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Page 1 of 14 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 June 30, 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 July 31,
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 - June 30, 1996 and
December 31, 1995 3 - 4
Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 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 - 12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
2
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ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30
1996 December 31
ASSETS (unaudited) 1995
----------- -----------
Current assets:
Cash and cash equivalents $ 49,822 $ 29,972
Accounts receivable, less allowance for
doubtful accounts (1996 - $2,337; 1995 -
$2,317) 198,084 169,451
Inventories:
Finished goods 178,182 146,010
Raw materials 33,703 13,285
Stores, supplies and other 7,693 6,587
----------- -----------
219,578 165,882
Deferred income taxes and prepaid expenses 18,371 23,207
----------- -----------
Total current assets 485,855 388,512
----------- -----------
Property, plant and equipment, at cost 757,829 713,635
Less accumulated depreciation and
amortization (305,999) (285,327)
----------- -----------
Net property, plant and equipment 451,830 428,308
----------- -----------
Other assets and deferred charges 160,322 151,833
Goodwill and other intangibles - net of
amortization 61,525 15,134
----------- -----------
Total assets $ 1,159,532 $ 983,787
=========== ===========
See accompanying notes to financial statements.
3
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ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
June 30
1996 December 31
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 1995
Current liabilities:
Accounts payable $ 90,155 $ 55,903
Accrued expenses 69,502 58,682
Cash dividends payable 14,806 14,806
Income taxes payable 24,679 16,379
---------- ----------
Total current liabilities 199,142 145,770
---------- ----------
Long-term debt 417,077 302,973
Other noncurrent liabilities 90,106 84,171
Deferred income taxes 37,080 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 (1,442) 2,090
Retained earnings 296,326 286,795
---------- ----------
416,127 410,128
---------- ----------
Total liabilities and shareholders' equity $ 1,159,532 $ 983,787
========== ==========
See accompanying notes to financial statements.
4
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<TABLE>
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
1996 1995 1996 1995
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net sales $ 299,320 $ 224,530 $ 541,505 $ 458,821
Cost of goods sold 217,516 153,931 383,644 306,043
---------- ------------ ---------- ------------
Gross profit 81,804 70,599 157,861 152,778
Selling, general and administrative expenses 26,000 23,746 49,843 47,146
Research, development and testing expenses 17,716 19,226 34,028 38,505
---------- ------------ ---------- ------------
Operating profit 38,088 27,627 73,990 67,127
Interest and financing expenses 6,273 7,753 12,198 14,017
Other (income)/expense, net (425) 152 (955) (248)
---------- ------------ ---------- ------------
Income before income taxes 32,240 19,722 62,747 53,358
Income taxes 12,128 6,716 23,605 18,859
---------- ------------ ---------- ------------
Net Income $ 20,112 $ 13,006 $ 39,142 $ 34,499
========== ============ ============ ============
Earnings per share $ .17 $ .11 $ .33 $ .29
========== ============ ============ ============
Shares used to compute earnings per share 118,448 118,443 118,452 118,441
========== ============ ============ ============
Cash dividends per share of common stock $ .125 $ .125 $ .25 $ .25
========== ============ ============ ============
See accompanying notes to financial statements.
</TABLE>
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ETHYL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Six Months Ended
June 30
--------------------
1996 1995
--------- --------
Cash and cash equivalents at beginning of year $ 29,972 $ 31,166
--------- --------
Cash flows from operating activities:
Net income 39,142 34,499
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization 27,956 23,625
Working capital decreases, net of effects from
acquisition 24,355 14,427
Other, net (2,419) 2,969
--------- --------
Cash provided from operating activities 89,034 75,520
--------- --------
Cash flows from investing activities:
Acquisition of business (net of $1,245 cash acquired) (134,615) -
Capital expenditures (18,347) (23,052)
Other, net (611) 1,896
--------- --------
Cash used in investing activities (153,573) (21,156)
--------- --------
Cash flows from financing activities:
Additional long-term debt 114,000 -
Repayment of long-term debt - (17,000)
Cash dividends paid (29,611) (29,613)
Other, net - 196
--------- --------
Cash provided from (used in) financing activities 84,389 (46,417)
--------- --------
Increase in cash and cash equivalents 19,850 7,947
--------- --------
Cash and cash equivalents at end of period $ 49,822 $ 39,113
======== ========
See accompanying notes to financial statements.
6
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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 June 30, 1996, the
consolidated results of operations for the three and six-month periods
ended June 30, 1996 and 1995 and the consolidated cash flows for the
six-month periods ended June 30, 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
six-month period ended June 30, 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 four months 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 January 1, 1996 and 1995, 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 six-month periods ended June 30, 1996 and
1995.
Six Months Ended
June 30
-----------------------
1996 1995
------- -------
Net Sales $590,680 $646,647
Net Income $ 42,032 $ 43,884
Earnings Per Share $.36 $.37
7<PAGE>
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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: June 30 December 31
1996 1995
--------- -----------
Variable-rate bank loans (average effective
interest rates were 5.9% for the six-month
period ended June 30, 1996 and 6.4% for
the year 1995) $375,000 $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 417,750 303,750
Less unamortized discount (673) (777)
-------- --------
Net long-term debt $417,077 $302,973
======== ========
(No portion of the $60 million contingent note principal related to
the purchase of the lubricant additives business from Texaco has been
recorded on the June 30, 1996 balance sheet. Any principal or
interest amount ultimately paid on the note will be accounted for as
an adjustment to the purchase price.
8
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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 the results of the lubricant additives business
of Texaco Inc. ("Texaco") since it was acquired on February 29, 1996, while
the balance sheet at June 30, 1996, includes a preliminary allocation of the
purchase price and other purchase accounting adjustments as well as borrowing
used to finance the acquisition.
Results of Operations
Second Quarter 1996 Compared to Second Quarter 1995
Net sales for the second quarter of 1996 amounted to $299.3 million, up $74.8
million from $224.5 million in the 1995 quarter. The increase in net sales
was due to higher shipments ($92.6 million), partially offset by the impact of
lower selling prices ($17.8 million). The increased sales reflected the
inclusion of $81.1 million of lubricant additives revenues from the worldwide
lubricant additives business of Texaco acquired on February 29, 1996, and also
higher shipments of antiknocks and certain other fuel additives as well as
higher selling prices for antiknocks and other fuel additives, partly offset
by lower selling prices of lubricant additives products.
Cost of goods sold in 1996 of $217.5 million increased $63.6 million from the
1995 quarter. The increase primarily reflected the inclusion of cost of goods
sold of the worldwide lubricant additives business acquired from Texaco ($69.9
million) as well as an unfavorable foreign exchange effect. The overall
increase was due to higher shipments ($71.3 million) partly offset by the
impact of lower costs ($7.7 million), including lower per unit raw material
costs in the 1996 quarter, as well as nonrecurring costs in second quarter
1995, including costs associated with the 1995 shutdown of operations at a
contract manufacturing site, the start-up of certain lubricant additives
facilities and the April 1995 strike at the Feluy, Belgium, manufacturing
plant.
The net result of a 33% increase in net sales and a 41% increase in cost of
goods sold was that the gross profit margin decreased to 27.3% in the 1996
quarter from 31.4% in the 1995 quarter, mainly reflecting lower margins due to
weak market conditions in lubricant additives and a change in product mix
reflecting an increase in the extent to which sales and profits come from
lubricant additives and other fuel additives.
Selling, general and administrative expenses combined with research,
development and testing expenses amounted to $43.7 million in the second
quarter 1996, up $0.7 million from $43.0 million in the second quarter 1995.
The increase primarily results from higher expenses related to marketing
activities for HiTEC (R) 3000 performance additive ("MMT"), partially offset
by a general reduction in research, development and testing expenses
9
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largely reflecting the timing of 1996 research, development and testing
expenses which are expected to increase in the second half of the year as well
as the benefit of having the Company's research laboratory fully operational.
As a percentage of net sales, selling, general and administrative expenses,
including research, development and testing expenses decreased to 14.6% during
the 1996 quarter from 19.1% during the 1995 quarter.
Operating profit in the 1996 quarter increased to $38.1 million, up $10.5
million from $27.6 million in the 1995 quarter. Most of the increase resulted
from the effect of the acquired lubricant additives business, offset in part
by lower margins reflecting weaker lubricant additives market conditions as
well as an unfavorable foreign currency variance.
Interest expense in 1996 decreased 19% to $6.3 million from $7.8 million in
the 1995 quarter. The $1.5 million decline reflects $2.7 million lower
interest cost from lower average interest rates as a result of replacing the
$200 million, 9.8% notes on September 15, 1995, with lower cost variable-rate
debt as well as a reduction in other fees, largely offset by higher interest
expense from an increase in average debt outstanding, reflecting the effect of
funds used to finance the acquisition of the lubricant additives business of
Texaco.
Other income, net, increased to $425 thousand in the 1996 quarter from $152
thousand other expense, net, in the 1995 quarter. The increase reflects
changes in a number of nonoperating items, none of which are material in
either quarter.
Income Taxes
Income taxes in the second quarter 1996 increased 81% from the second quarter
1995, primarily due to a 63% increase in income before income taxes as well as
the impact of a higher effective income tax rate (37.6% in the 1996 quarter
versus 34.1% in the 1995 quarter). The second quarter 1995 effective tax rate
was lower than the 1996 rate primarily due to the benefit included in 1995
from a redetermination of prior years research and development tax credits
resulting from a change in federal tax regulations.
Six Months 1996 Compared to Six Months 1995
Net sales for the six months 1996 amounted to $541.5 million, up $82.7 million
from $458.8 million in six months 1995. The increase in net sales was due to
higher shipments ($100.8 million), partially offset by the impact of lower
selling prices ($18.1 million). The increased sales reflected the inclusion
of $101.5 million of lubricant additives revenues from the worldwide lubricant
additives business of Texaco acquired on February 29, 1996, and also reflected
higher shipments of nonlead antiknocks and certain other fuel additives as
well as higher selling prices for antiknocks and other fuel additives, partly
offset by lower selling prices of lubricant additives products.
Cost of goods sold in 1996 of $383.6 million increased $77.6 million from the
1995 period. The increase primarily reflected the inclusion of cost of goods
sold of the worldwide lubricant additives business acquired from Texaco ($87.7
million) as well as an unfavorable foreign exchange effect. The overall
increase was primarily due to higher shipments as well as an unfavorable
foreign exchange effect. The overall increase in 1996 was partially offset by
lower per unit raw material costs in the 1996 period and nonrecurring costs in
10
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six months 1995, including costs associated with the second quarter 1995
shutdown of operations at a contract manufacturing site, the start-up of
certain lubricant additives facilities and the April 1995 strike at the
Feluy, Belgium, manufacturing plant.
The net result of an 18% increase in net sales and a 25% increase in cost of
goods sold was that the gross profit margin decreased to 29.2% in the 1996
period from 33.3% in the 1995 period, mainly reflecting lower margins due to
weak market conditions in lubricant additives and a change in product mix
reflecting an increase in the extent to which sales and profits come from
lubricant additives and other fuel additives.
Selling, general and administrative expenses combined with research,
development and testing expenses amounted to $83.9 million in the six months
1996, down $1.8 million from $85.7 million in the six months 1995. The
decrease primarily results from a general reduction in research, development
and testing expenses, largely reflecting the benefit of having more of the
1996 research, development and testing expenses scheduled in the second half
of the year, as well as having the Company's research laboratory fully
operational, partially offset by higher expenses related to marketing
activities for HiTECr 3000 performance additive ("MMT"). As a percentage of
net sales, the selling, general and administrative expenses, including
research, development and testing expenses, decreased to 15.5% during the 1996
period from 18.7% during the 1995 period.
Operating profit in the six months 1996 increased to $74.0 million, up $6.9
million from $67.1 million in the six months 1995. Most of the increase
resulted from the effect of the acquired lubricant additives business, offset
in part by lower margins reflecting weaker lubricant additives market
conditions, as well as an unfavorable foreign currency variance.
Interest expense in six months 1996 decreased 13% to $12.2 million from $14.0
million in the 1995 period. The $1.8 million decline reflects $4.9 million
lower interest cost from lower average interest rates as a result of replacing
the $200 million, 9.8% notes on September 15, 1995, with lower cost
variable-rate debt and a reduction in other fees, mostly offset by higher
interest expense from an increase in average debt outstanding, reflecting the
effect of funds used to finance the acquisition of the lubricant additives
business of Texaco, and a $1.3 million reduction in interest costs capitalized
in the 1996 period.
Other income, net, increased to $955 thousand in the 1996 period from $248
thousand in the 1995 period. The increase reflects changes in a number of
nonoperating items, none of which are material in either period.
Income Taxes
Income taxes in the six months 1996 increased 25% from the six months 1995,
primarily due to an 18% increase in income before income taxes, as well as the
impact of a higher effective income tax rate (37.6% in the 1996 period versus
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35.3% in the 1995 period). The six months 1995 effective tax rate was lower
than the 1996 rate primarily due to the benefit included in 1995 from a
redetermination of prior years research and development tax credits resulting
from a change in federal tax regulations.
Financial Condition and Liquidity
Cash and cash equivalents at June 30, 1996, were about $49.8 million, which
represents an increase of about $19.8 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 $89.0 million, together
with $114.0 million in additional long-term debt were used to fund the
acquisition of the worldwide lubricant additives business from Texaco for a
purchase price of $134.6 million, and to cover capital expenditures of $18.3
million and cash dividends to shareholders of $29.6 million, as well as
increase cash and cash equivalents by $19.9 million. Management anticipates
that cash provided from operations in the future will be sufficient to 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 $417.1 million at June 30, 1996,
representing an increase in long-term debt of about $114.0 million from
December 31, 1995, primarily representing funds borrowed in connection with
the lubricant additives acquisition. The Company also has a contingent note
associated with the acquisition 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 50.1% at June 30, 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
continue to utilize its strong cash flows toward 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 nonplant
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 current interest in acquisitions is 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 is in the process of filing 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 cash requirements.
12
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PART II - Other Information
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
13
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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: August 13, 1996 By: /s/ Charles B. Walker
Vice Chairman of the Board,
Chief Financial Officer
and Treasurer
(Principal Financial Officer)
Date: August 13, 1996 By: /s/ Wayne C. Drinkwater
Controller
(Principal Accounting Officer)
14
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 49822
<SECURITIES> 0
<RECEIVABLES> 198084
<ALLOWANCES> 2337
<INVENTORY> 219578
<CURRENT-ASSETS> 485855
<PP&E> 757829
<DEPRECIATION> 305999
<TOTAL-ASSETS> 1159532
<CURRENT-LIABILITIES> 199142
<BONDS> 417077
<COMMON> 118444
0
0
<OTHER-SE> 297683
<TOTAL-LIABILITY-AND-EQUITY> 1159532
<SALES> 541505
<TOTAL-REVENUES> 541505
<CGS> 383644
<TOTAL-COSTS> 467515
<OTHER-EXPENSES> (955)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12198
<INCOME-PRETAX> 62747
<INCOME-TAX> 23605
<INCOME-CONTINUING> 39142
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