be.
REMOVAL OF DIRECTORS; FILLING VACANCIES
The Company's Articles of Incorporation provide that directors may be
removed only for cause and only by the affirmative vote of holders of at least a
majority of the shares entitled to vote at a meeting of shareholders at which a
quorum is present. This provision, when coupled with the provision in the
Company's Bylaws authorizing only the Company's Board of Directors to fill
vacant directorships until the next annual meeting of shareholders, will
preclude shareholders from removing incumbent directors without cause and
filling the vacancies created by such removal with their own nominees.
Additionally, even if a director is removed for cause, the directors will be
able to fill the vacancy until the next annual meeting of shareholders.
SPECIAL MEETINGS
The Company's Bylaws provide that special meetings of shareholders can be
called only by the Chairman of the Board, or a majority of the Board of
Directors. Shareholders are not permitted to call a special meeting or to
require that the Company's Board call a special meeting of shareholders.
Moreover, the business permitted to be conducted at any special meeting of
shareholders is limited to the business stated in the notice of such meeting.
This provision prevents a shareholder from forcing shareholder
consideration of a proposal over the opposition of the Company's Board of
Directors by calling a special meeting of shareholders prior to the time the
Company's Board believes such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS
OF DIRECTORS
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Company's Board of
Directors, of candidates for election as directors (the Nomination Procedure)
and with regard to certain matters to be brought before an annual meeting of
shareholders of the Company (the Business Procedure).
The Nomination Procedure provides that only persons who are nominated by,
or at the direction of, the Company's Board or by a shareholder who has given
timely written notice to the secretary of the Company prior to the meeting at
which directors are to be elected will be eligible for election as directors of
the Company. The Business Procedure provides that at an annual meeting, and
subject to any other applicable requirements, only such business may be
conducted as has been brought before the meeting by, or at the direction of, the
Board of Directors or by a shareholder who has given timely prior written notice
to the secretary of the Company of such shareholder's intention to bring such
business before the meeting. Except for the election of directors at a special
meeting, to be timely, notice under both the Nomination Procedure and the
Business Procedure must be received by the Company not less than 90 days prior
to the meeting. In the case of an election of directors at a special meeting,
notice must be received by the close of business on the seventh day following
the date on which notice of the meeting is first given to shareholders.
Under the Nomination Procedure, notice to the Company from a shareholder
who proposes to nominate a person at a meeting for election as a director must
contain certain information about the nominee, including age, business and
residence addresses, principal occupation, the class and number of shares of the
Company's capital stock beneficially owned and such other information as would
be required to be included in a proxy statement soliciting proxies for the
election of the proposed
50
<PAGE>
<PAGE>
nominee, and certain information about the shareholder proposing the nominee. If
the Chairman or other officer presiding at a meeting determines that a person
was not nominated in accordance with the Nomination Procedure, such person will
not be eligible for election as a director.
Under the Business Procedure, notice relating to the conduct of business
other than the nomination of directors must contain certain information about
such business and about the shareholder who proposes to bring the business
before the meeting, including a brief description of the business the
shareholder proposes to bring before the meeting (including the specific
proposal to be presented) and the reasons for conducting such business at the
meeting, the name and record address of the shareholder, the class and number of
shares of the Company's capital stock that are beneficially owned by the
shareholder and any material interest of the shareholder in such business. If
the Chairman or other officer presiding at a meeting determines that a proposal
was not properly brought before the meeting in accordance with the Business
Procedure, it will not be considered at the meeting.
The Nomination Procedure requires advance notice of nominations by
shareholders in order to afford the Company's Board of Directors a meaningful
opportunity to consider the qualifications of the proposed nominees and, to the
extent deemed necessary or desirable by the Company's Board, to inform
shareholders about such qualifications. The Business Procedure requires advance
notice of a proposal in order to provide a more orderly procedure for conducting
annual meetings of shareholders and, to the extent deemed necessary or desirable
by the Company's Board, to provide the Company's Board with a meaningful
opportunity to inform shareholders, prior to the meeting, of the proposal,
together with any recommendation as to the position or belief of the Company's
Board as to action to be taken with respect to the proposal, so as to enable
shareholders better to determine whether they desire to attend the meeting or
grant a proxy to the Company's Board as to the disposition of the proposal.
PREFERRED STOCK
As discussed in DESCRIPTION OF THE COMPANY'S CAPITAL STOCK -- The Company's
Preferred Stock, the Company's Articles of Incorporation authorize the Company's
Board of Directors to issue shares of the Company's Preferred Stock, in one or
more classes or series.
Ethyl and the Company believe that the availability of the Company's
Preferred Stock will provide the Company with increased flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs that might arise. The authorized shares of the Company's
Preferred Stock, as well as shares of the Company's Common Stock, will be
available for issuance without further action by the Company's shareholders,
unless such action is required by applicable law or the rules of any stock
exchange on which the Company's securities may be listed. Although the Company's
Board has no intention at the present time of doing so, it could issue a class
or series of the Company's Preferred Stock that could, depending on the terms of
such class or series, impede the completion of a merger, tender offer or other
takeover attempt.
CERTAIN VOTING REQUIREMENTS
The Company's Articles of Incorporation require the affirmative vote of at
least two-thirds of the outstanding shares of the Company's Common Stock for the
approval of mergers, share exchanges, certain dispositions of assets and other
extraordinary transactions, except that the affirmative vote of 75% of the
outstanding shares of the Company's Common Stock is required for approval of an
affiliated transaction. An affiliated transaction is defined in the Company's
Articles of Incorporation, as in the Virginia Act, as any of the following
transactions with an interested shareholder: a merger, a share exchange, certain
dispositions of assets other than in the ordinary course of business, certain
significant securities issuances, or dissolution or reclassification of the
Company's securities. An interested shareholder is defined as anyone who becomes
the beneficial owner of more than 10% of any class of the outstanding voting
shares of the Company. The supermajority vote requirement does not apply to a
transaction with a shareholder who, together with his affiliates and associates,
became the beneficial owner of more than 10% of any class of the outstanding
voting shares of the Company on the Distribution Date. The Company's Articles of
Incorporation further require the affirmative vote of a majority of the
outstanding shares of the Company's Common Stock for the approval of amendments
to the Company's Articles of Incorporation, except that the affirmative vote of
75% of the outstanding shares of the Company's Common Stock is required to
approve an amendment to the provisions of the Company's Articles of
Incorporation that establish the super-majority requirement for approval of
affiliated transactions.
The 75% vote requirement for affiliated transactions will have the effect
of making it more difficult for a potential acquiror to coerce the Company into
engaging in certain transactions for the benefit of the acquiror and to the
detriment of the minority shareholders. The simple majority requirement will
give the Company the necessary flexibility to amend most provisions of the
Company's Articles of Incorporation, while the 75% vote requirement will make it
more difficult to amend
51
<PAGE>
<PAGE>
protective provisions in the Company's Articles of Incorporation. The
significant ownership by the Gottwalds of the Company's Common Stock, together
with the super-majority provisions described herein, will make it very difficult
to gain approval of an affiliated transaction or an amendment of the protective
provisions of the Company's Articles of Incorporation without the approval of
some of the shares held by the Gottwalds. See SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS and FINANCING -- Sale of the Company's Common Stock.
LIABILITY AND INDEMNIFICATION OF OFFICERS
AND DIRECTORS OF THE COMPANY
The Company's Articles of Incorporation eliminate any liability of the
Company's directors and officers for monetary damages to the Company or its
shareholders except in the event of willful misconduct or a knowing violation of
the criminal law or any federal or state securities law. Pursuant to such
provisions, the Company's directors and officers will not be liable for monetary
damages to the Company or its shareholders even if they should fail, through
negligence or gross negligence, to satisfy their duty of care to the Company or
its shareholders. However, these provisions leave unaffected the right of
Company or any shareholder to pursue equitable remedies, such as an action to
enjoin or rescind a transaction, as well as the rights of third-party plaintiffs
such as creditors.
The Company's Articles of Incorporation require indemnification of any
person against liability incurred in connection with any proceeding to which
that person is made a party by reason of (i) his service to the Company as a
director or officer or (ii) his service as director, officer, trustee or partner
to some other enterprise at the request of the Company, except in the event of
willful misconduct or a knowing violation of the criminal law. The Company's
Articles of Incorporation also authorize the Company's Board of Directors to
contract in advance to indemnify any director or officer by a majority vote of a
quorum of disinterested directors. In addition, the Company's Articles of
Incorporation authorize the Company's Board, by a majority vote of a quorum of
disinterested directors, to cause the Company to indemnify, or to agree to
indemnify in advance, to the same extent any person who serves as an employee,
agent or consultant of the Company or who serves at the request of the Company
in some other capacity. Pursuant to the Virginia Act, indemnification and
advancement of expenses is subject to a determination that indemnification is
appropriate by the Company's Board, a committee thereof or independent counsel,
depending on the circumstances. The Company does not have any present plans to
request the Company's Board to consider an indemnification contract for any
director, officer, employee, agent or consultant, but reserves the right to do
so in circumstances it considers appropriate.
In the event the composition of a majority of the Company's Board of
Directors changes after an alleged act or omission giving rise to a claim for
indemnification has occurred, the Company's Articles of Incorporation provide
that the determination of indemnification and advancement of expenses shall be
made by special legal counsel acceptable to the parties. Also if the provisions
that govern indemnification are amended or repealed, such amendment or repeal
would not adversely affect the right of the director, officer, employee, agent
or consultant to indemnification for actions that occurred prior to such
amendment or repeal.
These provisions may have the effect of reducing the likelihood of
derivative litigation against directors or officers and may also discourage or
deter shareholders from bringing a lawsuit against directors or officers for
breach of their duty of care, even though such an action, if successful, would
benefit the Company and its shareholders. In addition, under certain
circumstances the Company and its shareholders may, as a result of such
provisions lose the opportunity to obtain monetary damages from directors or
officers. Given the difficult environment and potential for incurring expenses
and liabilities currently facing directors, officers, employees and agents of
publicly-held corporations, the Company's Board believes that these provisions
should enhance the Company's ability to attract and retain qualified directors,
officers, employees and agents.
The Company's management has obtained what it believes to be adequate
directors' and officers' liability insurance coverage, effective as of the
Distribution Date.
AUDITORS
The Company's Board of Directors has designated Coopers & Lybrand,
Certified Public Accountants, as the Company's independent auditors for the year
1994. Ethyl, as the Company's sole shareholder, has approved the designation.
This firm has audited Ethyl's financial statements since 1962.
52
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CHEMICALS
<TABLE>
<S> <C>
HISTORICAL INFORMATION
Annual Financial Statements
Report of Independent Accountants................................................................................... F- 2
Combined Balance Sheets at December 31, 1992 and 1991............................................................... F- 3
Combined Statements of Income for each of the three years in the period ended
December 31, 1992................................................................................................. F- 4
Combined Statements of Cash Flows for each of the three years in the period
ended December 31, 1992........................................................................................... F- 5
Combined Statements of Changes in Equity for each of the three years in the
period ended December 31, 1992.................................................................................... F- 6
Notes to the Combined Financial Statements.......................................................................... F- 7
Interim Financial Statements
Combined Balance Sheet (unaudited) at September 30, 1993............................................................ F-20
Combined Statements of Income (unaudited) for the nine months ended
September 30, 1993 and 1992....................................................................................... F-21
Combined Statements of Cash Flows (unaudited) for the nine months ended
September 30, 1993 and 1992....................................................................................... F-22
Notes to the Combined Interim Financial Statements (unaudited)...................................................... F-23
PRO FORMA INFORMATION
Introduction to the Pro Forma Combined Financial Statements............................................................ F-25
Pro Forma Combined Balance Sheet (unaudited) at September 30, 1993..................................................... F-26
Pro Forma Combined Statements of Income (unaudited) for the year ended
December 31, 1992 and the nine months ended September 30, 1993...................................................... F-27
Notes to the Pro Forma Combined Financial Statements (unaudited)....................................................... F-28
SEPARATE HISTORICAL FINANCIAL STATEMENTS OF POTASSE ET PRODUITS
CHIMIQUES SA
Introduction to the Separate Financial Statements of Potasse et Produits Chimiques SA.................................... F-30
HISTORICAL INFORMATION
Annual Financial Statements
Report of Independent Accountants................................................................................... F-31
Balance Sheet at December 31, 1992.................................................................................. F-32
Statement of Income for the year ended December 31, 1992............................................................ F-33
Statement of Cash Flows for the year ended December 31, 1992........................................................ F-34
Statement of Shareholders' Equity for the year ended
December 31, 1992................................................................................................. F-35
Notes to the Financial Statements................................................................................... F-36
Interim Financial Statements
Balance sheet (unaudited) at September 30, 1993..................................................................... F-43
Statements of Income (unaudited) for the nine months ended September 30,
1993 and 1992..................................................................................................... F-44
Statements of Cash Flows (unaudited) for the nine months ended September 30,
1993 and 1992..................................................................................................... F-45
Notes to the Interim Financial Statements (unaudited)............................................................... F-46
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Ethyl Corporation:
We have audited the accompanying combined balance sheets of the olefins and
derivatives, bromine chemicals, and specialty chemicals businesses of Ethyl
Corporation (collectively defined as Chemicals), the predecessor businesses of
Albemarle Corporation, as of December 31, 1992 and 1991, and the related
combined statements of income, cash flows, and changes in equity for each of the
three years in the period ended December 31, 1992. These financial statements
are the responsibility of Ethyl Corporation'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 combined financial position of Chemicals as of
December 31, 1992 and 1991, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1992, in conformity with generally accepted accounting principles.
As discussed in Notes 11 and 12 to the combined financial statements,
effective January 1, 1992, Chemicals 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
Richmond, Virginia
December 3, 1993, except as to the information presented in
Note 16, for which the date is February 10, 1994
F-2
<PAGE>
<PAGE>
CHEMICALS
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31
ASSETS 1992 1991
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................................... $ 43,017 $ 30,688
Accounts receivable, less allowance for doubtful
accounts (1992 -- $1,625; 1991 -- $1,717).................................................... 122,589 107,767
Inventories:
Finished goods............................................................................... 77,035 69,825
Work-in-process.............................................................................. 3,306 3,293
Raw materials................................................................................ 12,163 15,097
Stores, supplies and other................................................................... 22,312 19,694
114,816 107,909
Deferred income taxes and prepaid expenses...................................................... 10,753 10,750
Total current assets....................................................................... 291,175 257,114
Property, plant and equipment, at cost............................................................ 1,190,950 1,109,442
Less accumulated depreciation and amortization.................................................... (599,092) (538,690)
Net property, plant and equipment................................................................. 591,858 570,752
Other assets and deferred charges................................................................. 41,491 49,365
Intangible assets -- net of amortization.......................................................... 13,000 16,106
Total assets............................................................................... $ 937,524 $ 893,337
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable................................................................................ $ 68,238 $ 67,063
Accrued expenses................................................................................ 45,300 42,827
Long-term debt, current portion................................................................. 14,416 15,076
Total current liabilities.................................................................. 127,954 124,966
Long-term debt.................................................................................... 100,521 118,663
Other noncurrent liabilities...................................................................... 32,990 3,726
Deferred income taxes............................................................................. 86,268 120,291
Equity:
Foreign currency translation adjustments........................................................ 4,915 6,155
Ethyl's equity investment....................................................................... 584,876 519,536
Total equity............................................................................... 589,791 525,691
Total liabilities and equity...................................................................... $ 937,524 $ 893,337
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
<PAGE>
CHEMICALS
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1992 1991 1990
<S> <C> <C> <C>
Net sales................................................................................ $818,223 $790,988 $783,174
Cost of goods sold....................................................................... 631,903 580,622 563,006
Gross profit........................................................................... 186,320 210,366 220,168
Selling, general and administrative expenses............................................. 92,884 101,392 86,522
Research and development expenses........................................................ 31,997 35,393 37,320
Operating profit....................................................................... 61,439 73,581 96,326
Interest and financing expenses.......................................................... 4,923 2,477 1,803
Other income, net........................................................................ (1,998) (3,562) (3,993)
Income before income taxes and cumulative effect
of accounting changes.................................................................. 58,514 74,666 98,516
Income taxes............................................................................. 16,771 22,108 32,819
Income before cumulative effect of accounting changes.................................... 41,743 52,558 65,697
Cumulative effect of accounting changes for:
Postretirement health benefits (net of tax)............................................ (18,548) -- --
Deferred income taxes.................................................................. 16,632 -- --
Net income............................................................................... $ 39,827 $ 52,558 $ 65,697
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
<PAGE>
CHEMICALS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1992 1991 1990
<S> <C> <C> <C>
Cash and cash equivalents at beginning of year....................... $ 30,688 $ 57,346 $ 17,378
Cash flows from operating activities:
Net income......................................................... 39,827 52,558 65,697
Adjustments to reconcile net income to cash flows from operating
activities:
Cumulative effect of accounting changes......................... 1,916 -- --
Depreciation and amortization................................... 74,028 66,151 59,229
Provisions for writeoffs of certain developmental
research projects and goodwill................................ -- 6,350 6,033
Deferred income taxes, excluding cumulative effect of accounting
changes....................................................... (3,963) 5,610 2,350
Change in assets and liabilities, net of acquisition:
(Increase) decrease in accounts receivable.................... (15,881) 3,990 (11,612)
(Increase) in inventories..................................... (8,492) (7,691) (18,036)
Increase in accounts payable.................................. 1,922 4,641 11,795
Increase in accrued expenses.................................. 3,037 3,806 5,158
Other, net.................................................... 3,979 (6,044) (3,065)
Net cash provided from operating activities................ 96,373 129,371 117,549
Cash flows from investing activities:
Capital expenditures............................................... (99,563) (124,711) (116,623)
Acquisition of business............................................ -- -- (46,949)
Other, net......................................................... 2,886 (2,015) (826)
Net cash (used in) investing activities......................... (96,677) (126,726) (164,398)
Cash flows from financing activities:
Repayments of long-term debt....................................... (15,419) (1,424) (58)
Additional long-term debt.......................................... 1,531 33,409 81,239
Net settlements with Ethyl Corporation............................. 26,521 (61,288) 5,636
Net cash provided from (used in) financing activities........... 12,633 (29,303) 86,817
Increase (decrease) in cash and cash equivalents..................... 12,329 (26,658) 39,968
Cash and cash equivalents at end of year............................. $ 43,017 $ 30,688 $ 57,346
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
<PAGE>
CHEMICALS
COMBINED STATEMENT OF CHANGES IN EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOREIGN
ETHYL'S CURRENCY
EQUITY TRANSLATION
INVESTMENT ADJUSTMENTS
<S> <C> <C>
Balance at December 31, 1989........................................................................ $460,193
1990 net income..................................................................................... 65,697
Translation adjustments............................................................................. $ 6,176
Net settlements with Ethyl:
General corporate expense allocations............................................................. 20,445
Cash transfers to Ethyl Corporation............................................................... (18,607)
Balance at December 31, 1990........................................................................ 527,728 6,176
1991 net income..................................................................................... 52,558
Translation adjustments............................................................................. (21)
Net settlements with Ethyl:
General corporate expense allocations............................................................. 22,531
Cash transfers to Ethyl Corporation............................................................... (83,281)
Balance at December 31, 1991........................................................................ 519,536 6,155
1992 net income..................................................................................... 39,827
Translation adjustments............................................................................. (1,240)
Net settlements with Ethyl:
General corporate expense allocations............................................................. 20,207
Cash transfers from Ethyl Corporation............................................................. 5,306
Balance at December 31, 1992........................................................................ $584,876 $ 4,915
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
ORGANIZATION, OPERATIONS AND PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the historical
operations, assets and liabilities of the olefins and derivatives, bromine
chemicals and specialty chemicals businesses of Ethyl Corporation (Chemicals),
the predecessor businesses of Albemarle Corporation, and are prepared using the
historical cost of Ethyl Corporation (Ethyl). Subject to certain approvals and
authorizations, Ethyl plans to (i) have a wholly-owned subsidiary contain the
operations, assets and liabilities of Chemicals and (ii) distribute to holders
of Ethyl common stock all of the outstanding shares of common stock of the newly
formed subsidiary.
The financial information included herein is not necessarily indicative of
the financial position and results of operations of Chemicals in the future or
what the financial position and results of operations of Chemicals would have
been had it been a separate, stand-alone entity during the periods covered.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND PRINCIPLES OF COMBINATION
Ethyl provided certain corporate general and administrative services to
Chemicals including legal, finance and other services. These expenses are
allocated to Chemicals based upon the net sales of Chemicals. Management
considers this allocation methodology to yield a reasonable allocation of the
general corporate expenses that were incurred by Ethyl on behalf of Chemicals
and reflect a reasonable estimate of the level of expenses that might have been
incurred had Chemicals operated on a stand-alone basis. Intercompany accounts
and transactions within Chemicals have been eliminated.
Ethyl will have no financial interest in Chemicals after the distribution
to shareholders. However, Ethyl will, unless released by third parties, remain
contingently liable after the distribution for certain known and unknown
existing and contingent liabilities that are anticipated to be transferred to
and assumed by Chemicals in connection with the proposed distribution; and
Chemicals will be obligated to indemnify Ethyl against liability with respect to
such transferred obligations and liabilities.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the accompanying combined financial statements
consist of balances maintained in the combined Chemicals businesses. These
balances are maintained in separate bank accounts for Chemicals and include cash
and time deposits. Such time deposits are stated at cost, which approximates
market value.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
The assets and liabilities of all foreign subsidiaries were prepared in
their respective local currencies and translated into U.S. dollars based on the
current exchange rate, while income and expenses were translated at average
rates for the period. Translation adjustments (net of deferred income taxes
(benefits) of ($676,000), ($115,000) and $3,674,000 in 1992, 1991 and 1990,
respectively) are reflected as foreign currency translation adjustments in the
equity section of the combined balance sheet and accordingly have no effect on
net income. Transaction adjustments for all foreign subsidiaries are included in
income. Ethyl redesignated the functional currency of a Belgian subsidiary,
which is included in Chemicals, from the U.S. dollar to the local currency
effective January 1, 1990.
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 or first-in, first-out cost
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.
F-7
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND 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 AND REMEDIATION
Environmental compliance costs include the cost of purchasing and/or
constructing assets to prevent, limit and control pollution or to monitor
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 other
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 such costs are reasonably estimable.
INTANGIBLE ASSETS
Intangible assets consist principally of a sales contract, product licenses
and patents. Intangible assets ($13,000,000 and $16,106,000 at December 31, 1992
and 1991, respectively, net of accumulated amortization) are amortized on a
straight-line basis over periods from three to 20 years. Amortization of
intangibles amounted to $3,106,000 for 1992, $2,948,000 for 1991 and $3,193,000
for 1990. Accumulated amortization of intangibles was $13,825,000 and
$10,719,000 at the end of 1992 and 1991, respectively.
RESEARCH AND DEVELOPMENT COSTS
Chemicals sponsored research and development costs related to present and
future products are expensed currently as incurred.
INTEREST EXPENSE
The interest expense reflected in the combined statements of income
primarily represents foreign interest expense on foreign long-term debt
instruments expected to be transferred to Chemicals. Consequently, the interest
expense reflected in the combined statements of income and the amount of debt
reflected in the accompanying combined balance sheets are not intended to
reflect interest expense that Chemicals may have incurred and the amount of debt
which would have been outstanding had Chemicals been an independent company.
Further, such debt does not represent the amount of debt which would be
outstanding upon completion of the distribution (see Note 1) and the related
interest expense included in the accompanying statements of income does not
reflect any additional interest expense on additional debt which will be
assigned to Chemicals upon completion of the distribution (see Note 16). As
discussed in Ethyl's Equity Investment, transactions with Ethyl are treated as
if settled immediately through Ethyl's equity investment. As a result, there
were no advances from Ethyl outstanding in the accompanying combined balance
sheets which required the recognition of interest expense.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Annual costs of pension plans are determined actuarially based on Financial
Accounting Standards Board (FASB) Statement No. 87, Employers Accounting for
Pensions (FASB Statement No. 87). The policy is to fund U.S. pension plans at
amounts not less than the minimum requirements of the Employee Retirement Income
Security Act of 1974. Annual
F-8
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
costs of other postretirement plans are accounted for based on FASB Statement
No. 106, Employers Accounting for Postretirement Benefits Other than Pensions
(FASB Statement No. 106). The policy is to fund postretirement health benefits
based on a pay-as-you-go basis for retirees. See Note 11, Pension Plans and
Other Postretirement Benefits, regarding implementation of FASB Statement No.
106.
PROFIT SHARING AND EMPLOYEE SAVINGS PLAN
Ethyl, and as a result Chemicals, has a defined contribution 401(k) profit
sharing and employee savings plan which is generally available to all full-time
salaried and non-union hourly employees and to employees who are covered by a
collective bargaining agreement pursuant to the terms of such agreement. The
plan is funded with contributions by participants and the participant's
employer. Expense recorded for the 401(k) plan totaled $4.8 million in 1992,
$4.3 million in 1991 and $4.1 million in 1990.
STOCK OPTION PLAN
Certain key employees and officers who are assigned to Chemicals are
participants in the Ethyl incentive stock option plan. Under this plan,
incentive stock options and nonqualifying stock options may be granted to
purchase a specified number of shares of Ethyl 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 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 options.
INCOME TAXES
Chemicals is included in the consolidated federal income tax return of
Ethyl. The provision for income taxes reflected in the accompanying combined
financial statements represents Chemicals' share of Ethyl's income tax expense
which approximates the expense which would have been recognized had Chemicals
filed separate income tax returns. In connection with the distribution,
Chemicals and Ethyl anticipate entering into a tax sharing agreement. See Note
12, Income Taxes.
In the fourth quarter of 1992, Ethyl, and Chemicals as a part of Ethyl,
adopted FASB Statement No. 109, Accounting for Income Taxes (FASB Statement No.
109), 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 Accounting
Principles Board (APB) Opinion No. 11 and deferred income taxes arose from
differences in recognition of revenue and expense between financial and income
tax reporting of various items. See Note 12, Income Taxes, regarding
implementation of FASB Statement No. 109.
ETHYL'S EQUITY INVESTMENT
Ethyl's equity investment reflects the historical activity between
Chemicals and Ethyl. Transactions with Ethyl are reflected as though they were
settled immediately as an addition to or reduction of Ethyl's equity investment
and there are no amounts due to or from Ethyl at the end of any period. For
various reasons, including the effect of purchase method adjustments, it was not
practicable to determine the portion of Ethyl's equity investment represented by
retained earnings.
EARNINGS PER SHARE
Earnings per share information has been omitted in the combined financial
statements since Chemicals was not a separate entity with its own capital
structure during the years presented.
F-9
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental information for the combined statements of cash flows is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
1992 1991 1990
Cash paid during the year for:
Income taxes.................................. $20,636 $16,193 $31,600
Interest and financing expenses (net of
capitalization)............................ 5,527 1,803 406
</TABLE>
A reconciliation of the net change in Ethyl's equity investment to the cash
flow effect of the net settlements with Ethyl is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
1992 1991 1990
Net settlements with Ethyl...................... $25,513 $ (60,750) $1,838
Foreign currency translation effect............. 1,008 (538) 3,798
Cash flow effect of net settlements with Ethyl.. $26,521 $ (61,288) $5,636
</TABLE>
4. INVENTORIES:
Domestic inventories stated on the LIFO basis amounted to $55,432,000 and
$56,597,000 at December 31, 1992 and 1991, respectively, which are below
replacement cost by approximately $37,819,000 and $34,124,000, respectively.
5. DEFERRED INCOME TAXES AND PREPAID EXPENSES:
Deferred income taxes and prepaid expenses consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1992 1991
Deferred income taxes-current................... $ 7,049 $ 8,913
Prepaid expenses................................ 3,704 1,837
Total........................................... $10,753 $10,750
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT, AT COST:
Property, plant and equipment, at cost consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1992 1991
Land............................................ $ 26,506 $ 25,573
Land improvements............................... 38,712 29,747
Buildings....................................... 63,955 59,622
Machinery and equipment......................... 1,017,104 862,399
Construction in progress........................ 44,673 132,101
Total........................................... $1,190,950 $1,109,442
</TABLE>
Interest capitalized on significant capital projects in 1992, 1991 and 1990
was $4,262,000, $5,720,000 and $2,479,000, respectively, while amortization of
capitalized interest (which is included in depreciation expense) was $2,051,000,
$1,587,000 and $1,725,000, respectively.
F-10
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1992 1991
Employee benefits, payrolls and related
taxes......................................... $22,355 $22,251
Taxes other than payroll........................ 9,453 8,585
Interest expense................................ 2,090 2,392
Other........................................... 11,402 9,599
Total........................................... $45,300 $42,827
</TABLE>
8. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1992 1991
Generale de Banque Loan Agreement............... $113,689 $132,478
Miscellaneous................................... 1,248 1,261
Total........................................... 114,937 133,739
Debt due within one year........................ 14,416 15,076
Long-term debt.................................. $100,521 $118,663
</TABLE>
A summary of long-term debt maturities is listed below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
FOREIGN
BANK
BORROWINGS MISCELLANEOUS TOTAL
1993............................................ $ 14,399 $ 17 $ 14,416
1994............................................ 14,396 18 14,414
1995............................................ 14,399 20 14,419
1996............................................ 14,396 22 14,418
1997............................................ 14,399 24 14,423
1998-2016....................................... 41,700 1,147 42,847
Total debt...................................... $113,689 $ 1,248 $114,937
</TABLE>
Foreign bank borrowings consisted of borrowings totaling approximately
3,729 million Belgian francs ($113.7 million) outstanding as of December 31,
1992, with the Generale de Banque, Brussels, Belgium. 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
$14.4 million) through 1999 and a final payment of 423 million Belgian francs
(approximately $12.9 million) in October 2000. The annual interest rate has been
fixed at 9.28% for the period through October 5, 1994. Belgian tax concessions
received on the borrowings reduced the effective annual interest rate to 6.96%.
Thereafter, the interest rate is subject to renegotiation.
These foreign borrowings are subject to a covenant that if a Belgian
subsidiary of Ethyl, which would become a subsidiary of Chemicals upon
completion of the distribution, is no longer considered to be a direct or
indirect subsidiary of Ethyl from an accounting viewpoint, the borrowings would
be in default. Further, in the event the consolidated Net Shareholder's Funds
(as defined in the Generale de Banque loan agreement) of the consolidated
Belgian subsidiaries falls below 2 billion Belgian francs, the borrowings also
would be in default. Management anticipates that if the foreign bank borrowings
were considered to be in default as a result of the distribution, Chemicals will
either renegotiate the debt or repay the borrowings from its planned credit
facility (see FINANCING in the Information Statement).
F-11
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. GAINS AND LOSSES ON FOREIGN CURRENCY:
Foreign currency transaction adjustments resulted in a loss of $2,357,000
in 1992 and, gains of $1,827,000 in 1991 and $680,000 in 1990, respectively.
10. RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS:
Chemicals 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, 1992,
are $10,819,000 for 1993, $7,444,000 for 1994, $6,661,000 for 1995, $5,941,000
for 1996, $3,532,000 for 1997, and amounts payable after 1997 are $11,570,000.
Rental expense was $14,403,000 for 1992, $10,328,000 for 1991 and $9,636,000 for
1990.
Contractual obligations for plant construction and purchases of real
property and equipment amounted to approximately $26,000,000 at December 31,
1992.
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS:
U.S. PENSION PLANS -- The majority of the U.S. employees of Chemicals are
covered by Ethyl's noncontributory defined benefit pension plans. The benefits
for these plans are based primarily on years of service and employees'
compensation. The 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.
Components of pension income and prepaid pension expense information for
all periods presented for salaried and hourly plans were derived from actuarial
calculations of these components from the Ethyl plans. All amounts applicable to
hourly plans, for which operations were included in Chemicals, were assigned to
Chemicals. The actuarial present value of benefit obligations for active
salaried employees employed by Chemicals and the related components of pension
income and prepaid pension expense were allocated to Chemicals. The actuarial
present value of benefit obligations for retired Chemicals employees who retired
prior to January 1, 1993, and the related components of pension income and
prepaid pension expense were allocated to Ethyl. Plan assets were allocated to
Chemicals based upon the same methodology used to allocate the present value of
benefit obligations.
The components of Chemicals' net pension income from the Ethyl pension
plans for 1992, 1991 and 1990 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
1992 1991 1990
Return on plan assets:
Actual return................................... $ 19,217 $ 36,485 $ 991
Expected return higher (lower) than actual...... 3,099 (15,376) 19,292
Expected return................................. 22,316 21,109 20,283
Amortization of transition asset................ 2,700 2,700 2,700
Service cost (benefits earned during the
year)......................................... (5,433) (5,138) (4,858)
Interest cost on projected benefit obligation... (15,389) (14,801) (14,239)
Amortization of prior service costs............. (1,497) (1,494) (1,483)
Net pension income.............................. $ 2,697 $ 2,376 $ 2,403
</TABLE>
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 7.25% at December 31, 1992, 1991 and 1990. The assumed interest
rate at the beginning of each year is the same as the
F-12
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS: (CONTINUED)
discount rate at the end of each prior year. The rates of projected compensation
increase were assumed to be primarily 5% for each year and the expected
long-term rate of return on plan assets was assumed to be primarily 9% each
year. Net pension income (table above) is determined using assumptions as of the
beginning of each year. Funded status (table below) is determined using
assumptions as of the end of each year.
The following table presents a reconciliation of the funded status of
Chemicals' allocated balances for the Ethyl pension plans at December 31, 1992
and 1991 to prepaid pension expense, which is included in the line item Other
assets and deferred charges of the combined balance sheets:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1992 1991
Plan assets at fair value.......................... $ 272,872 $ 264,790
Less actuarial present value of benefit
obligations:
Accumulated benefit obligation (including
vested benefits of $195,993 and
$188,508, respectively).......................... 201,996 193,823
Projected compensation increase.................... 25,278 23,493
Projected benefit obligation....................... 227,274 217,316
Plan assets in excess of projected benefit
obligation....................................... 45,598 47,474
Unrecognized net gain.............................. (3,750) (7,477)
Unrecognized transition asset being amortized
principally over 16 years........................ (23,845) (26,545)
Unrecognized prior service costs being amortized... 16,421 17,918
Prepaid pension expense............................ $ 34,424 $ 31,370
</TABLE>
FOREIGN PENSION PLANS -- Pension coverage for employees of an Ethyl foreign
subsidiary, which is expected to be a subsidiary of Chemicals upon the
distribution, is provided through separate plans. Obligations under such plans
are systematically provided under insurance policies. 1992, 1991 and 1990
pension cost for these plans was $660,000, $547,000 and $486,000, respectively.
COMBINED -- Combined U.S. and foreign net pension income for 1992, 1991 and
1990 was $2,037,000, $1,829,000 and $1,917,000, respectively.
OTHER POSTRETIREMENT BENEFITS -- Ethyl provides postretirement medical
benefits and life insurance for certain groups of retired employees, which
include personnel assigned to Chemicals' operations.
In 1992, Ethyl, and as a result Chemicals, adopted FASB Statement No. 106.
The cumulative effect of the change in accounting for postretirement benefits of
$29.4 million ($18.5 million net of income tax benefit) was recognized
immediately and represents the allocated accumulated postretirement benefit
obligation (APBO) existing at January 1, 1992, net of plan assets. In addition,
the impact of the change on 1992 ongoing operations was an increase in expense
of about $2.4 million ($1.5 million after income taxes). The pro forma effect of
the change on years prior to 1992 was not determinable. Medical and life
insurance benefit costs are funded 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 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.
Summary information on the Ethyl plans assigned to Chemicals is presented
below. Plan assets, unrecognized net loss and postretirement benefit costs for
substantially all Chemicals retired employees, who retired prior to January 1,
1993, were
F-13
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS: (CONTINUED)
assigned to Ethyl. Plan assets, unrecognized net loss, APBO and postretirement
benefit costs for active employees assigned to Chemicals were allocated to
Chemicals based upon the ratio of APBO for the active employees compared to the
total APBO prior to allocation.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1992
December 31,
Financial status of plans:
Accumulated postretirement benefit obligation
Retirees........................................... $ 5,674
Fully eligible, active plan participants........... 11,661
Other active plan participants..................... 25,302
42,637
Less plan assets at fair value..................... 10,466
Less unrecognized net loss......................... 408
Accrued postretirement benefit cost................ $ 31,763
</TABLE>
Plan assets are held under an insurance contract and reserved for retiree
life insurance benefits. The accrued postretirement benefit cost of $31,763,000
is included in other noncurrent liabilities in the combined balance sheet at
December 31, 1992.
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1992
Year ended December 31,
Service cost (benefits attributed to employee
service during the year)......................... $ 1,625
Interest cost on accumulated postretirement benefit
obligation....................................... 3,105
Actual return on plan assets....................... (900)
Net periodic postretirement benefit cost........... $ 3,830
</TABLE>
The discount rate used in determining the APBO was 8%. The expected
long-term rate of return on plan assets used in determining the net periodic
postretirement benefit cost was 9% in 1992 and the estimated pay increase was
5%. The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 15% in 1992, declining by 1% per year to
an ultimate rate of 7%, except that managed care costs were assumed to begin at
12%, 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, 1992, would be increased by approximately $5.2 million.
The effect of this change on the sum of the service cost and interest cost
components of net periodic postretirement benefit cost for 1992 would be an
increase of about $700,000.
The pay-as-you-go expenditures for postretirement benefits were $1,444,000
in 1992, $1,371,000 in 1991 and $1,277,000 in 1990.
F-14
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS: (CONTINUED)
The effects of the accounting change discussed on the preceding page are
summarized as follows:
<TABLE>
<CAPTION>
1992
<S> <C>
(IN THOUSANDS)
Cumulative effect of accounting change on January 1.............................. $ 29,377
Plus postretirement benefit expense.............................................. 3,830
Less postretirement benefit cash expenditures.................................... (1,444)
Accrued postretirement benefit cost at December 31............................... $ 31,763
</TABLE>
12. INCOME TAXES:
The income tax provisions included in the accompanying Chemicals combined
statement of income for 1992, 1991 and 1990 as well as the related tax accounts
contained in the accompanying Chemicals' December 31, 1992 and 1991 combined
balance sheets have been computed as if Chemicals had been a separate taxpayer.
As discussed in Note 2, Summary of Significant Accounting Policies, in the
fourth quarter of 1992, Ethyl, and as a result Chemicals, adopted FASB Statement
No. 109. This statement requires the use of the liability approach for financial
accounting and reporting for income taxes. Combined 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 $16.6 million. This amount has been
included in the combined statement of income for 1992 and reported as a
component of the cumulative effect of accounting changes. The pro forma effect
of the change on years prior to 1992 was not determinable.
Income before income taxes and cumulative effect of accounting changes and
current and deferred income taxes are composed of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
1992 1991 1990
Income before income taxes and cumulative effect of
accounting changes:
Domestic........................................... $ 89,103 $ 79,767 $ 104,793
Foreign............................................ (30,589) (5,101) (6,277)
Total.............................................. $ 58,514 $ 74,666 $ 98,516
Current income taxes:
Federal............................................ $ 19,929 $ 20,442 $ 31,295
State.............................................. 3,715 2,155 3,312
Foreign............................................ (2,910) (6,099) (4,138)
Total.............................................. 20,734 16,498 30,469
Deferred income taxes:
Federal............................................ 5,504 2,991 1,601
State.............................................. 551 490 (98)
Foreign............................................ (10,018) 2,129 847
Total.............................................. (3,963) 5,610 2,350
Total income taxes................................. $ 16,771 $ 22,108 $ 32,819
</TABLE>
F-15
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES: (CONTINUED)
The significant differences between the U.S. federal statutory rate and the
effective income tax rate are as follows:
<TABLE>
<CAPTION>
% OF INCOME
BEFORE INCOME TAXES
<S> <C> <C> <C>
1992 1991 1990
Federal statutory rate....................... 34.0% 34.0% 34.0%
Foreign sales corporation benefit............ (2.7) (2.8) (1.9)
State taxes, net of federal tax benefit...... 3.3 2.9 2.7
Belgium coordination center benefit.......... (3.8)........ (2.8) (1.1)
Non-deductible write-off..................... 1.7
Depletion.................................... (1.3) (1.2) (1.0)
Benefit of subsidiary net operating loss..... (0.4)
Other items, net............................. (0.4) (0.5) (1.1)
Effective income tax rate.................... 28.7% 29.6% 33.3%
</TABLE>
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. Since
no changes in tax rates had been enacted as of December 31, 1992, such rates
have been applied to all future years.
As a result of the new Federal income tax legislation, which retroactively
increased the Federal statutory income tax rate, Chemicals' Federal statutory
income tax rate increased to 35% effective January 1, 1993.
The deferred income tax assets and deferred income tax liabilities recorded
on the combined balance sheet as of December 31, 1992, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
NONCURRENT
DEFERRED
CURRENT DEFERRED INCOME TAX
INCOME TAX ASSETS LIABILITIES
Depreciation.......................................... $ 83,628
Capitalized interest.................................. 4,832
Future employee benefits.............................. $ 4,060 119
Foreign currency translation adjustments.............. 10,231
Foreign subsidiary loss carryfoward................... (11,204 )
Inventory capitalization.............................. 1,217
Other items, net...................................... 1,772 (1,338 )
Total.......................................... $ 7,049 $ 86,268
Net deferred income tax liability................... $ 79,219
</TABLE>
1991 and 1990 deferred income taxes, determined under APB Opinion No. 11,
result from timing differences between financial and income tax reporting of
various items.
The sources of the deferred income tax differences and the tax effects for
the years ended December 31, 1991 and 1990 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1991 1990
Depreciation................................. $4,814 $ 5,238
Other items, net............................. 796 (2,888)
Total................................. $5,610 $ 2,350
</TABLE>
F-16
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES: (CONTINUED)
Provision has been made for estimated additional income taxes that would
have resulted if undistributed foreign earnings of businesses that comprise
Chemicals had been remitted to Chemicals.
In connection with the distribution, Ethyl and Chemicals anticipate
entering into a tax sharing agreement, which will reflect each party's rights
and obligations with respect to deficiencies and refunds, if any, of federal,
state or other taxes relating to the business of Chemicals prior to the
distribution. The planned agreement will express each party's intention with
respect to certain tax attributes of Chemicals after the distribution.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
CASH AND CASH EQUIVALENTS -- The carrying value approximates fair value.
LONG-TERM DEBT -- Based on borrowing rates currently available to Chemicals
with similar terms and maturities, the carrying value of long-term debt reported
in the accompanying combined balance sheets at December 31, 1992 and 1991
approximates fair value.
14. QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
1992
Net sales.............................. $207,638 $188,109 $209,546 $212,930 $818,223
Gross profit........................... $ 53,847(a) $ 41,800(a) $ 50,896(a) $ 39,777 $186,320
Income before cumulative effect of
accounting changes................... $ 15,162 $ 8,730 $ 11,912 $ 5,939 $ 41,743
Net income............................. $ 13,246 $ 8,730 $ 11,912 $ 5,939 $ 39,827
1991
Net sales.............................. $212,480 $198,147 $186,294 $194,067 $790,988
Gross profit........................... $ 51,767(c) $ 52,422(c) $ 53,792(c) $ 52,385(b,c) $210,366
Net income............................. $ 14,445 $ 14,330 $ 15,587 $ 8,196 $ 52,558
</TABLE>
Notes to Quarterly Financial Summary (In Thousands):
(a) Includes start-up costs (composed principally of labor cost of
employees being trained to run the new facilities, utilities and supplies used
during the pre-production period and pre-production testing of equipment)
related to the linear alpha olefin production facility in Feluy, Belgium in the
amount of $2,900 for the first quarter of 1992, $6,400 for the second quarter of
1992, and $3,400 for the third quarter of 1992.
(b) Includes expenses and write-offs resulting from the discontinuance of
certain developmental research programs in the amount of $6,350.
(c) Includes start-up costs (composed principally of labor cost of
employees being trained to run the new facilities, utilities and supplies used
during the pre-production period and pre-production testing of equipment)
related to the olefin production facilities in Feluy, Belgium in the amount of
$2,200 for the first quarter of 1991, $600 for the second quarter of 1991, $600
for the third quarter of 1991, and $500 for the fourth quarter of 1991.
15. GEOGRAPHIC AREA INFORMATION:
The businesses included in Chemicals operate primarily in one industry
segment which includes the development, manufacture, and marketing of chemical
products.
Chemicals is an international business, manufacturing and distributing in
the United States, Belgium and France. Information regarding Chemicals'
operations in different geographic locations for the three years is shown below.
As Chemicals'
F-17
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
15. GEOGRAPHIC AREA INFORMATION: (CONTINUED)
foreign regions of manufacturing and distribution have similar business
environments and operations, they are presented as one foreign category.
IDENTIFIABLE ASSETS AS OF DECEMBER 31,
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
1992 1991 1990
United States................................ $664,690 $643,170 $647,108
Foreign...................................... 272,834 250,167 200,237
Total...................................... $937,524 $893,337 $847,345
</TABLE>
NET SALES
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
1992 1991 1990
Domestic unaffiliated:
United States.............................. $524,244 $516,311 $533,603
Export..................................... 147,303 146,741 135,988
Transfers to foreign affiliates.............. 64,909 80,533 68,763
Foreign unaffiliated......................... 146,676 127,936 113,583
Elimination of transfers..................... (64,909) (80,533) (68,763)
Total...................................... $818,223 $790,988 $783,174
</TABLE>
OPERATING PROFIT (LOSS) (A)
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
1992(B) 1991(C) 1990(D)
United States................................ $77,560 $69,189 $93,609
Foreign...................................... (16,121) 4,392 2,717
Total...................................... $61,439 $73,581 $96,326
</TABLE>
Notes to Geographic Area Information (In Thousands):
(a) Operating profit represents net income before tax and cumulative effect
of accounting changes less interest and financing expenses and other income,
net.
(b) Operating profit for 1992 includes charges of $12,700 for start-up
costs (composed principally of labor cost of employees being trained to run the
new facilities, utilities and supplies used during the pre-production period and
pre-production testing of equipment) related to the linear alpha olefin
production facility in Feluy, Belgium.
(c) Operating profit for 1991 includes charges of $6,350 for expenses and
write-offs resulting from the discontinuance of certain developmental research
programs and charges of $3,900 for start-up costs (composed principally of labor
cost of employees being trained to run the new facilities, utilities and
supplies used during the pre-production period and pre-production testing of
equipment) related primarily to the poly alpha olefin production facilities in
Feluy, Belgium.
(d) Operating profit for 1990 includes charges of $6,033 for write-off of
goodwill and for expenses associated with environmental remediation projects at
certain facilities and charges of $4,500 for start-up costs (composed
principally of labor cost of employees being trained to run the new facilities,
utilities and supplies used during the pre-production period and pre-production
testing of equipment) related to the poly alpha olefin production facility in
Feluy, Belgium.
F-18
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS:
ACQUISITION OF POTASSE ET PRODUITS CHIMIQUES SA -- On February 8, 1993,
Ethyl through a subsidiary, Ethyl France S.A.R.L. (S.A.R.L.) completed the
acquisition of Potasse et Produits Chimiques SA (PPC) from Rhone-Poulenc S.A.,
the Paris-based multinational chemical and pharmaceutical company. The
acquisition is not reflected in the accompanying 1992 Chemicals combined
financial statements although S.A.R.L. will be included in Chemicals' operations
subsequent to the acquisition date. Cash paid aggregated approximately $122
million (before consideration of cash acquired of $5.4 million). PPC is a
producer of organic and inorganic brominated compounds used mainly as
pharmaceutical, photographic and agrochemical intermediates. PPC also operates
an electrolysis unit to produce high-purity caustic potash and potassium
carbonate.
WORK FORCE REDUCTION AND EARLY RETIREMENT PROGRAM -- On October 15, 1993,
Ethyl announced a work-force-reduction and early-retirement program which is
expected to result in a net reduction of approximately 130 of the employees
assigned to Chemicals. A provision of approximately $7.7 million was recorded in
the 1993 third quarter Chemicals' combined financial statements to cover the
expected cost of these programs.
STOCK OPTIONS -- On February 8, 1994 Chemicals Board of Directors
(theBoard) and Ethyl approved an Omnibus Stock Incentive Plan. Under this plan a
maximum of 3,200,000 shares of Chemicals common stock may be issued upon the
exercise of options, stock appreciation rights and restricted stock. Such
options, stock appreciation rights and restricted stock may be granted to
participants under the plan. The Board and Ethyl also have approved initial
option grants to officers and key employees to purchase a total of 1,447,500
shares of Chemicals common stock. All of these options will expire ten years
from the date of grant and the exercise price will be equal to the closing price
of Chemicals common stock on the first trading day following the distribution.
These options become exercisable based on the growth in operating earnings of
Chemicals and on improvements in market price. Notwithstanding the preceding
sentence, these options become exercisable thirty days prior to the expiration
date.
CREDIT FACILITY -- At February 10, 1994 Ethyl was in the process of
finalizing a five year, $1 billion unsecured credit facility to replace its
current credit facility. Ethyl expects to have this agreement in place by the
date of the distribution. Upon completion of the anticipated spin-off of
Chemicals, the credit facility will automatically be split into two separate
$500 million facilities with initial proceeds from the new Chemicals credit
facility utilized by Chemicals to absorb the planned transfer from Ethyl to
Chemicals of a portion of Ethyl's borrowing under the credit facility. Fees of
up to 3/8 of 1% per annum are assessed on the unused amount of the commitment.
The agreement permits borrowings for the next five years at various interest
rate options. The credit facility agreement contains a number of covenants,
representations and events of default typical for a credit facility agreement of
its size and nature, including financial covenants requiring Chemicals to
maintain a maximum leverage ratio of no greater than 60% and minimum Chemicals
shareholders' equity of $300 million.
F-19
<PAGE>
<PAGE>
CHEMICALS
COMBINED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
ADJUSTMENTS
INCREASES
ASSETS HISTORICAL (DECREASES) PRO FORMA
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 46,615 $ $ 46,615
Accounts receivable, less allowance for
doubtful accounts of $1,559................ 144,513 144,513
Inventories:
Finished goods............................. 93,551 93,551
Work-in-process............................ 3,080 3,080
Raw materials.............................. 12,914 12,914
Stores, supplies and other................. 22,764 22,764
132,309 132,309
Deferred income taxes and prepaid expenses.... 16,993 16,993
Total current assets..................... 340,430 340,430
Property, plant and equipment, at cost.......... 1,336,928 1,336,928
Less accumulated depreciation and
amortization............................. (652,677) (652,677)
Net property, plant and equipment........ 684,251 684,251
Other assets and deferred charges............... 48,746 48,746
Goodwill and other intangibles -- net of
amortization.................................. 37,038 37,038
Total assets............................. $1,110,465 $ $1,110,465
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.............................. $ 79,365 $ 79,365
Accrued expenses.............................. 52,401 52,401
Long-term debt, current portion............... 14,224 14,224
Total current liabilities................ 145,990 145,990
Long-term debt.................................. 94,442 $ 288,000(7) 382,442
Other noncurrent liabilities.................... 41,213 41,213
Deferred income taxes........................... 116,466 116,466
Equity:
Foreign currency translation adjustments...... 74 74
Ethyl's equity investment..................... 712,280 (288,000)(7) 424,280
Total equity............................. 712,354 (288,000) 424,354
Total liabilities and equity............. $1,110,465 $ $1,110,465
</TABLE>
See accompanying notes to combined interim financial statements.
F-20
<PAGE>
<PAGE>
CHEMICALS
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
<S> <C> <C>
1993 1992
Net sales............................................................................................. $668,453 $605,293
Cost of goods sold.................................................................................... 523,344 458,750
Gross profit........................................................................................ 145,109 146,543
Selling, general and administrative expenses.......................................................... 82,117 67,585
Research and development expenses..................................................................... 22,208 23,723
Operating profit.................................................................................... 40,784 55,235
Interest and financing expenses....................................................................... 6,240 2,824
Other income, net..................................................................................... (947) (1,597)
Income before income taxes and cumulative effect of accounting changes................................ 35,491 54,008
Income taxes.......................................................................................... 17,276 18,204
Income before cumulative effect of accounting changes................................................. 18,215 35,804
Cumulative effect of accounting changes for:
Postretirement health benefits (net of tax)......................................................... -- (18,548)
Deferred income taxes............................................................................... -- 16,632
Net income............................................................................................ $ 18,215 $ 33,888
</TABLE>
See accompanying notes to combined interim financial statements.
F-21
<PAGE>
<PAGE>
CHEMICALS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
<S> <C> <C>
1993 1992
Cash and cash equivalents at beginning of year $ 43,017 $30,688
Cash flows from operating activities:
Net income........................................................................................ 18,215 33,888
Adjustments to reconcile to cash flows from operating activities:
Cumulative effect of accounting changes......................................................... -- 1,916
Depreciation and amortization................................................................... 65,014 53,458
Provision for work force reduction and early retirement program................................. 7,700 --
Deferred income taxes, excluding cumulative effect of accounting
changes in 1992.............................................................................. 4,205 (1,779)
Change in assets and liabilities, net of acquisition:
(Increase) in accounts receivable.......................................................... (3,195) (29,112)
(Increase) in inventories.................................................................. (10,578) (370)
Increase (decrease) in accounts payable.................................................... 187 (9,451)
Increase in accrued expenses............................................................... 2,603 8,729
Other, net................................................................................. (8,073) 7,585
Net cash provided from operating activities............................................. 76,078 64,864
Cash flows from investing activities:
Capital expenditures.............................................................................. (66,395) (75,067)
Acquisition of business (net of $5,369 cash acquired)............................................. (116,631) --
Other, net........................................................................................ 349 1,662
Net cash (used in) investing activities......................................................... (182,677) (73,405)
Cash flows from financing activities:
(Repayments) additions to long-term debt.......................................................... (643) 1,518
Net settlements with Ethyl Corporation............................................................ 110,840 23,751
Net cash provided from financing activities..................................................... 110,197 25,269
Increase in cash and cash equivalents.................................................................. 3,598 16,728
Cash and cash equivalents at end of period............................................................. $ 46,615 $47,416
</TABLE>
See accompanying notes to combined interim financial statements.
F-22
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying combined interim
financial statements of Chemicals, the predecessor businesses of Albemarle
Corporation, contain all adjustments necessary to present fairly Chemicals'
combined financial position as of September 30, 1993 and the combined results of
operations and cash flows for the nine month periods ended September 30, 1993
and 1992. All such adjustments are deemed to be of a normal recurring nature.
These financial statements do not include certain disclosures required under
generally accepted accounting principles and, therefore, should be read in
conjunction with the annual combined financial statements and notes thereto
included at pages F-3 to F-19 of this Information Statement. The results of
operations for the nine month period ended September 30, 1993 are not
necessarily indicative of the results to be expected for the full year.
2. Selling, general and administrative expenses for the nine months ended
September 30, 1993 include a provision of $7,700,000 to cover Chemicals' portion
of an announced Ethyl work-force-reduction and early-retirement program. The
program is expected to result in a reduction of approximately 130 employees in
Chemicals' work force.
3. Chemicals experienced a higher effective income tax rate in 1993 (48.7%)
when compared to 1992 (33.7%). The primary factors contributing to the higher
1993 tax rate were higher deferred income taxes of $2.2 million required by FASB
Statement No. 109 and $0.4 million in higher taxes on 1993 income from
operations, resulting from the recently passed federal income tax legislation
which increased the corporate income tax rate retroactive to January 1, 1993. In
addition, the effective tax rate for the nine months ended September 30, 1993,
reflected management's conclusion 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
allowance relating to this operating loss carryforward. While the benefit of the
losses may be carried forward indefinitely, continued operating losses during
1993 make the timing of any realization currently undeterminable. Therefore, a
valuation allowance of approximately $4 million was established against a $7.3
million tax benefit attributable to the operating loss carryforwards of the
Belgian subsidiary.
4. Supplemental information for the combined statements of cash flows for
the nine months ended September 30, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1993 1992
Cash paid during the periods for:
Income taxes........................................ $15,222 $22,416
Interest and financing expenses paid................ 201 114
</TABLE>
Acquisition of business in 1993 (in thousands of dollars): Assets (excluding
cash) -- $165,842; liabilities -- $49,211; and net cash paid -- $116,631.
5. On February 8, 1993, Ethyl through a subsidiary, Ethyl France S.A.R.L.
(S.A.R.L.), completed the acquisition of the stock of Potasse et Produits
Chimiques SA (PPC). The acquisition is accounted for as a purchase. Accordingly,
because S.A.R.L. is included in Chemicals' operations, the results of operations
of PPC are included in the accompanying combined statement of income for the
nine months ended September 30, 1993. The following unaudited pro forma
information presents the net sales, income before cumulative effect of
accounting changes and net income as if the acquisition had occurred at the
beginning of the individual nine-month periods ended September 30, 1993 and
1992. Such pro forma information is presented on the same basis as the Chemicals
historical combined financial statements and does not include interest expense
other than as described in Note 2 Summary of Significant Accounting
Policies -- Interest Expense to the Chemicals historical annual combined
financial statements.
F-23
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE COMBINED INTERIM FINANCIAL STATEMENTS(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
<S> <C> <C>
1993 1992
Net sales $676,819 $679,486
Income before cumulative
effect of accounting changes $ 18,055 $ 40,607
Net income $ 18,055 $ 38,691
</TABLE>
6. Goodwill of approximately $22 million arising from the acquisition of
PPC is being amortized on a straight-line basis over periods of 16 to 20 years.
Chemicals evaluates historical and projected undiscounted cash flows of an
acquired business to determine the future recoverability of any goodwill
recorded. Recorded goodwill is reevaluated on the same basis at the end of each
accounting period if any significant permanent changes in business or
circumstances have occurred which might impair recovery.
7. The pro forma adjustment is shown in the accompanying combined balance
sheet at F-20 because in connection with the distribution (described on page 15
of the Information Statement), Chemicals will be assigned additional
indebtedness under the terms of a credit facility (described on page 21 of the
Information Statement) which will reduce Ethyl's equity investment as a result
of this assignment.
8. At February 10, 1994 Ethyl was in the process of finalizing a five year,
$1 billion unsecured credit facility to replace its current credit facility.
Ethyl expects to have this agreement in place by the date of the distribution.
Upon completion of the anticipated spin-off of Chemicals, the credit facility
will automatically be split into two separate $500 million facilities with
initial proceeds from the new Chemicals credit facility utilized by Chemicals to
absorb the planned transfer from Ethyl to Chemicals of a portion of Ethyl's
borrowing under the credit facility. Fees of up to 3/8 of 1% per annum are
assessed on the unused amount of the commitment. The agreement permits
borrowings for the next five years at various interest rate options. The credit
facility agreement contains a number of covenants, representations and events of
default typical for a credit facility agreement of its size and nature,
including financial covenants requiring Chemicals to maintain a maximum leverage
ratio of no greater than 60% and minimum Chemicals shareholders' equity of $300
million.
F-24
<PAGE>
<PAGE>
CHEMICALS
INTRODUCTION TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
Chemicals has no operating history as a separate, stand-alone company. The
historical combined financial statements are derived from the historical
financial information of the businesses that are expected to comprise Chemicals,
the predecessor businesses of Albemarle Corporation.
The adjustments required to reflect the transactions described below are
set forth in the Adjustments Increases (Decreases) column. The pro forma
combined balance sheet of Chemicals as of September 30, 1993, presents the
financial position of Chemicals assuming that the distribution, the split of the
Ethyl credit facility such that Chemicals absorbs the transfer from Ethyl to
Chemicals of a portion of Ethyl's borrowing under a credit facility, and the
reduction of Ethyl's equity investment as a result of the transfer had been
completed as of that date. The pro forma combined statements of income for the
year ended December 31, 1992, and the nine months ended September 30, 1993,
present the results of operations of Chemicals assuming that (i) the
distribution had been completed as of January 1, 1992, and (ii) the acquisition
of PPC had also occurred at January 1, 1992. In the opinion of management, the
pro forma combined financial statements include all material adjustments
necessary to restate the historical results to accommodate these assumptions.
Each period presented should be treated as a stand-alone period.
No pro forma adjustments are made to the historical combined statements of
income for selling, general and administrative expenses with respect to
Chemicals because in the opinion of management such costs following the
distribution (for which certain of the services are expected to be provided
under contractual agreements from Ethyl) will not differ from those costs
already included in the Chemicals historical combined financial statements.
The pro forma combined financial statements of Chemicals should be read in
conjunction with the historical combined financial statements of Chemicals
contained in this Information Statement. The pro forma information presented is
for informational purposes only and may not necessarily be indicative of future
results of operations and financial position or what the results of operations
or financial position would have been had the Chemicals' businesses been
operated as a separate, stand-alone company during the periods shown.
F-25
<PAGE>
<PAGE>
CHEMICALS
PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
ADJUSTMENTS
INCREASES
ASSETS HISTORICAL (DECREASES) PRO FORMA
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 46,615 $ $ 46,615
Accounts receivable, less allowance for
doubtful accounts.......................... 144,513 144,513
Inventories:
Finished goods............................. 93,551 93,551
Work-in-process............................ 3,080 3,080
Raw materials.............................. 12,914 12,914
Stores, supplies and other................. 22,764 22,764
132,309 132,309
Deferred income taxes and prepaid expenses.... 16,993 16,993
Total current assets..................... 340,430 340,430
Property, plant and equipment, at cost.......... 1,336,928 1,336,928
Less accumulated depreciation and
amortization............................. (652,677) (652,677)
Net property, plant and equipment........ 684,251 684,251
Other assets and deferred charges............... 48,746 48,746
Goodwill and other intangibles -- net of
amortization.................................. 37,038 37,038
Total assets............................. $1,110,465 $ $1,110,465
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 79,365 $ 79,365
Accrued expenses.............................. 52,401 52,401
Long-term debt, current portion............... 14,224 14,224
Total current liabilities................ 145,990 145,990
Long-term debt.................................. 94,442 $ 288,000 B(i) 382,442
Other noncurrent liabilities.................... 41,213 41,213
Deferred income taxes........................... 116,466 116,466
Shareholders' equity:
Foreign currency translation adjustments...... 74 74
Ethyl's equity investment..................... 712,280 (288,000)B(i)
(424,280)B(ii)
Common shareholders' equity................... 424,280 B(ii) 424,280
Total shareholders' equity............... 712,354 (288,000) 424,354
Total liabilities and shareholders'
equity................................ $1,110,465 $ $1,110,465
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-26
<PAGE>
<PAGE>
CHEMICALS
PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, 1992 SEPTEMBER 30, 1993
ADJUSTMENTS ADJUSTMENTS
INCREASES PRO INCREASES PRO
HISTORICAL (DECREASES) FORMA HISTORICAL (DECREASES) FORMA
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $818,223 $95,773 B(iii) $913,996 $668,453 $ 8,366 B(iii) $676,819
Cost of goods sold................... 631,903 80,403 B(iii) 712,306 523,344 7,772 B(iii) 531,116
Gross profit....................... 186,320 15,370 201,690 145,109 594 145,703
Selling, general and
administrative expenses............ 92,884 6,158 B(iii) 99,042 82,117 415 B(iii) 82,532
Research and development
expenses........................... 31,997 1,091 B(iii) 33,088 22,208 186 B(iii) 22,394
Operating profit................... 61,439 8,121 69,560 40,784 (7) 40,777
Interest and financing
expenses........................... 4,923 11,388 B(iv) 16,311 6,240 6,934 B(iv) 13,174
Other (income) net................... (1,998) (1,313)B(iii) (3,311) (947) 209 B(iii) (738)
Income before income taxes
and cumulative effect of
accounting changes................. 58,514 (1,954) 56,560 35,491 (7,150) 28,341
Income taxes......................... 16,771 (581)B(v) 16,190 17,276 (2,711)B(v) 14,565
Income before cumulative effect
of accounting changes.............. $ 41,743 $(1,373) $ 40,370 $ 18,215 $ (4,439) $ 13,776
Earnings per share (based on
income before cumulative effect
of accounting changes)............. $ .68 (C) $ .23 (C)
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-27
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma information presented is not necessarily indicative of the
future results or financial position of Chemicals, the predecessor businesses
of Albemarle Corporation, or the income before cumulative effect of
accounting changes that would have resulted had Chemicals been a stand-alone
company during the periods presented.
B. The adjustments in the pro forma combined financial statements are described
below:
(i) To record the planned transfer from Ethyl to Chemicals of a portion of
an Ethyl borrowing under a credit facility (which Ethyl management
contemplates obtaining prior to the effective date of the distribution)
necessary to achieve a planned debt to total capitalization ratio, and
reduction of Ethyl's equity investment as a result of the transfer. The
Chemicals foreign bank borrowing is subject to a covenant, as discussed
in Note 8 to the combined financial statements, that if the Ethyl
subsidiary which holds this debt is no longer considered to be a direct
or indirect subsidiary of Ethyl the borrowings would be in default.
Such long term debt has not been reclassified as a current liability in
the accompanying pro forma combined financial statements, because
should the lender take action under this covenant in connection with
the proposed spinoff, the debt would be immediately refinanced through
use of the Chemicals credit facility which is classified as long term
debt.
(ii) To record the proposed distribution to holders of Ethyl common stock,
par value $1.00 per share, of all of the outstanding Chemicals common
stock, without par value. Approximately 59.2 million shares of
Chemicals common stock are expected to be distributed. See THE
DISTRIBUTION contained elsewhere in this Information Statement.
(iii) To reflect the February 8, 1993 acquisition of Potasse et Produits
Chimiques SA (PPC) by Ethyl France S.A.R.L., in the year ended
December 31, 1992, and nine months ended September 30, 1993, pro
forma combined statements of income as if the acquisition had
occurred at January 1, 1992. To derive the accompanying U.S. dollar
financial statements, the PPC financial statements were translated
utilizing the exchange rate prevailing at the date of the balance
sheet while the statements of income were translated utilizing the
weighted average exchange rates prevailing during the respective
periods. Translation adjustments (net of deferred income taxes) were
reflected as foreign currency translation adjustments in equity and
accordingly had no effect on net income.
(iv) To record the interest expense which would have been incurred by
Chemicals on the borrowing under the credit facility transferred from
Ethyl, which includes interest on borrowings under the credit facility
which would have been incurred to acquire PPC, at the weighted average
interest rates of 4.2% for the year ended December 31, 1992 and 3.5%
for the nine months ended September 30, 1993, less additional
capitalized interest of $949,000 and $882,000, respectively. Interest
rates utilized to calculate Chemicals pro forma interest expense 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 from management's
negotiations to obtain the credit facility, the rates available to
Ethyl and Chemicals on a stand alone basis were approximately the same
interest rates and management was advised that these rates would have
been the same during the respective periods presented.
(v) To record the estimated tax benefit for pro forma adjustments at an
assumed combined state and federal income tax rate of 29.7% (low
effective income tax rate due to purchase method adjustments) for the
twelve months ended December 31, 1992 and 37.9% for the nine months
ended September 30, 1993.
C. Earnings per share (based on income before cumulative effect of accounting
changes) is computed as if the 59.2 million shares of Chemicals common stock
proposed to be issued in the distribution had been outstanding for the
periods presented. Also, no consideration is given to (a) any stock options
under the Chemicals stock option plan (see Management -- Compensation of
Executive Officers) since, although the plan has been approved by the
Chemicals Board of Directors and Ethyl, and option grants for approximately
1,500,000 shares of Chemicals stock have also been approved by the Chemicals
Board of Directors and Ethyl, the impact of the options cannot be evaluated
because neither the option price nor the market price of the stock is known,
and (b) any shares of stock issuable in connection with the planned sale of
common stock to members of the Gottwald family (see FINANCING -- Sale of the
Company's Common Stock). Because each of the stock purchase agreements with
the Gottwald family provides as a condition to closing for Chemicals that the
number of shares to be sold to the Gottwalds cannot equal or exceed 20% of
the outstanding shares, at the lowest
F-28
<PAGE>
<PAGE>
CHEMICALS
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
possible sales price permitted under the terms of the stock purchase
agreements, the reduction of pro forma earnings per share (based on income
before cumulative effect of accounting changes) for the nine month period
ended September 30, 1993 would be less than $.02 per share.
F-29
<PAGE>
<PAGE>
CHEMICALS
INTRODUCTION TO THE SEPARATE FINANCIAL STATEMENTS
OF POTASSE ET PRODUITS CHIMIQUES SA
On February 8, 1993, Ethyl France S.A.R.L. acquired the stock of Potasse
et Produits Chimiques SA (PPC). Accordingly, separate financial statements of
PPC are filed in this Information Statement and include audited financial
statements as of and for the year ended December 31, 1992 and an unaudited
balance sheet at September 30, 1993 as well as interim results of operations
and cash flows for the nine months ended September 30, 1993 and 1992.
F-30
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Ethyl Corporation:
We have audited the accompanying balance sheet of POTASSE ET PRODUITS
CHIMIQUES SA (the Company) as of December 31, 1992, and the related
statements of income, shareholders' equity and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with United States 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December generally accepted accounting principles.
COOPERS & LYBRAND
Strasbourg, France
January 29, 1993,
except for Note 12,
dated February 8, 1993
F-31
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
BALANCE SHEET
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
DECEMBER 31, 1992
<S> <C>
ASSETS
Current assets:
Cash................................................................................... 41,400
Accounts receivable.................................................................... 90,807
Account receivable -- related parties.................................................. 4,892
Tax receivables........................................................................ 11,832
Inventories............................................................................ 55,165
Deferred income taxes and prepaid expenses............................................. 2,725
Total current assets................................................................... 206,821
Property, plant and equipment, at cost................................................. 550,461
Less accumulated depreciation.......................................................... (325,906)
Net property, plant and equipment...................................................... 224,555
Advance to related party............................................................... 17,751
Other assets........................................................................... 2,206
Intangible assets, net of amortization................................................. 338
Total assets........................................................................... 451,671
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdrafts........................................................................ 10,002
Long-term debt, current portion........................................................ 4,050
Accounts payable....................................................................... 62,147
Accrued expenses....................................................................... 22,669
Total current liabilities.............................................................. 98,868
Long-term debt......................................................................... 9,526
Noncurrent accrued retirement obligations.............................................. 8,173
Other noncurrent liabilities........................................................... 2,166
Deferred income taxes.................................................................. 31,193
Shareholders' equity:
Common stock (par value FF 100) 450,000 shares authorized, issued and
outstanding........................................................................ 45,000
Retained earnings...................................................................... 256,745
Total shareholders' equity............................................................. 301,745
Total liabilities and shareholders' equity............................................. 451,671
</TABLE>
See accompanying notes to the financial statements.
F-32
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
STATEMENT OF INCOME
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1992
<S> <C>
Net sales:
Related parties....................................................................................... 336,139
Others................................................................................................ 190,616
Total net sales....................................................................................... 526,755
Cost of goods sold.................................................................................... 447,902
Gross profit.......................................................................................... 78,853
Selling, general and administrative expenses.......................................................... 24,909
Research and development expenses..................................................................... 5,105
Operating profit...................................................................................... 48,839
Interest and financing expenses....................................................................... 1,697
Interest (income) on invested cash balances (Note 2).................................................. (13,600)
Other (income) net.................................................................................... (5,628)
Income before income taxes............................................................................ 66,370
Income taxes.......................................................................................... 26,402
Net income............................................................................................ 39,968
</TABLE>
See accompanying notes to the financial statements.
F-33
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
STATEMENT OF CASH FLOWS
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1992
<S> <C>
Cash at beginning of year............................................................................. 105,900
Cash flows from operating activities:
Net income............................................................................................ 39,968
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization......................................................................... 48,228
Deferred income tax benefit........................................................................... (2,511)
Change in assets and liabilities:
Decrease in accounts receivable....................................................................... 8,696
Decrease in inventories............................................................................... 4,191
Decrease in accounts payable.......................................................................... (16,111)
Increase in accrued expenses.......................................................................... 12,977
Other, net............................................................................................ (258)
Net cash provided from operating activities........................................................... 95,180
Cash flows from investing activities:
Capital expenditures.................................................................................. (29,177)
Other, net............................................................................................ 6,213
Net cash (used in) investing activities............................................................... (22,964)
Cash flows from financing activities:
Dividends paid........................................................................................ (139,837)
Repayment of long-term debt........................................................................... (3,654)
Increase in bank overdrafts........................................................................... 6,775
Net cash (used in) financing activities............................................................... (136,716)
Decrease in cash...................................................................................... (64,500)
Cash at end of year................................................................................... 41,400
</TABLE>
See accompanying notes to the financial statements.
F-34
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
<S> <C> <C> <C>
Balances at December 31, 1991...................... 45,000 356,614 401,614
1992 net income.................................... -- 39,968 39,968
Dividends paid..................................... -- (139,837) (139,837)
Balances at December 31, 1992...................... 45,000 256,745 301,745
</TABLE>
See accompanying notes to the financial statements.
F-35
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
GENERAL
Potasse et Produits Chimiques SA (the Company or PPC) is a majority owned
subsidiary of Rhone-Poulenc SA (Rhone-Poulenc). See Note 2, Transactions with
Related Parties. The accompanying financial statements are prepared in
accordance with United States generally accepted accounting principles.
FOREIGN CURRENCY TRANSACTIONS
Transaction gains and losses, including those related to forward exchange
contracts with Rhone-Poulenc (see Note 2 regarding forward exchange contracts),
are included in income.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined
on a weighted average basis which closely approximates the first-in, first-out
basis. 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 AND EQUIPMENT
Property, plant and equipment accounts include costs of assets constructed
or purchased and delivery and installation costs. Expenditures for renewals and
betterments are also 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 calculated on a straight-line basis over the estimated
useful lives of the respective assets.
The principal useful lives employed are the following:
<TABLE>
<S> <C>
Buildings.................................... 20 years
Machinery and equipment...................... 8 years
Furniture.................................... 10 years
</TABLE>
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental compliance costs include the cost of purchasing and/or
constructing assets to prevent, limit and control pollution or to monitor
environmental status at various locations. These costs are capitalized in the
appropriate categories of property, plant and equipment, 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 other
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 such costs are reasonably estimable.
INTANGIBLE ASSETS
Intangible assets, consisting principally of licenses and manufacturing
systems software, are amortized on a straight-line basis over their estimated
useful lives not exceeding 10 years. Amortization of intangibles amounted to FF
62,000 for 1992. Accumulated amortization of intangibles was FF 940,000 at
December 31, 1992.
REVENUE RECOGNITION FOR TRANSACTIONS WITH RELATED PARTIES
As discussed in Note 2, Transactions with Related Parties, the Company has
significant sales in the ordinary course of business to related parties. Such
sales are recorded on the same basis as sales to unrelated parties.
Consequently, revenues are
F-36
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
recognized at the time products are shipped and invoiced. All sales to related
parties are considered by management to be at arms-length prices.
Also as discussed in Note 2, the Company purchases raw materials from
related parties. Purchases are recognized in the ordinary course of business
upon actual receipt of material. Such purchases are from an affiliate, at prices
considered by management to be market prices; consequently, there is no
adjustment of the separate financial statements of PPC for any intercompany
profit in inventory.
RETIREMENT OBLIGATIONS
The Company accounts for its commitment with respect to retirement benefits
in accordance with Financial Accounting Standards Board (FASB) Statement No. 87,
Employers' Accounting for Pensions (FASB Statement No. 87)(Note 9). The Company
provides no post retirement benefits other than pensions to its employees.
DEFERRED INCOME TAXES
Although the Company is majority owned by Rhone-Poulenc, the Company files
a separate French corporate income tax return. Accordingly, the provision for
income taxes reflected in the accompanying financial statements is computed
based on the separate results of operations of PPC. The Company adopted FASB
Statement No. 109, Accounting for Income Taxes, effective January 1, 1991.
Deferred income taxes are recorded based on the differences between the tax
basis of assets and liabilities and their carrying values for financial
reporting purposes. Tax rates applicable to future periods are used to calculate
year-end deferred income taxes.
2. TRANSACTIONS WITH RELATED PARTIES
The Company and its two shareholders, Thann et Mulhouse (TM) (a wholly
owned subsidiary of Rhone-Poulenc), owning 65% of the issued shares, and
Entreprise Miniere et Chimique (EMC), owning 35% of the issued shares, as well
as Rhone-Poulenc engage in transactions and agreements related to their
respective businesses. Significant transactions and agreements entered into
between the Company and TM, EMC, and Rhone-Poulenc are disclosed in the
accompanying financial statements and related notes. In addition, the following
represent other material transactions between the Company and TM, EMC and
Rhone-Poulenc.
COMMON FACILITIES -- The Company and TM share a common manufacturing site.
TM provides maintenance management, utility, security, cafeteria, finance,
accounting, data processing and general site management services for the site.
In the ordinary course of business, the Company pays TM for its use of such
services at rates which approximate the cost of providing such services
separately. The Company's expenses approximated FF 11,888,000 for such services
in 1992.
In addition, the Company has advanced to TM FF 17,751,000 representing its
proportional share of the costs necessary to provide such services. The balance
is reviewed and adjusted annually based on the net investment required to
provide such services. This advance is presented as advance to related party in
the accompanying balance sheet.
RAW MATERIALS PURCHASES -- In the ordinary course of business, the Company
purchases potassium chloride and sodium chloride from EMC. The Company's
purchase of such product from EMC in 1992 aggregated approximately FF
96,955,000. Approximately FF 2,069,000 of raw materials were purchased from
Rhone-Poulenc or affiliates.
PRODUCT SALES -- The Company sells, in the normal course of business,
certain production by-products to TM. For 1992, sales to TM from the Company
approximated FF 11,600,000 for such by-products. Also in the normal course of
business, the Company sells primarily chlorine, caustic potash and other
electrolysis products to Rhone-Poulenc. Sales to Rhone-Poulenc for such products
approximated FF 324,500,000 in 1992.
WASTE DISPOSAL -- EMC operates a regulated waste disposal site which the
Company utilizes for certain wastes generated in its manufacturing processes.
The Company's expense to EMC for such services aggregated FF 6,536,000 during
1992.
F-37
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
CASH INVESTMENTS AND INTEREST INCOME -- Rhone-Poulenc operates a common
treasury function for most of its subsidiaries. Interest rates paid or charged
by Rhone-Poulenc on deposits with or borrowings from the common treasury
approximate prevailing market rates established on a monthly basis. For 1992,
the Company recorded interest income of FF 13,600,000 on average invested cash
balances of approximately FF 120,000,000.
FOREIGN CURRENCY TRANSACTION GAINS AND LOSSES -- The Company routinely
conducts business in most major world currencies. Approximately 65% of sales and
15% of purchases are denominated in currencies other than the French Franc.
Confirmed supplier and customer orders are valued at exchange rates established
daily by Rhone-Poulenc. Significant net balances each day are covered by forward
contracts between the Company and Rhone-Poulenc. This procedure is primarily a
cash management facility which provides PPC and other Rhone-Poulenc subsidiaries
with maximum access to required currencies. Invoices issued or received by the
Company which are denominated in foreign currencies are accounted for using the
forward contract rate. Gains and losses on the forward contracts are included in
income monthly. Upon collection or payment by the Company in the specified
currency, the forward exchange contracts between Rhone-Poulenc and the Company
are settled and gains and losses since the last measurement date are included in
income. For 1992 net transaction gains of FF 664,000 were included in income. At
December 31, 1992, the Company had sold forward contracts for delivery of
various foreign currencies to Rhone-Poulenc totalling FF 80,942,000.
ACCOUNTS RECEIVABLE -- RELATED PARTIES -- Accounts receivable -- related
parties consist of the following (in thousands of French Francs):
<TABLE>
<S> <C>
Thann et Mulhouse.......................................................... 3,706
Rhone-Poulenc.............................................................. 1,186
4,892
</TABLE>
These balances relate to sales in the normal course of business as
previously detailed.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information for the statement of cash flows is as follows (in
thousands of French Francs):
<TABLE>
<S> <C>
Cash paid during the year for:
Income taxes............................................................. 9,406
Interest and financing expenses.......................................... 1,802
</TABLE>
4. INVENTORIES
Inventories are detailed as follows (in thousands of French Francs):
<TABLE>
<S> <C>
Finished goods............................................................. 38,651
Work-in-process............................................................ 971
Raw materials.............................................................. 11,034
Stores, supplies and other................................................. 9,687
Total...................................................................... 60,343
Less allowance for obsolescence............................................ (5,178)
Net........................................................................ 55,165
</TABLE>
The provision for inventory obsolescence during 1992 aggregated FF
1,562,000.
F-38
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DEFERRED INCOME TAXES AND PREPAID EXPENSES
Deferred income taxes and prepaid expenses consist of the following (in
thousands of French Francs):
<TABLE>
<S> <C>
Deferred income taxes -- current........................................... 2,704
Prepaid expenses........................................................... 21
2,725
</TABLE>
The analysis of deferred income taxes is presented in Note 10.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are detailed as follows (in thousands of
French Francs):
<TABLE>
<S> <C>
Land....................................................................... 8,235
Buildings.................................................................. 56,484
Machinery and equipment.................................................... 482,074
Buildings and equipment in progress........................................ 3,668
Total cost................................................................. 550,461
Less accumulated depreciation.............................................. (325,906)
Net property, plant and equipment.......................................... 224,555
</TABLE>
Capitalized interest amounting to a gross value of FF 4,009,000 is included
in the above balances. Capitalized interest relates to major industrial projects
and is amortized on a straight line basis over the life of the related asset. No
interest was capitalized for the year 1992. Additionally, the Company had no
commitments for future rental payments at December 31, 1992.
7. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands of French Francs):
<TABLE>
<S> <C>
Employee benefits, payroll and other taxes................................. 10,866
Income taxes............................................................... 9,540
Interest................................................................... 477
Retirement obligations -- current.......................................... 268
Other...................................................................... 1,518
22,669
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following (in thousands of French Francs):
<TABLE>
<S> <C>
SADE....................................................................... 10,617
Agence de Bassin Rhin-Meuse................................................ 1,838
Other...................................................................... 1,121
Total...................................................................... 13,576
Less debt due within one year.............................................. 4,050
Long-term debt............................................................. 9,526
</TABLE>
F-39
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
A summary of long-term debt maturities after 1993 is listed below (in
thousands of French Francs):
<TABLE>
<S> <C>
1994....................................................................... 3,870
1995....................................................................... 4,385
1996....................................................................... 371
1997....................................................................... 375
1998-1999.................................................................. 525
9,526
</TABLE>
Certain industrial investments are financed by the SADE, a local financing
agency which is a member of a state owned national network. The related loans
bear interest at an average rate of 10%. These loans were initiated in 1982 and
1983 and are repayable over 12 year periods.
The loan made by the Agence de Bassin Rhin-Meuse in 1989 is aimed at the
installation of water antipollution equipment and is noninterest bearing. This
loan is repayable over an 8 year period, beginning in 1992.
Based on borrowing rates available at December 31, 1992, the carrying value
of long-term debt is not materially different than fair value.
9. RETIREMENT OBLIGATIONS
The Company has a defined benefit plan covering all employees. The benefits
from this plan are based primarily on years of service and employee's
compensation, and are paid in a lump-sum upon retirement. The Company also has a
commitment to certain retired officials to whom specific retirement benefits
were extended. Consistent with French practice, these defined benefit plans are
unfunded.
As stated in Note 1, an actuarial calculation of the provision for
retirement obligations was determined in accordance with FASB Statement No. 87.
Net pension expense and plan obligations are determined using assumptions of
estimated discount rates and interest rates and rates of projected increases in
compensation. The discount rate on projected benefit obligations was assumed to
be 9.25% at December 31, 1992. The rate of projected compensation increase was
assumed to be 3.5%. Net pension expense (see table below) was determined using
assumptions as of the beginning of the year.
The following table reconciles the Company's retirement obligations in
accordance with FASB Statement No. 87 with amounts recognized in the Company's
balance sheet as of December 31, 1992 (in thousands of French Francs):
<TABLE>
<S> <C>
Vested benefits of retired officials....................................... 982
Non-vested benefits of present employees................................... 7,459
Projected benefit obligation and pension liability recognized in the
balance sheet............................................................ 8,441
Short-term liability....................................................... 268
Long-term liability........................................................ 8,173
8,441
</TABLE>
In determining net pension expense the Company follows the practice of
amortizing gains and losses if, as of the beginning of the year, the net
unrecognized gain or loss exceeds 10% of the projected benefit obligation.
Net periodic retirement obligation costs include the following (in
thousands of French Francs):
<TABLE>
<S> <C>
Service cost (benefits earned during the year)............................. 270
Interest cost on the projected benefit obligation.......................... 681
Net amortization and other deferral........................................ (851)
Net pension expense........................................................ 100
</TABLE>
F-40
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Income tax expense consists of the following (in thousands of French
Francs):
<TABLE>
<S> <C>
Current income taxes....................................................... 28,913
Deferred income taxes...................................................... (2,511)
Total income tax expense.............................................. 26,402
</TABLE>
The significant differences between the French statutory tax rate and the
effective income tax rate are as follows, in percentage of income before taxes.
<TABLE>
<S> <C>
French statutory tax rate.................................................. 34.0%
Additional tax on dividends................................................ 8.0
Tax credit for research.................................................... (0.8 )
Change of tax rate relating to deferred taxes.............................. (0.9 )
Other items, net........................................................... (0.5 )
Effective income tax rate............................................. 39.8%
</TABLE>
In connection with a shareholders' sale of the Company's stock (see Note
12), the Company paid its shareholders dividends totaling FF 120,000,000
resulting in additional income taxes of approximately FF 5,363,000. The Company
had not previously provided for the incremental tax on these dividends from
earnings greater than five years old, because the earnings were considered to be
indefinitely reinvested.
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 method. Such temporary differences result
primarily from differences between the financial statement carrying amounts and
tax bases of assets and liabilities, using statutory tax rates in effect in the
year in which the differences are expected to reverse. Since the tax rate
applicable in France after 1992 is 33 1/3%, deferred tax assets and liabilities
have been determined using this rate.
The deferred income tax assets and liabilities recorded on the balance
sheet as of December 31, 1992 are as follows (in thousands of French Francs):
<TABLE>
<CAPTION>
CURRENT NON-CURRENT
DEFERRED INCOME DEFERRED INCOME
TAX ASSETS TAX-LIABILITIES
<S> <C> <C>
Depreciation................................................ -- 31,826
Inventory price increases................................... -- 2,903
Retirement obligations...................................... -- (2,814)
Profit sharing.............................................. 1,335 --
Vacation pay................................................ 672 --
Slow-moving inventories..................................... 511 --
Other, net.................................................. 186 (722)
Total................................................ 2,704 31,193
Net deferred tax liability............................. 28,489
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
In connection with its capital spending program, the Company had
contractual obligations for the acquisition of industrial assets amounting to
approximately FF 3,340,000 at December 31, 1992. Management does not believe
that it is probable that a material loss will result from these commitments nor
from any litigation to which the Company is a party.
F-41
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENT
On February 8, 1993, Ethyl Corporation's French subsidiary, Ethyl France
S.A.R.L., completed the acquisition of 100% of the issued shares of the Company.
F-42
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
BALANCE SHEET
(IN THOUSANDS OF FRENCH FRANCS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
<S> <C>
ASSETS
Current assets:
Cash.................................................................................... 64,504
Accounts receivable..................................................................... 76,324
Other receivables....................................................................... 8,686
Inventories............................................................................. 64,919
Deferred income taxes and prepaid expenses.............................................. 3,116
Total current assets................................................................. 217,549
Property, plant and equipment at cost..................................................... 569,481
Less accumulated depreciation........................................................... (362,392)
Net property, plant and equipment.................................................... 207,089
Other assets.............................................................................. 22,630
Intangible assets, net of amortization.................................................... 281
Total assets......................................................................... 447,549
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Long-term debt, current portion......................................................... 3,936
Accounts payable........................................................................ 60,379
Accrued expenses........................................................................ 18,822
Total current liabilities............................................................ 83,137
Long-term debt............................................................................ 5,662
Noncurrent accrued retirement obligations................................................. 8,441
Other noncurrent liabilities.............................................................. 2,166
Deferred income taxes..................................................................... 30,178
Shareholder's equity:
Common stock (par value FF 100)
454,680 shares authorized, issued and outstanding.................................. 45,468
Additional paid-in capital................................................................ 6,458
Retained earnings......................................................................... 266,039
Total shareholder's equity........................................................... 317,965
Total liabilities and shareholder's equity........................................... 447,549
</TABLE>
See accompanying notes to the interim financial statements.
F-43
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
STATEMENTS OF INCOME
(IN THOUSANDS OF FRENCH FRANCS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1993 1992
<S> <C> <C>
Net sales:
Related parties (Note 4)........................................ 182,367 245,930
Others.......................................................... 152,229 161,873
Total net sales.............................................. 334,596 407,803
Cost of goods sold................................................ 297,789 338,199
Gross profit................................................. 36,807 69,604
Selling, general and administrative expenses...................... 22,390 18,208
Research and development expenses................................. 3,867 3,870
Operating profit............................................. 10,550 47,526
Interest and financing expenses................................... 612 1,333
Interest income on invested cash balances (Note 4)................ (2,010) (9,799)
Other income, net................................................. (1,609) (311)
Income before income taxes........................................ 13,557 56,303
Income taxes...................................................... 4,264 17,799
Net income................................................... 9,293 38,504
</TABLE>
See accompanying notes to the interim financial statements.
F-44
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF FRENCH FRANCS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1993 1992
<S> <C> <C>
Cash at beginning of period................................................ 41,400 105,900
Cash flows from operating activities:
Net income............................................................... 9,293 38,504
Adjustments to reconcile net income to cash flows from operating
activities:
Depreciation and amortization......................................... 36,356 36,141
Deferred income taxes................................................. (1,427) (969)
Change in assets and liabilities:
Decrease in accounts receivable..................................... 14,483 7,395
(Increase) in inventories........................................... (9,754) (3,967)
(Decrease) in accounts payable...................................... (1,768) (18,752)
(Decrease) increase in accrued expenses............................. (3,579) 11,199
Other, net.......................................................... 5,701 5,804
Net cash provided from operating activities......................... 49,305 75,355
Cash flows from investing activities:
Capital expenditures..................................................... (19,269) (21,645)
Other, net............................................................... 122 --
Net cash (used in) investing activities............................... (19,147) (21,645)
Cash flows from financing activities:
Dividends paid........................................................... -- (25,200)
Share capital increase and additional paid-in capital.................... 6,926 --
Repayment of long-term debt.............................................. (3,978) (3,589)
Decrease in bank overdrafts.............................................. (10,002) (3,226)
Net cash (used in) financing activities:............................ (7,054) (32,015)
Increase in cash......................................................... 23,104 21,695
Cash at end of period.................................................... 64,504 127,595
</TABLE>
See accompanying notes to the interim financial statements.
F-45
<PAGE>
<PAGE>
POTASSE ET PODUITS CHIMIQUES SA
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited interim financial statements, in the opinion of
management, reflect all adjustments necessary to present fairly the financial
position of Potasse et Produits Chimiques SA (the Company) as of September 30,
1993 and the results of operations and cash flows for the nine-month periods
ended September 30, 1993 and 1992. All such adjustments are deemed to be of a
normal recurring nature. These statements do not include certain disclosures
required under generally accepted accounting principles and should be read in
conjunction with the Company's 1992 audited financial statements and notes
thereto included at pages F-32 to F-42 of this Information Statement (the 1992
Financial Statements). The results of operations for the nine month period ended
September 30, 1993 are not neccessarily indicative of the results to be expected
for the full year.
2. The unaudited financial statements have been prepared using accounting
principles and practices consistent with those used for the 1992 Financial
Statements.
3. On February 8, 1993, Ethyl Corporation's French subsidiary, Ethyl France
S.A.R.L., completed the acquisition of 100% of the issued shares of the Company
from its two shareholders. In conjunction with the acquisition, the sellers
(Rhone-Poulenc's subsidiary, Thann et Mulhouse and Entreprise Miniere Et
Chimique) have jointly and severally indemnified Ethyl and the Company for any
future costs of environmental remediation for conditions existing at the date of
closing, for future incremental decontamination costs upon dismantling of the
electrolysis facility, and for any remediation required at an off-site disposal
site. In addition, the sellers have indemnified Ethyl and the Company, with
certain limitations, against costs of remediation for any additional future
mercury contamination arising from normal operations of the electrolysis
facility.
The accompanying unaudited balance sheet at September 30, 1993 and the
statements of income and cash flows for the nine months ended September 30, 1993
are presented using the Company's historical basis of accounting without the
effect of push-down accounting resulting from the acquisition.
4. As discussed in Note 3 above, Ethyl France S.A.R.L. acquired the stock
of the Company on February 8, 1993. As a result, Rhone-Poulenc, TM and EMC
ceased to be related parties. However, because of the continuing significance of
the sales, purchases and expenses resulting from the continuing business
relationships among the parties, the amounts for the nine months ended September
30, 1993 have been presented in a comparative format with the related party
transactions for the nine months ended 1992.
The following table presents sales, purchases and expenses resulting from
transactions with Rhone-Poulenc, TM and EMC (in thousands of French Francs):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1993 1992
<S> <C> <C>
Product sales to Rhone-Poulenc..................................................... 175,002 237,217
By-product sales to TM............................................................. 7,365 8,713
Raw materials purchases from EMC................................................... 69,171 75,855
Raw materials purchases from Rhone-Poulenc......................................... 2,458 1,552
Common facility payments to TM..................................................... 9,063 8,916
Waste disposal payments to EMC..................................................... 3,784 5,551
</TABLE>
F-46
<PAGE>
<PAGE>
POTASSE ET PRODUITS CHIMIQUES SA
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CASH INVESTMENTS AND INTEREST INCOME -- For the nine months ended September
30, 1993, the Company recorded interest income on cash deposited in the
Rhone-Poulenc common treasury pool (as described in the notes to the 1992
Financial Statements) of FF 2,010,000 on average invested cash balances of
approximately FF 51,000,000. For the nine months ended September 30, 1992, the
Company recorded interest income on cash deposited in the Rhone-Poulenc common
treasury pool of FF 9,799,000 on average invested cash balances of approximately
FF 114,000,000. The significant decrease compared to the nine months ended
September 30, 1992 is due to the payment in December 1992 of a special dividend
of FF 114,637,000 included in the statement of shareholders' equity for the year
ended December 31, 1992.
FOREIGN CURRENCY TRANSACTION GAINS AND LOSSES -- For the nine months ended
September 30, 1993, net realized gains (as described in the notes to the 1992
Financial Statements) totaled FF 2,560,000. The significant increase compared to
the nine months ended September 30, 1992 reflects the general strengthening of
other major currencies versus the French Franc. For the nine months ended
September 30, 1992, net realized gains totaled FF 301,000.
5. Supplemental information for the unaudited interim statements of cash
flows for the nine months ended September 30, 1993 and 1992 is as follows (in
thousands of French Francs):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1993 1992
<S> <C> <C>
Cash paid during the periods for:
Income taxes......................................................................... 17,490 4,017
Interest and financing............................................................... 1,248 1,572
</TABLE>
6. Inventories are detailed as follows (in thousands of French Francs):
<TABLE>
<S> <C>
Finished goods.......................................................................... 50,205
Work-in-process......................................................................... 1,065
Raw materials........................................................................... 10,328
Stores, supplies and other.............................................................. 8,120
Total................................................................................... 69,718
Less allowance for obsolescence......................................................... 4,799
Net..................................................................................... 64,919
</TABLE>
7. On June 21, 1993, ownership of a building was transferred from
Rhone-Poulenc's subsidiary Thann et Mulhouse to the Company to complete the
acquisition of the Company by Ethyl. This transaction resulted in a share
capital increase of FF 468,000, which represents the creation of 4,680 new
shares with a par value of FF 100 each, and additional paid-in capital of FF
6,458,000.
F-47
<PAGE>
<PAGE>
CHEMICALS
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants on Financial Statement Schedules..................................................... S-2
Schedule V -- Property, Plant and Equipment for the years ended December 31, 1992, 1991 and 1990....................... S-3
Schedule VI -- Accumulated Depreciation and Amortization of Property, Plant and Equipment for the years ended December
31, 1992, 1991 and 1990.............................................................................................. S-4
Schedule X -- Supplementary Income Statement Information for the years ended December 31, 1992, 1991 and 1990.......... S-5
</TABLE>
S-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders of Ethyl Corporation:
Our report on the combined financial statements of the olefins and
derivatives, bromine chemicals, and specialty chemicals businesses of Ethyl
Corporation (collectively defined as Chemicals), the predecessor businesses of
Albemarle Corporation, has been incorporated by reference from page F-2 of the
Information Statement for the Shareholders of Ethyl Corporation filed as an
Annex to the Form 10. In connection with our audits of such combined financial
statements, we have also audited the related financial statement schedules
listed in the index on page S-1 of this Annex to the Form 10.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND
Richmond, Virginia
December 3, 1993
S-2
<PAGE>
<PAGE>
CHEMICALS
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
BEG. BAL. ADDITIONS (1) RETIREMENTS OTHER END. BAL.
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1992
Land $ 25,573 $ 1,036 $ (103)(2) $ 26,506
Land improvements 29,747 9,376 $ 40 (371)(2) 38,712
Brinefields 16,187 1,124 127 17,184
Buildings 59,622 4,791 94 (364)(2) 63,955
Machinery and equipment (5) 846,212 167,317 9,470 (4,235)(2) 999,920
96 (3)
Construction in process (6) 132,101 (84,081) (3,344)(2) 44,673
(3)(3)
Total $1,109,442 $ 99,563 $ 9,731 $ (8,324) $1,190,950
DECEMBER 31, 1991
Land $ 25,545 $ 4 $ 24 (2) $ 25,573
Land improvements 28,004 1,671 $ 2 74 (2) 29,747
Brinefields 16,203 18 34 16,187
Buildings 55,046 4,506 30 100 (2) 59,622
Machinery and equipment (5) 774,083 79,990 10,281 2,005 (2) 846,212
415 (3)
Construction in process (6) 87,792 38,522 5,511 (2) 132,101
276 (3)
Total $ 986,673 $ 124,711 $10,347 $ 8,405 $1,109,442
DECEMBER 31, 1990
Land $ 23,865 $ 1,364 $ 316 (2) $ 25,545
Land improvements 22,600 1,840 $ 23 818 (2) 28,004
2,769 (4)
Brinefields 15,181 1,022 16,203
Buildings 50,074 3,541 79 1,299 (2) 55,046
(75)(3)
286 (4)
Machinery and equipment 679,488 57,439 8,554 13,265 (2) 774,083
(1,887)(3)
34,332 (4)
Construction in process (6) 39,899 51,417 (2,717)(2) 87,792
(807)(3)
Total $ 831,107 $ 116,623 $ 8,656 $ 47,599 $ 986,673
</TABLE>
1) Consists of normal additions for cash.
2) Foreign currency translation adjustment in accordance with Financial
Accounting Standards Board Statement No. 52, Foreign Currency Translation
(FASB Statement No. 52).
3) Reclassifications, including reclassifications to other balance sheet
accounts.
4) Acquisition of business (poly alpha olefins assets $37,387).
5) Includes in 1992 and 1991 additions of $104,100 and $15,700 respectively,
related to the new olefin manufacturing facilities in Feluy, Belgium.
6) Includes in 1992, 1991 and 1990 additions of $16,300, $49,400 and $42,900,
respectively, related to the new olefin manufacturing facilities in Feluy,
Belgium.
Depreciation is computed over the estimated useful lives of the related assets
resulting in annual depreciation rates of:
Land improvements -- Straight-line - 3.3% to 20%
Machinery and equipment -- Straight-line - 4% to 33.3%
Brinefields -- Straight-line - 10% which will approximate unit of production
Buildings -- Straight-line - 2.2% to 10%
S-3
<PAGE>
<PAGE>
CHEMICALS
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
BEG. END.
BAL. ADDITIONS RETIREMENTS OTHER BAL.
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1992
Land improvements $ 16,888 $ 1,741 $ 12 $ (153)(1) $ 18,464
Brinefields 12,024 664 113 12,575
Buildings 24,588 2,488 79 (180)(1) 26,817
Machinery and equipment 485,190 66,029 8,091 (1,801)(1) 541,236
(91)(2)
Total $538,690 $70,922 $ 8,295 ($ 2,225) $599,092
DECEMBER 31, 1991
Land improvements $ 15,354 $ 1,485 $ 1 $ 50 (1) $ 16,888
Brinefields 11,420 609 5 12,024
Buildings 22,567 1,989 28 60 (1) 24,588
Machinery and equipment 432,677 59,120 9,306 716 (1) 485,190
1,983 (2)
Total $482,018 $63,203 $ 9,340 $ 2,809 $538,690
DECEMBER 31, 1990
Land improvements $ 13,569 $ 1,382 $ 19 $ 422 (1) $ 15,354
Brinefields 10,798 622 11,420
Buildings 19,583 2,136 32 884 (1) 22,567
(4)(2)
Machinery and equipment 387,038 51,896 7,803 3,266 (1) 432,677
(1,720)(2)
Total $430,988 $56,036 $ 7,854 $ 2,848 $482,018
</TABLE>
1) Foreign currency translation adjustment in accordance with FASB Statement No.
52.
2) Reclassifications, including reclassifications to other balance sheet
accounts.
S-4
<PAGE>
<PAGE>
CHEMICALS
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COL. B
COL. A
CHARGE TO COSTS AND EXPENSES
ITEM 1992 1991 1990
<S> <C> <C> <C>
Maintenance and repairs $59,546 $60,493 $56,220
Taxes, other than payroll and
income taxes $11,907 $11,112 $ 8,219
</TABLE>
Royalties, amortization of intangibles and advertising costs are less than one
percent of revenue as reported in the related combined income statements for
1992, 1991 and 1990.
S-5
<PAGE>
SUPPLY OF LEAD ANTIKNOCK COMPOUNDS
This Agreement is made as of the 22nd day of December, 1993, (the
"Agreement") by and between The Associated Octel Company Limited, a company
existing under the laws of England and having its registered office at 23
Berkeley Square, London, W1X 6DT England, United Kingdom ("Octel"), and
Ethyl Corporation, a corporation existing under the laws of the
Commonwealth of Virginia and having its principal place of business at 330
South Fourth Street, Richmond, Virginia 23219 ("Ethyl").
W I T N E S S E T H
WHEREAS, Ethyl is engaged in the business of supplying Compounds (as
defined below) to customers located, and other customers not located, in
countries which are members of the European Economic Community ("E.E.C.")
or the European Free Trade Association ("E.F.T.A."), the member countries
of which as of the date of this Agreement are listed on Schedule A hereto,
and Ethyl wishes to purchase from Octel quantities of Compounds for the
purpose of supplying Compounds to all Ethyl customers, and
WHEREAS, Octel is prepared to sell Compounds to Ethyl on the terms
and conditions set forth below.
NOW, THEREFORE, Octel and Ethyl agree as follows:
1. MATERIAL AND PARTIES. (a) The material to be sold under this
Agreement shall consist of lead antiknock compounds (hereinafter called
"Compound" or "Compounds") of the types described in Schedule B hereto and
meeting the specifications set forth therein for each Compound. Such other
types of lead antiknock compounds as Octel may manufacture from time to
time for use by refineries shall be added to the scope of the term Compound
and made available for supply under this Agreement.
(b) In this Agreement "Ethyl" shall include Ethyl and its Affiliated
Companies and "Octel" shall include Octel and its Affiliated Companies.
The "Affiliated Companies" of a party shall mean any company controlling,
controlled by or under common control with that party and any company which
succeeds to the business, or ownership of the assets, of that party to
which this Agreement pertains.
2. TERM. (a) This Agreement shall be effective as of the date first set
forth above and shall continue for an initial term of five (5) Contract
Years, the first such Contract Year to be of six (6) calendar month's
duration running from July 1, 1994 until December 31, 1994, and each
subsequent Contract Year to be of twelve (12) calendar month's duration
running from each subsequent January 1 until the next following December 31
until the end of the initial term on December 31, 1998 (the "Initial
Term"). Notwithstanding the end of the Initial Term this Agreement shall
continue in effect thereafter for successive Contract Years for so long as
Ethyl determines that there continues to exist a market for Compounds.
3. QUANTITIES. (a) (i) Each Contract Year during the term and subject
to the provisions of this Agreement, and pursuant to the order procedure
set forth in Paragraph 3(b)(i), Octel shall make available for sale to
Ethyl the entire requirements of Ethyl to purchase Compounds for delivery
by Ethyl in such period to Ethyl's customers or for addition to inventory
by Ethyl or its affiliated companies (the "Ethyl Requirements"). The
foregoing notwithstanding the maximum quantity of Compounds which Octel
shall be obligated to make available for sale and sell to Ethyl pursuant to
this Agreement shall be unless otherwise agreed: during the first Contract
Year up to ____________________________; during each subsequent Contract
Year during the Initial Term up to __________________________ per Contract
Year; and during each Contract Year after the Initial Term during the term
of this Agreement up to _______________ of the total annual capacity of
Octel to manufacture or deliver from inventory Compounds during such
Contract Year. Octel shall not be obligated during a Contract Year to
deliver a quantity of Compound as TEL-SF in excess of ___________________
of Octel's capacity to manufacture or deliver same from inventory during
such Contract Year. Octel shall give Ethyl no less than one (1) year prior
written notice of any permanent shut down of Octel capacity to manufacture
Compounds and shall in any event continue to manufacture Compounds until
there no longer exists a market for Compounds sufficient to allow such
manufacture to be conducted on a basis economically viable for either or
both of the parties.
(ii) Except to the extent the obligations of Octel to sell and deliver
or of Ethyl to purchase and accept Compounds under this Agreement are
excused by Force Majeure Events, as defined in Paragraph 2(a) or pursuant
to Paragraph 3(a)(iv), Ethyl shall place orders for Compounds in accordance
with Paragraph 3(b)(i) during each Contract Year so that by the end of such
Contract Year the total cumulative quantity of Compounds ordered by Ethyl
during the term of this Agreement is not less than the total cumulative
quantity set forth below for such Contract Year. All direct purchases of
Compounds by Ethyl from Octel after January 1, 1994, shall count as
purchases hereunder.
The Total Cumulative
Purchase Quantity is
For Contract Year in metric tonnes
1
2
3
4
5
6
7
8
9
10
If in any Contract Year or Years Octel does not deliver Compound as ordered
by Ethyl hereunder, then the Total Cumulative Purchase Quantity for such
and each subsequent Contract Year shall be reduced by the amount of the
shortfall.
(iii) Notwithstanding Paragraph 3(a)(ii), if as a result of market
conditions or other circumstances such as Ethyl's decision to lower its
substantial inventories of Compounds (i.e., which inventories on the date
of this Agreement exceed _______________) Ethyl's total sales of Compounds
are less than __________ metric tonnes in any of the first ten (10)
Contract Years (other than the first Contract Year) and if Octel prior to
the end of such Contract Year notifies Ethyl in writing of the quantity
(the "Shortfall Quantity") of Compound which Octel requires Ethyl to order,
up to the quantity necessary so that Ethyl will have ordered the
appropriate Total Cumulative Purchase Quantity, and the parties thereafter
do not meet and mutually agree to Revised Total Cumulative Purchase
Quantities, Ethyl may elect either
to order a quantity of Compounds equal to the Shortfall
Quantity for delivery as promptly as practicable in the
circumstances, or
to suspend its obligations to order such Shortfall Quantity
until such subsequent Contract Year or Years as Ethyl may
thereafter choose, or
to pay to Octel the price prevailing for Compounds for the
last quarter of the said Contract Year as determined in
accordance with Schedule C to this Agreement for the Shortfall
Quantity as if delivered during the said Contract Year and take
delivery of that Shortfall Quantity of Compounds during such
subsequent Contract Year or Years as Ethyl may elect.
(iv) Ethyl shall be excused its minimum purchase obligations under
Paragraph 3(a)(ii) if and to the extent during any Contract Year Ethyl's
purchases of Compound are reduced as a result of the imposition of any new
or increased tax upon, or measured by the revenue or income earned from,
the sale or delivery of Compounds in connection with or for the purpose of
the prevention, mitigation or remediation of environmental harm arising out
of the storage, handling, transport, use or sale of lead antiknock
compounds which shall affect any market for and which in Ethyl's reasonable
opinion shall have a significant effect on its willingness to continue to
participate in such market for the sale of Compounds.
(v) If Ethyl does not wish in any Contract Year to place orders
pursuant to Paragraph 3(b)(i) for Compounds in accordance with its
obligations under this Paragraph 3, Ethyl may terminate this Agreement upon
written notice to Octel given not later than the April 1 preceding the
relevant Contract Year and Ethyl shall from and after such termination have
no obligation with respect to ordering quantities of Compounds under
Paragraphs 3(a)(ii) or 3(a)(iii).
(vi) During each Contract Year, Octel shall be obligated unless
otherwise agreed to deliver against orders from Ethyl up to the maximum
quantity of Compounds determined pursuant to Paragraph 3(a)(i), or such
greater quantity as the parties hereto may in writing agree.
(vii) Ethyl shall make an estimate of its then foreseeable
requirements for each forthcoming Contract Year known to Octel as early as
practicable and preferably no less than three (3) calendar months preceding
the Contract Year.
(viii) Octel has advised Ethyl that certain quantities of Compounds
required to be supplied hereunder will be supplied from its Affiliated
Companies. The provisions of this Agreement shall apply in the event of
the sourcing of Compounds hereunder from an Octel Affiliate.
(ix) It is the intent of the parties that deliveries to Ethyl shall be
spread (so far as is reasonably practicable) evenly over each Contract
Year, and in accordance with Ethyl's estimates to be supplied for planning
purposes under Paragraph 3(a)(vii).
(x) Notwithstanding agreement between the parties with respect to
tonnages to be supplied during any Calendar Year, Octel shall not be
obligated but may agree to supply Ethyl in any calendar quarter during the
first Contract Year more than _______ metric tonnes of Compounds and in any
calendar quarter during any Contract Year thereafter more than
_________________ of the maximum quantity of Compounds required to be
supplied during such Contract Year or more than ____________ thereof in any
two (2) succeeding calendar quarters of such Contract Year.
(b) (i) Ethyl shall as early as practicable prior to each calendar
quarter of each Contract Year place an order in writing with Octel for the
actual quantity of each type of Compound it intends to purchase in such
calendar quarter. In no case in any Calendar Year shall Ethyl place its
orders later than 1 April, 1 July, 1 October or 1 January for the actual
quantity of each type of Compound it intends to purchase in the calendar
quarters in such Contract Year commencing on 1 July, 1 October, 1 January
or 1 April, respectively.
Orders shall state the then anticipated means of delivery and in total
shall be within the maximum limit applicable to the relevant Contract Year
as established pursuant to Paragraphs 3(a)(i) and (ii) above.
(c) Any estimate furnished at any time by Ethyl to Octel shall be
given in good faith for Octel's planning purposes only and shall as
estimates not obligate Ethyl in any way, Ethyl being legally bound only by
its orders to purchase Compound.
(d) Octel shall in addition to the quantities of Compounds called for
in Paragraph 3(a)(i) make available and deliver to Ethyl, ex works (as
defined by Incoterms 1990), without charge to Ethyl and when and as
requested by Ethyl in writing (with such labels as Ethyl may specify in
such notice), such quantities of ASTM dilute fluid samples of Compounds
meeting the specifications set out on page two (2) to Schedule B hereto as
may reasonably be required by Ethyl's customers for motor fuel testing
purposes. The parties shall agree upon a mutually acceptable procedure for
the supply of such samples on a batch basis.
4. DELIVERIES. (a) Octel shall make deliveries of Compounds to Ethyl in
bulk or in portable equipment certified for antiknock service provided and
as requested by Ethyl at such delivery points as are mutually agreed by the
parties.
(b) Quantities of Compound delivered shall be determined by generally
accepted measuring practices such as tank ullage or other suitable
measuring means at Octel's production facility. Bulk shipments shall be
measured by representatives of each of the parties hereto. If either party
believes there is a reasonable basis to question measurement accuracy, it
may require test and correction thereof, cost to be borne by the party
proven to be incorrect. Any such test shall be conducted by an
appropriately qualified third party acceptable to Ethyl and Octel.
5. EQUIPMENT AND CONTAINERS. Ethyl shall have responsibility for
provision of transportation equipment and containers and for ensuring that
all such equipment and containers are fit for loading with Compound and are
duly certified as such in accordance with the requirements of any law or
codes of practice in relation thereto in effect in the country in which
delivery of Compound by Octel to Ethyl is scheduled to be made hereunder.
6. CERTAIN WARRANTIES AND REPRESENTATIONS. (a) Ethyl hereby warrants to
Octel that as of the date of this Agreement:
(i) Ethyl will utilise or procure the use of transportation
equipment and containers of a quality at least comparable to the quality of
the transportation equipment and containers customarily used in connection
with its shipments of lead antiknock compounds.
(ii) Ethyl or its designees will provide worldwide emergency
services for the purpose of responding to such accidents or incidents as
may occur from time to time in connection with its distribution of lead
antiknock compounds.
(iii) Ethyl or its designees will offer technical advice and
assistance services concerning the use and application of lead antiknock
compounds to end users of such compounds.
(iv) To the extent Octel by separate agreement contracts to provide
such services for Ethyl, Ethyl will offer cleaning and decontamination and
destruction services for lead antiknock compound tanks and other containers
and facilities for the disposal of contaminated matter arising from such
operations.
(b) Without prejudice to Octel's right to exercise any other remedies
or rights in respect thereof, Octel shall not be entitled to refuse to
supply Compounds to Ethyl hereunder as a result of breach of any of the
matters set forth in Paragraph 6(a).
7. SCHEDULES. Where deliveries of Compound are to be made in bulk aboard
a vessel provided by Ethyl a delivery schedule shall be established between
the parties and shall govern. Ethyl shall notify Octel not less than
thirty (30) and again fifteen (15) days in advance of the estimated time of
arrival of each Ethyl Vessel at the loading port. Thereafter, Ethyl shall
notify Octel promptly of each and every change in such vessel's estimated
time of arrival at the loading port. A berth will be made available to
such vessel immediately upon arrival in the area of the loading port
failing which Octel shall pay demurrage at an agreed rate for each day or
part thereof of delay in so providing a berth where the delay results
solely from the fault of Octel. The vessel shall be entitled to remain at
the berth without penalty until completion of loading, provisioning and
bunkering. Should a longer time than normal be required for loading
through the fault of the vessel, the vessel shall nevertheless be allowed
to continue loading without penalty. The foregoing sentence
notwithstanding, Ethyl shall reimburse Octel for the amount of demurrage
Octel is required to pay to a third party vessel which is unable to occupy
such berth in accordance with a schedule previously notified in writing to
Ethyl as a result solely of and to the extent attributable to the failure
of the Ethyl Vessel to vacate such berth as a result of delay to loading
caused by the fault of the Ethyl Vessel.
8. PRICE. (a) The price of all Compounds sold under this Agreement
shall be ______________________.
(b) Octel shall pay all taxes, excises and other charges assessed
against it or the Octel Affiliates by any tax authority in connection with
the manufacture of Compound for sale to Ethyl hereunder, and the sale
thereof to Ethyl. The price shall exclude any Value Added Tax or Excise
Duty that may be applicable to the sale of the Compound. Any such Value
Added Tax or Excise Duty together with the price shall be paid by Ethyl to
Octel within 30 days following the date of Octel's Value Added Tax or
Excise Duty invoice. If there is any increase to or new imposition of
taxes, duties or other charges subsequent to the effective date of this
Agreement (other than taxes on income or profits and franchise and similar
taxes), which shall increase the cost to Octel of producing Compound to be
supplied to Ethyl hereunder or selling such Compound to Ethyl, the portion
of such taxes, duties or other charges attributable to such production for
Ethyl shall be to the account of Ethyl. If Ethyl finds any such tax,
duties or other charges to be unacceptable for any reason, Ethyl shall have
the right to decline to place further orders for Compound from Octel
subject to such tax, duties or other charges, without any liability to
Octel, but this Agreement shall otherwise continue in effect in accordance
with its terms.
(c) Any duty drawback which may be available to either party by
reason of the export of Compound supplied pursuant to this Agreement from
the country of manufacture shall be for the benefit of the party having
paid such duty. The parties shall cooperate with one another in connection
with the recovery of such duty drawback to the extent necessary under the
circumstances.
9. INVOICING AND PAYMENT. (a) Octel shall promptly submit invoice(s) to
Ethyl in US dollars in respect of each delivery of Compound made under this
Agreement. All invoices submitted to Ethyl by Octel under this Agreement
shall be transmitted if feasible at the time by facsimile transmission and
in any case mailed to Ethyl by courier or other expedient and rapid mail
service to the address set forth in Paragraph 17 or such other address as
Ethyl may from time to time direct in writing. When Compound is sourced
from an Octel Affiliated Company pursuant to Paragraph 3(a)(viii), Octel in
accordance with Paragraph 16 may elect itself to invoice Ethyl for the
amount payable therefore and/or to procure that its Affiliated Company
submit invoice(s) for the Compound involved. Octel shall notify Ethyl in
advance in writing of Octel's election in that regard and Ethyl shall upon
payment of such invoice(s) have no further liability to Octel or its
Affiliated Company with respect thereto provided that, if Octel elects
itself to invoice Ethyl for Compound delivered by an Octel Affiliate, Octel
shall transmit with Octel's notice of election a duly authorized and
executed consent of the Affiliated Company to such invoice by Octel and in
such case Ethyl shall raise no objection to the origin of such invoice or
invoices.
(b) .
(c)
_________________________________________________________________.
(d) Ethyl shall pay Octel's correct invoices not later than thirty
(30) days following the date of each such invoice. Payment shall be made
by wire transfer in US dollars into such account or accounts as shall be
notified to Ethyl by Octel or its Affiliated Companies in writing from time
to time. If payment cannot be made by wire transfer for any reason, such
payment shall be made by such other means as Octel may reasonably specify
in writing to Ethyl.
(e) If Ethyl has a bona fide dispute regarding any portion of an
Octel invoice, Ethyl may withhold only that portion from Octel and shall,
within thirty (30) days of its receipt of such invoice, notify Octel of the
amount Ethyl is withholding, together with a detailed explanation of the
basis for the dispute. Ethyl shall pay the remaining portion of the
invoice directly to Octel. Within thirty (30) days of Octel's receipt of
Ethyl's detailed explanation, Octel shall send Ethyl a statement explaining
why, in Octel's judgment, such amounts are rightly due Octel. The parties
shall thereafter work together, in good faith, to resolve any disputes and
to mutually agree upon which portions, if any, of the disputed amounts
withheld by Ethyl are rightly due Octel and which portions, if any, are
rightly retained by Ethyl. If the total of all such disputed amounts
exceeds Twenty-five Thousand Dollars ($25,000), either party may, at any
time, elect to proceed with the dispute resolution process, set forth in
Paragraph 14 hereof.
(f) Any delinquent or overdue amounts which were not paid which are
not the subject of a detailed explanation for withholding pursuant to
Paragraph 9(e) hereof, or which are subject to a detailed explanation for
withholding and which are resolved in favor of Octel, shall be subject to a
finance charge at the average LIBOR in effect during the period of such
nonpayment.
10. TITLE TO AND RISK OF LOSS. Title to and risk of loss of Compound sold
hereunder shall remain with Octel until at the place of manufacture such
Compound passes the vessel loading flange in the case of bulk deliveries
and until departure from Octel's facility in all other cases of portable
tank, truck, rail car or other form of container containing Compound. All
deliveries shall be Ex Works (as defined by Incoterms); provided that, if
any Ex Works term (as so defined) is inconsistent with any provision of
this Agreement (including without limitation the preceding sentence), this
Agreement shall govern.
11. WARRANTIES. (a) Octel warrants that Compound delivered under this
Agreement shall meet the applicable specifications set out on Schedule B
hereto. Octel warrants that at the time of transfer of title to Compound
sold hereunder, it shall have good title to and the full right and
authority to sell such Compound hereunder and that such Compound shall be
free and clear of all liens, claims, and encumbrances. Octel warrants that
Compound delivered hereunder shall be of merchantable quality and meet
acceptable standards common in the industry. Octel warrants that Compound
supplied under this Agreement does not incorporate any trade secret,
copyright, trademark or patent of any third party pursuant to which a suit
for infringement could reasonably be brought. Octel does not make any
other warranties as to Compound supplied hereunder and Ethyl hereby accepts
full responsibility for all product liability arising after passage of
title to Ethyl hereunder with respect to Compound supplied pursuant to this
Agreement except when such product liability is caused by any failure of
Octel to comply with the requirements of this Agreement.
(b) Octel shall in the course of manufacturing Compound to be
delivered to Ethyl hereunder carry out periodic quality testing to ensure
its conformity with specifications and prior and as a condition to delivery
of such quantity hereunder, Octel shall when reasonably requested by Ethyl
provide to Ethyl a written certificate of analysis showing such conformity.
(c) The liability of Octel to Ethyl for damages for delivered
Compound which is not merchantable or does not conform to specifications
shall be limited to the price paid by Ethyl for the Compound in question
and will in no event include incidental, consequential or special damages.
The foregoing notwithstanding, if Ethyl so elects, Octel shall replace such
Compound and pay such extra freight costs as result from delivery of such
Compound.
(d) Subject to Paragraph 12, if Octel fails to sell and deliver
Compounds to Ethyl in accordance with its obligations arising under this
Agreement, Octel shall be liable to Ethyl for and shall indemnify, defend
and hold Ethyl harmless against any and all loss, liability, cost and
expense (including costs of litigation and of reasonable attorneys' fees)
which may result from or be caused by such failure.
(e) Without prejudice to Paragraph 11(d), Ethyl shall indemnify,
defend and hold Octel harmless against any and all loss, liability, cost
and expense (including costs of litigation and of reasonable attorneys'
fees) arising from events occurring after the passage of title to Ethyl
hereunder and resulting from the use by third parties of Compound which
when delivered conformed to the requirements of this Agreement.
12. CONTINGENCIES. (a) Subject to the last sentence of this Paragraph
12(a) neither Octel nor Ethyl shall be liable for any failure to perform
any obligation under this Agreement where such failure to perform is caused
by an event or circumstance beyond the reasonable control of the party
affected thereby ("Force Majeure Event"). Without limiting the generality
of the foregoing, a Force Majeure Event may include fire, storm, flood, act
of God, war, explosion, sabotage, strike or other labor trouble, shortage
of fuel and/or raw materials, embargo, car/wagon shortage, accident,
expropriation of plant, the Compound and/or raw materials in whole or in
part by any governmental authority, inability to secure machinery and/or
other equipment or energy or raw materials for the manufacture or transport
of the Compound, inability to obtain vessel or cargo insurance at
reasonable cost due to conditions of war, revolution or civil unrest, or
acts or threat of action by any government or of any agency thereof. No
event or circumstance shall serve to excuse an obligation to perform
hereunder if such event could have been prevented through the exercise of
reasonable diligence.
(b) If a Force Majeure Event affects any customer of Ethyl for
Compound or if any customer of Ethyl fails or refuses to honor its
agreement to purchase Compound from Ethyl (if due to the occurrence of a
Force Majeure Event affecting such customer), such event or circumstance
shall, save for and without prejudice to Ethyl's obligation to pay for
Compound theretofore delivered to Ethyl pursuant hereto, be deemed a Force
Majeure Event affecting Ethyl.
(c) In the event of a shortage of Compound or a delay in its shipment
or delivery, occasioned by a Force Majeure Event affecting Octel, Octel
shall allocate all Compound available from its own production and inventory
among the then existing contract customers of Octel (including Ethyl and
the shareholder customers of Octel) in accordance with the following
sentence, which shall remain in effect until Octel's production capability
is no longer affected by such force majeure event. Octel shall calculate
the total amount of all Compound estimated to be available to it from
production each calendar month and make up to _______________ thereof
available to Ethyl hereunder.
(d) Compound allocated to any contract customer for any calendar
month for which that customer fails to place an order by the end of the
month in question shall be included in the total amount of Compounds
available for allocation amongst all customers in the following months.
(e) A party claiming the benefit of this provision shall provide
written notice of the Force Majeure Event to the other and take all
reasonable steps to cure the problem causing the inability to deliver or
receive. In the case of a Force Majeure Event affecting Octel, in no event
will Octel be obligated to make up any deficiencies in delivery by purchase
of such product as may be available from third parties. In the case of a
Force Majeure Event affecting Ethyl, in no event will Ethyl be obligated to
make up the resulting deficiency in its purchases of Compounds hereunder by
additional purchases at subsequent times in the relevant Contract Year.
Notwithstanding the foregoing (and as an overriding provision hereunder)
nothing herein shall discharge Ethyl's obligation to make payment as
provided in Paragraph 9 for Compound in respect of which title and risk of
loss shall have passed to Ethyl pursuant to Paragraph 10 hereof unless
Ethyl's payment systems are affected by a Force Majeure Event in which case
Ethyl's obligation shall be fulfilled as promptly as possible following the
correction of such force majeure event.
13. WAIVER. Failure of either party to insist in any instance on the
strict performance of any covenant, term, provision or condition of this
Agreement or to exercise any option herein contained shall not be construed
as a waiver of such covenant, term, provision, condition or option in any
other instance.
14. DISPUTES. Any dispute between the parties with respect to this
Agreement which the parties are unable to resolve through mutual
consultations and negotiations within thirty (30) days following
notification by one party to the other in writing of the existence of such
a dispute, may be submitted by either party for arbitration in London in
accordance with the Rules of the London Court of International Arbitration
by one arbitrator to be appointed by agreement between the parties. If the
parties fail to agree upon an arbitrator, the arbitrator shall be appointed
by the President for the time being of the Institution of Chemical
Engineers. Either party shall be entitled to make such submission at any
time following the last day of such thirty (30) day period by written
notice to the other party, but no submission may be made later than 18
months following the date of the written notification by one party to the
other of the existence of the dispute. Pursuant to Section 3 of the
Arbitration Act 1979, the parties hereby exclude any right either might
have to appeal to the High Court on any point arising out of the
arbitrator's decision or to apply to the High Court for it to determine any
question of law arising in the course of the reference. Any arbitral award
shall be binding on the parties and judgement upon the award may be entered
in any court having jurisdiction. The law of England shall govern this
contract.
15. CHANGES AND SUBSTITUTIONS. (a) Octel will not change the quality,
nature and/or specifications of any Compounds unless authorized in writing
by an Ethyl representative or unless otherwise required by the law of the
country in which the Compound shall be manufactured by or on behalf of
Octel in which event Octel shall give prior written notice thereof to
Ethyl. In such latter event, Ethyl shall within twenty eight (28) days of
receipt of such notice advise Octel as to whether it wishes to take such
reconstituted Compound and if Ethyl shall advise Octel that it does not
wish to take delivery thereof, Ethyl shall have no further obligation to
Octel to take, nor shall Octel have any further obligation to supply
Compound hereunder.
(b) Octel shall not be obligated by Ethyl to change the quality,
nature and/or specifications of any of the Compounds unless such change has
Octel's agreement.
16. ASSIGNMENT. The rights and obligations of the parties hereunder shall
not be assigned or transferred without the prior written consent of the
other, such consent not to be unreasonably withheld. The foregoing
notwithstanding either party may without the consent of the other assign
all or part of its rights under this Agreement to an Affiliated Company of
the assignor or to another party in connection with its merger into or sale
to such other party of substantially all of its assets or of the business
or assets to which this Agreement pertains. However, pursuant to Paragraph
3(a)(iv), Octel may designate by notice in writing to Ethyl an Octel
Affiliate for so long as it remains an Octel Affiliate, as the manufacturer
in respect of any particular order or orders for Compound, up to the
quantities stated in the notice. To the extent that such Octel Affiliate
manufactures such Compound which is then supplied to Ethyl, Octel shall be
relieved of such obligation to manufacture. Octel hereby guarantees the
performance by its designated Affiliate in respect of any manufacture
pursuant to this Paragraph 16. In the event that an Octel Affiliate is
designated as a manufacturer of Compound either Octel or the Octel
Affiliate, at the option of Octel, may invoice Ethyl for the Compounds
manufactured by the said Octel Affiliate the US dollar price for such
quantities calculated in accordance with this Agreement. Any terms and
conditions set forth in the invoice or other documents issued by the Octel
Affiliate shall be of no force or effect. Except to the extent expressly
provided in this Paragraph 16, Octel shall continue to be fully responsible
for the performance of its obligations under the Agreement.
17. NOTICES. Notice to either party under any provision of this Agreement
shall be deemed good and sufficient if delivered in person or sent by telex
or telefax to the other party and promptly confirmed by airmail to the
address of such party noted below or such other address as such party has
directed in a signed writing. Notice shall be effective on the date
delivered in person or sent by telex or telefax.
Notice shall be addressed:
If to Ethyl:
Ethyl Corporation
330 South Fourth Street
Richmond, VA 23219
Attention: Manager, Antiknock Operations
Copy to: Business Director, Antiknocks
Telex: 828319
Telefax: (804) 788-5124
If to Octel:
The Associated Octel Company Limited
23 Berkeley Square
London W1X 6DT
Attention: Director of Petroleum Additives Marketing
Copy to: Manager - Supply & Distribution
Telex: 25107
Telefax: 071-491-2332
18. MISCELLANEOUS. (a) This Agreement constitutes the entire agreement
of the parties concerning the sale and purchase of Compounds and there are
no representations, warranties or understandings other than those set forth
herein. No change or modification shall be effected except by a writing
executed by both parties.
(b) Printed terms and conditions in conflict with, or in addition to,
the provisions hereof appearing on any document used by either party in
connection with transactions relating to this Agreement shall be of no
force or effect.
(c) Recognising that Octel and Ethyl shall continue to compete
vigorously in the marketing and sale of Compounds around the world, under
no circumstances shall the parties discuss with one another (or provide one
another with any information concerning) any aspect of the lead antiknock
compound market, including without limitation information concerning market
prices or customers of Compounds supplied to Ethyl hereunder.
IN WITNESS WHEREOF, the parties have cause this Agreement to be executed
effective as of the date first above written by their duly authorized
representatives.
ETHYL CORPORATION
By: _________________________________
Title: ______________________________
THE ASSOCIATED OCTEL COMPANY LIMITED
By: _________________________________
Title: ______________________________
<PAGE>
SCHEDULE A
EFTA EEC
---- ---
Austria UK
Switzerland Spain
Sweden Italy
Norway France
Finland Belgium
Greenland Holland
Greece
Ireland
Denmark
Luxembourg
Germany
Portugal
<PAGE>
SCHEDULE B
Page 1 of 2
COMPOSITION AND PHYSICAL PROPERTIES OF COMPOUNDS
<TABLE>
TEL-SF TEL-B TEL-CB TML-CB PM25-CB PM5O-CB PM76-CB CB250-CB
------ ----- ------ ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMPOSITION % m/m
Tetraethyl lead 61.49 61.49 61.49 - 46.12 30.75 15.37 28.08
Tetramethyl lead - - - 50.82 12.70 25.41 38.12 28.08
Total lead alkyls 61.49 61.49 61.49 50.82 58.82 56.16 53.49 56.16
Dibromoethane - 35.72 17.86 17.86 17.86 17.86 17.86 17.86
Dichloroethane - - 18.81 18.81 18.81 18.81 18.81 18.81
Toluene - - - 12.45 3.11 6.23 9.34 6.23
Dye Inerts 38.51 2.79 1.84 0.06 1.40 0.94 0.50 0.94
Total 100.00 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Pb content % m/m
% m/v 39.39 39.39 39.39 39.39 39.39 39.39 39.39 39.39
68.74 62.91 62.16 62.71 62.51 62.35 62.51
PHYSICAL PROPERTIES
Specific gravity at
20 deg/4 deg C nominal 1.24 1.75 1.60 1.58 1.59 1.59 1.58 1.59
Specific gravity correction
(per deg C) 0.0016 0.0015 0.0018 0.0017 0.0017 0.0017 0.0017
Coefficient of expansion
(per deg C) 0.00096 0.00098 0.00117 0.00112 0.00113 0.00113 0.00113
Vapour pressure at:
20 deg C mmHg 30 50 65 50 60 60 55
mbar 40 67 87 67 80 80 73
*Freezing point deg C -9 -39 -55 -41 -45 -48 -45
Kinematic viscosity at
20 deg C cP 0.99 0.83 0.63 0.78 0.73 0.68 0.73
Specific heat capacity
J/kg deg C 0.84 0.96 0.98 0.96 0.96 0.96 0.96
</TABLE>
All TEL Compounds contain Topanol O as inhibitor equivalent to 0.16% m/m of lead
content.
*The temperature at which dibromoethane begins to freeze out.
<PAGE>
SCHEDULE B
Page 2 of 2
DILUTE COMPOUND SPECIFICATIONS
SUPPLIED IN 500 ML CANS
Ph concentration
Type Order Code @ 20 deg C g/ml Colour
- -------------- ---------- ---------------- ------
Dilute TEL-CB* E 0.1005 Orange
plus or minus
0.0010
Dilute TML-CB* F 0.1005 Orange
plus or minus
0.0010
Dilute TEL-B** G 0.1123 Blue
plus or minus
0.0010
Dilute CR5O-CB* H 0.1005 Orange
plus or minus
0.0010
Dilute TEL-SF* J 0.1005 Red
plus or minus
0.0010
* 2 ml dilute compound in 400 ml gasoline equals 0.50 g Pb/liter
** 2 ml dilute compound in 400 ml gasoline equals 2 ml TEL/USG (0.56g
Pb/liter)
IN ADDITION TO THE ABOVE LEAD CONTENT SPECIFICATIONS, TYPE "G" (TEL-B)
DILUTE COMPOUND MUST MEET THE ASTM SPECIFICATION SO THAT A MIXTURE OF 2.00
ML OF DILUTE COMPOUND TYPE G WITH 400 MLs OF ASTM 80 OCTANE NUMBER BLEND
(80% ISO-OCTANE 20% N-HEPTANE BY VOLUME), WHEN RATED BY METHOD D2699
(RON), SHOULD GIVE 94.1 RON plus or minus 0.3 RON.
<PAGE>
SCHEDULE C
Price for Compounds to be sold to Ethyl
Customers located in countries NOT listed
on Schedule A
[Subject to a request for confidential treatment,
the information in this Schedule has
been intentionally omitted.]
<PAGE>
SCHEDULE D
Price for Compounds to be sold to Ethyl Customers
located in countries listed on Schedule A
[Subject to a request for confidential treatment,
the information in this Schedule has
been intentionally omitted.]
