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Page 1 of 13 Pages
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Transition Period from to
For Quarter Ended March 31, 1996 Commission File Number 1-5112
ETHYL CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0118820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 SOUTH FOURTH STREET
P. O. BOX 2189
RICHMOND, VIRGINIA 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (804) 788-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares of common stock, $1 par value, outstanding as of
April 30, 1996: 118,443,835.
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ETHYL CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996
and December 31, 1995 3 - 4
Consolidated Statements of Income - Three Months
Ended March 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 6
Notes to Financial Statements 7 - 8
ITEM 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 9 - 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
2
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ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31
1996 December 31
ASSETS (unaudited) 1995
---------- -----------
Current assets:
Cash and cash equivalents $ 35,201 $ 29,972
Accounts receivable, less allowance for
doubtful accounts (1996 - $2,313; 1995 -
$2,317) 213,940 169,451
Inventories:
Finished goods 175,031 146,010
Raw materials 31,277 13,285
Stores, supplies and other 7,647 6,587
---------- -----------
213,955 165,882
Deferred income taxes and prepaid expenses 12,521 23,207
---------- -----------
Total current assets 475,617 388,512
---------- -----------
Property, plant and equipment, at cost 753,387 713,635
Less accumulated depreciation and
amortization (296,027) (285,327)
---------- -----------
Net property, plant and equipment 457,360 428,308
Other assets and deferred charges 152,724 151,833
Goodwill and other intangibles - net of
amortization 61,980 15,134
---------- -----------
Total assets $ 1,147,681 $ 983,787
========== ==========
See accompanying notes to financial statements.
3
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ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
March 31
1996 December 31
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 1995
--------- -----------
Current liabilities:
Accounts payable $ 77,247 $ 55,903
Accrued expenses 65,990 58,682
Cash dividends payable 14,806 14,806
Income taxes payable 21,989 16,379
--------- ----------
Total current liabilities 180,032 145,770
Long-term debt 429,025 302,973
Other noncurrent liabilities 89,333 84,171
Deferred income taxes 36,299 40,745
Shareholders' equity:
Common stock ($1 par value)
Issued - 118,443,835 in 1996 and 1995 118,444 118,444
Additional paid-in capital 2,799 2,799
Foreign currency translation adjustments 729 2,090
Retained earnings 291,020 286,795
--------- ----------
412,992 410,128
--------- ----------
Total liabilities and shareholders' equity $ 1,147,681 $ 983,787
========== ==========
See accompanying notes to financial statements.
4
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ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31
-------------------
1996 1995
------- --------
Net sales $242,185 $ 234,291
Cost of goods sold 166,128 152,112
------- --------
Gross profit 76,057 82,179
Selling, general and administrative expenses 23,843 23,400
Research, development and testing expenses 16,312 19,279
------- --------
Operating profit 35,902 39,500
Interest and financing expenses 5,925 6,264
Other (income), net (530) (400)
------- --------
Income before income taxes 30,507 33,636
Income taxes 11,477 12,143
------- --------
Net Income $ 19,030 $ 21,493
======= ========
Earnings per share $ .16 $ .18
======= ========
Shares used to compute earnings per share 118,456 118,438
======= ========
Cash dividends per share of common stock $ .125 $ .125
======= ========
See accompanying notes to financial statements.
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ETHYL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Three Months Ended
March 31
--------------------
1996 1995
-------- --------
Cash and cash equivalents at beginning of year $ 29,972 $ 31,166
Cash flows from operating activities:
Net income 19,030 21,493
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization 13,415 10,932
Working capital decreases, net of effects from
acquistion 5,630 4,316
Other, net 1,107 848
-------- --------
Cash provided from operating activities 39,182 37,589
-------- --------
Cash flows from investing activities:
Acquisition of business (net of $1,245 cash acquired) (134,615) -
Capital expenditures (10,162) (13,541)
Other, net (371) 1,047
-------- --------
Cash used in investing activities (145,148) (12,494)
-------- --------
Cash flows from financing activities:
Additional long-term debt 126,000 -
Repayment of long-term debt - (2,500)
Cash dividends paid (14,805) (14,807)
Other, net - 196
-------- --------
Cash provided from (used in)financing activities 111,195 (17,111)
-------- --------
Increase in cash and cash equivalents 5,229 7,984
-------- --------
Cash and cash equivalents at end of period $ 35,201 $ 39,150
======== ========
See accompanying notes to financial statements.
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ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
1. In the opinion of management, the accompanying consolidated
financial statements of Ethyl Corporation and Subsidiaries (the
"Company") contain all adjustments necessary to present fairly,
in all material respects, the Company's consolidated financial
position as of March 31, 1996, the consolidated results of
operations for the three-month periods ended March 31, 1996 and
1995 and the consolidated cash flows for the three-month periods
ended March 31, 1996 and 1995. All adjustments are of a normal,
recurring nature. These financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the December 31, 1995, Annual Report. The
December 31, 1995, consolidated balance sheet data was derived
from audited financial statements but does not include all
disclosures required by generally accepted accounting
principles. The results of operations for the three-month
period ended March 31, 1996, are not necessarily indicative of
the results to be expected for the full year.
2. On February 29, 1996, the Company completed the acquisition
of the worldwide lubricant additives business of Texaco Inc.,("Texaco")
including manufacturing and blending facilities, identifiable
intangibles and working capital. The acquisition, accounted for
under the purchase method, included a cash payment of $135.9
million (subject to adjustment based on final working capital
determinations) and a future contingent payment of up to $60
million. The cash payment was financed primarily under the
Company's revolving credit agreement. The payment of up to $60
million will become due on February 26, 1999, with interest
payable on the contingent debt until such date. The actual
amount of the contingent payment and total interest will be
determined using an agreed-upon formula based on volumes of
certain acquired product lines shipped during the calendar years
1996 through 1998, as specified in the contingent note
agreement. Texaco retained substantially all noncurrent
liabilities.
As the Company's 1996 financial statements only include one
month of operations of the recently acquired lubricant additive
business, the following selected unaudited pro forma information
is being provided to present a summary of the combined results
of the Company and the worldwide lubricant additives business of
Texaco as if the acquisition had occurred as of the beginning of
each respective period, giving effect to adjustments for
interest expense that would have been incurred to finance the
acquisition and other purchase accounting adjustments. The pro
forma data is for informational purposes only and may not
necessarily reflect the results of operations of Ethyl had the
acquired business operated as part of the Company for the
three-month periods ended March 31, 1996 and 1995.
Three Months Ended
March 31
1996 1995
------- -------
Net Sales $291,360 $321,527
Net Income $ 17,928 $ 22,347
Earnings Per Share $.15 $.19
7
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<PAGE>
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(In Thousands Except Per-Share Amounts)
(Unaudited)
3. Long-term debt consists of the following: March 31 December 31
1996 1995
-------- ---------
Variable-rate bank loans (average effective
interest rates were 6.0% for the three-month
period ended March 31, 1996 and 6.4% for
the year 1995) $387,000 $270,000
5.76% Bank Credit Agreement 9,000 -
8.6% to 8.86% Medium-Term Notes due through 2001 33,750 33,750
------- -------
Total long-term debt 429,750 303,750
Less unamortized discount (725) (777)
------- -------
Net long-term debt $429,025 $302,973
======= =======
(No portion of the contingent note payable principal related to the
purchase of the lubricant additives business from Texaco has been
recorded on the March 31, 1996 balance sheet.)
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is management's discussion and analysis of certain
significant factors affecting the Company's results of
operations during the periods included in the accompanying
consolidated statement of income and changes in the Company's
financial condition since year-end 1995. The Company's 1996
results of operations include one month's results of the
lubricant additives business from Texaco, Inc. ("Texaco"), acquired on
February 29, 1996, while the balance sheet at March 31, 1996, includes a
preliminary allocation of purchase price, and other purchase accounting
adjustments, as well as borrowing used to finance the acquisition .
Results of Operations
First Quarter 1996 Compared with First Quarter 1995
Net sales for the first quarter of 1996 amounted to $242.2
million, up $7.9 million from $234.3 million in 1995. The
increase primarily reflected the inclusion of $20.6 million
of revenues from the worldwide lubricant additives business
acquired from Texaco February 29, 1996, and higher sales of
certain fuel additives. The increase in net sales was due to
higher shipments ($9.3 million) primarily of lubricant additives,
including the $20.6 million from the acquired business, as well
as price increases in most other major product lines, largely
offset by lower shipments and selling prices of other lubricant
additives products, and lower shipments of lead antiknocks and
certain other refinery fuel additives.
Cost of goods sold in 1996 of $166.1 million increased $14.0
million from the 1995 quarter. The increase in cost of goods
sold primarily reflected including one month's cost of the
worldwide lubricant additives business acquired from Texaco
(about $18.1 million) as well as higher shipments of non-lead
antiknock fuel additives and an unfavorable foreign exchange
effect. The overall increase was offset in part by lower
shipments of most of the Company's other product lines as well
as nonrecurring costs in first quarter 1995 associated with
starting up certain lubricant additives facilities.
The net result of a 3% increase in net sales and a 9% increase
in cost of goods sold was that the gross profit margin decreased
to 31.4% in the 1996 quarter from 35.1% in the 1995 quarter.
Selling, general and administrative expenses, combined with
research, development and testing expenses, amounted to $40.2
million in the first quarter 1996, down $2.5 million from $42.7
million in the first quarter 1995. The decrease primarily
results from a reduction in research, development and testing
expenses, primarily due to lower outside testing costs in the
1996 period largely reflecting the benefit of having the
Company's research laboratory fully operational and the
timing of certain research activities. This reduction was
partially offset by higher expenses related to marketing
activities for HiTEC (R) 3000 performance additive ("MMT").
As a percentage of net sales, selling, general and
administrative expenses, including research, development
and testing expenses, decreased to 16.6% during the 1996
quarter from 18.2% during the 1995 quarter.
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Operating profit in the 1996 quarter decreased to $35.9 million,
down $3.6 million from $39.5 million in the 1995 quarter. Most
of the decrease resulted from the effect of lower margins
reflecting weaker petroleum additives market conditions as well
as an unfavorable foreign currency variance compared to first
quarter 1995. These factors were partially offset by the
inclusion of one month's operations of the recently acquired
lubricant additives business.
Interest expense in 1996 decreased 5% to $5.9 million from $6.3
million in the 1995 period. The lower interest cost primarily
reflects $2.1 million lower interest from lower average interest
rates as a result of replacing a $200 million, 9.8% note on
September 15, 1995, with lower cost variable-rate debt, mostly offset
by higher interest expense from an increase in average debt
outstanding reflecting the effect of the funds used to finance
the lubricant additives acquisition on February 29, 1996, as
well as a reduction of about $1.4 million in interest expense capitalized
in the 1996 period than in the 1995 period.
Other income, net, increased to $530 thousand in 1996 from $400
thousand in 1995. The increase reflects changes in a number of
nonoperating items, none of which are material in either period.
Income Taxes
Income taxes in first quarter 1996 decreased 5% from first
quarter 1995, primarily due to a 9% decrease in pretax income,
partially offset by the effect of a higher effective rate
(37.6% in the 1996 quarter versus 36.1% in the 1995 quarter).
The first quarter 1995 effective tax rate was lower than the
current quarter primarily due to the benefit included in 1995
from a redetermination of prior year research and development
tax credits resulting from a change in federal tax regulations.
Financial Condition and Liquidity
Cash and cash equivalents at March 31, 1996, were about $35.2
million, which represents an increase of about $5.2 million from
$30.0 million at year-end 1995.
Cash flows were more than sufficient to cover operating
activities during the 1996 period. Cash flows from operating
activities of $39.2 million, together with $126.0 million in
additional long-term debt were used to fund the acquisition of
the worldwide lubricant additives business from Texaco at
a purchase price of $135.9 million, and to cover capital
expenditures of $10.2 million and cash dividends to shareholders
of $14.8 million, as well as an increase in cash and cash
equivalents of $5.2 million. Management anticipates that cash
provided from operations in the future will be sufficient to
10
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cover the Company's operating expenses, service debt obligations, including
reducing long-term debt, and make dividend payments to shareholders.
Ethyl's long-term debt amounted to $429.0 million at March 31,
1996, representing an increase in long-term debt of about $126
million from December 31, 1995, primarily representing funds
borrowed in connection with the lubricant
additives acquisition. The Company also has a Contingent Note
of up to $60 million payable to Texaco. The actual amount due
on the Contingent Note will be determined using an agreed upon
formula based on volumes of certain acquired product lines
shipped during calendar years 1996 through 1998. The Company's
long-term debt as a percent of total capitalization was 51.0% at
March 31, 1996, excluding the effect of the Contingent Note,
compared to 42.5% at December 31, 1995. The Company targets a
range of 30% to 50% for its long-term debt ratio, and intends to
utilize its strong cash flows towards the reduction of long-term debt
outstanding.
The Company's capital spending program over the next three to
five years is expected to be somewhat higher than in 1995 but
lower than in 1994 and 1993, reflecting the prior-year completion of major
construction and expansion programs. Capital spending for
environmental and safety projects on non-plant expansion and
replacement related construction will likely increase from current
levels largely reflecting the acquisition of the lubricant additives
business from Texaco. The capital spending will be financed primarily
with cash provided from operations.
Ethyl's acquisitions are primarily within the petroleum
additives industry, such as the recent acquisition of Texaco's
worldwide lubricant additives business, are normally for cash,
and are normally funded through internal and external sources,
including the use of existing credit lines and long-term debt.
The Company also anticipates an S-3 shelf registration for up
to $300 million of debt securities or preferred stock. The
amount and timing of additional borrowing, or issuance of
preferred stock, will depend on the Company's specific cash
requirements.
11
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PART II - Other Information
ITEM 1. Legal Proceedings
There are no material legal proceedings other than the
proceeding previously disclosed in the Form 10-K filed on
March 29, 1996, which is incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) A Form 8-K was filed on March 15, 1996, which announced
the acquisition of the worldwide lubricant additives
business of Texaco and amended on Form 8-K/A to
include the historic financial statements of the acquired
business as well as pro forma financial statements of the
combined business of Ethyl and the acquired lubricant
additives business.
12
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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 there-unto duly authorized.
ETHYL CORPORATION
(Registrant)
Date: May 14, 1996 By: /s/ C. B. Walker
Vice Chairman of the Board,
Chief Financial Officer
and Treasurer
(Principal Financial Officer)
13
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