SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
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 29, 1996
Ethyl Corporation
(Exact name of registrant as specified in its charter)
Virginia 1-5112 54-0118820
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
330 South Fourth Street, Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 788-5000
Item 2. Acquisition or Disposition of Assets
On February 29, 1996, Ethyl Corporation (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 products of the acquired business
include viscosity index improvers and other lubricating oil additives,
which are used in automotive and industrial applications.
The Form 8-K, which was filed on March 15, 1996, and is incorporated
herein by reference thereto, did not include financial statements of the
lubricant additives business acquired from Texaco or pro forma financial
statements because, at that time, it was impractical to do so. The financial
statements and pro forma financial statements are included herein under Item
7.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
(1) Financial Statements
-Statements of Combined Income and Retained Earnings for
Year Ended December 31, 1995
-Combined Balance Sheet as of December 31, 1995
-Statement of Combined Cash Flows for the Year Ended
December 31, 1995
-Notes to Combined Financial Statements
(2) Report of Independent Accountants
(b) Pro Forma Financial Information
-Pro Forma Condensed Statement of Income for year ended
December 31, 1995
-Pro Forma Condensed Balance Sheet as of December 31, 1995
-Notes to Pro Forma Condensed Financial Statements
(c) Exhibits. None<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
Statements of Combined Income and Retained Earnings
For the Year Ended December 31, 1995
(Thousands of Dollars)
Revenues
Sales and services
Outside $ 185,708
Related party 210,604
-------
Total sales and services 396,312
Other revenue 2,714
-------
399,026
-------
Cost of Goods Sold
Purchases and other costs 282,813
Operating expenses (see Note 9) 55,052
Maintenance and repairs 4,330
Depreciation and amortization 8,962
Taxes other than income taxes 3,083
-------
354,240
-------
Gross Profit 44,786
Other Deductions
Selling, general and administrative expenses 15,946
Research and development 23,934
Interest expense 3,489
-------
Income before income taxes 1,417
Provision for income taxes 914
-------
Net Income $ 503
=======
Retained Earnings
Beginning balance $ 5,235
Add: Net income 503
-------
Ending balance $ 5,738
=======
See accompanying notes to combined financial statements.
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
Combined Balance Sheet
As of December 31, 1995
(Thousands of Dollars)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,152
Accounts and notes receivable
Outside 27,394
Related party 17,078
-------
Total accounts and notes receivable 44,472
Inventories 32,925
Deferred income taxes and other current assets 5,205
-------
Total current assets 83,754
-------
Properties, Plant and Equipment
At cost 193,644
Less-Accumulated depreciation and amortization 107,756
-------
Net properties, plant and equipment 85,888
Deferred Income Taxes 1,675
Deferred Charges and Other Noncurrent Assets 186
-------
Total assets $ 171,503
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable
Outside $ 14,225
Related party 7,002
-------
Total accounts payable 21,227
Accrued liabilities 8,668
Estimated income and other taxes 1,866
-------
Total current liabilities 31,761
Intercompany Investments and Advances from Texaco 50,528
Deferred Income Taxes 7,916
Other Noncurrent Liabilities 9,627
-------
Total liabilities 99,832
-------
Commitments and Contingent Liabilities (Notes 11 and 12)
Stockholder's Equity:
Capital stock 1
Paid-in capital in excess of par value 65,932
Retained earnings 5,738
-------
Total stockholder's equity 71,671
-------
Total liabilities and stockholder's equity $ 171,503
=======
See accompanying notes to combined financial statements.
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
Statement of Combined Cash Flows
For the Year Ended December 31, 1995
(Thousands of Dollars)
Operating Activities
Net income $ 503
Reconciliation to net cash provided by (used in)
operating activities
Depreciation and amortization 8,962
Deferred income taxes (1,883)
Changes in operating working capital
Accounts and notes receivable 1,450
Inventories (5,345)
Other current assets 6
Accounts payable 4,440
Other current liabilities 1,902
Deferred charges and other noncurrent assets 1
Other noncurrent liabilities 4,739
Other (net) 223
-------
Net cash provided by operating activities 14,998
-------
Investing Activities
Capital expenditures (643)
-------
Net cash used in investing activities (643)
-------
Financing Activities
Changes in intercompany investments and advances
from Texaco (net) (15,006)
-------
Net cash used in financing activities (15,006)
-------
Decrease in Cash and Cash Equivalents (651)
Cash and Cash Equivalents at Beginning of Year 1,803
-------
Cash and Cash Equivalents at End of Year $ 1,152
=======
See accompanying notes to combined financial statements.
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
Note 1. Basis of Presentation and Description of Significant
Accounting Policies
Basis of Presentation
The accompanying combined financial statements present on a historical
cost basis the combined assets, liabilities, revenues and expenses related to
the additive operations that were included in the sale by Texaco to Ethyl
Corporation ("Ethyl") pursuant to the Purchase and Sale Agreement (Additive
Business) dated September 22, 1995, as amended, (the "Agreement"). (For
additional information, see Note 2, Sale to Ethyl.) The term Texaco Inc.
refers solely to Texaco Inc., a Delaware corporation, and the term Texaco
refers to one or more subsidiaries of Texaco Inc. The additive operations,
collectively known as the "Texaco Additive Group of Companies" or the "Group"
or the "additive operations", are comprised of: (a) certain assets and
liabilities of Texaco Additive Company ("TAC"), a wholly owned subsidiary of
Texaco Inc., associated with additive operations located in the United States,
(b) certain intangible assets, including patents, of Texaco Inc., TAC and
Texaco Development Corporation, a direct wholly owned subsidiary of Texaco
Inc., (c) the stock of Texaco Additive N.V. and Texaco Brasil Aditivos S.A.,
both indirect wholly owned subsidiaries of Texaco Inc., (d) the stock of
Texaco Korea Ltd., a wholly owned subsidiary of TAC, and (e) certain assets
and liabilities associated with additive operations located in the United
Kingdom, Germany, France, Turkey and Singapore. Texaco Additive N.V. and
Texaco Brasil Aditivos S.A. were formed during the second half of 1995.
However, these financial statements reflect the results of operations and
financial position of the additive business of these companies and their
respective predecessor companies for the entire year 1995 that will be
included in the sale to Ethyl.
Not included in the proposed sale of the additive operations, and
therefore excluded from these additive operations ("excluded operations") and
from the Group's combined financial statements and related notes are any motor
fuel additives technology and business of Texaco and certain inventories of the
lubricant blending and antifreeze operations at the Ghent Chemical Plant in
Belgium.
The financial information included herein includes numerous allocations
of actual costs and overhead based on management's estimates. Applicable
historical activity levels were used to segregate the excluded operations from
those of the Group. Therefore, these combined financial statements may not
necessarily reflect the combined financial position, results of operations or
cash flows of the Group in the future, or the combined financial position,
results of operations or cash flows of the Group had it existed as a separate,
stand-alone company during the period presented.
Intercompany accounts and transactions within the combined Group are
eliminated. The Group has various business transactions with Texaco Inc. and
other Texaco Inc. subsidiaries and affiliates, including Caltex Petroleum
Corporation. See Note 3, Related Party Transactions, for a discussion of the
Group's relationship with these entities. Receivables and payables between the
Group and these entities are reflected as assets or liabilities based on the
Group's net balance position with individual companies for trade transactions,
interest and debt. Classification between current and noncurrent categories
conforms with normal settlement practices.
The U. S. dollar is the functional currency of all the Group's
operations and foreign currency exchange gains and losses are not material.
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
Highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Inventories
Inventories of additive products are stated at cost, determined on the
last-in, first-out ("LIFO") method. Inventories are valued at the lower of
cost or market. The historical LIFO reserve for financial reporting purposes
was allocated pro rata between inventories of the Group and those retained by
Texaco. Components of inventory costs from other Texaco entities are valued
based on those entities' costs, rather than the transfer price of the Group.
Materials and supplies are stated at average cost.
Properties, Plant and Equipment and Depreciation and Amortization
Depreciation of properties, plant and equipment is provided generally on
the group plan, using the straight-line method, with depreciation primarily
based on a 5% composite rate for all classes of the Group's property in the
United States. For international operations, depreciation on the group plan is
based on composite rates ranging from 4.4% to 7.5%.
Periodic maintenance and repairs applicable to manufacturing facilities
are accounted for on the accrual basis. Normal maintenance and repairs of all
other properties, plant and equipment are charged to expense as incurred.
Renewals, betterments and major repairs that materially extend the useful life
of properties are capitalized and the assets replaced, if any, are retired.
When capital assets representing complete units of property are disposed
of, the difference between the disposal proceeds and net book value is credited
or charged to income. When miscellaneous business properties are disposed of,
the difference between asset cost and salvage value is charged or credited to
accumulated depreciation.
Retained Earnings
Separate accounting records were not maintained for TAC until November
1, 1993, as it was previously a division of Texaco Chemical Company ("TCC").
The other additive operations were divisions of Texaco subsidiaries and thus
had no retained earnings. The retained earnings balance as of December 31,
1995 represents the balance for TAC and Texaco Korea Ltd. beginning with their
organization as separate entities as of November 1, 1993, plus the cumulative
earnings for the Texaco Additive Group of Companies from January 1, 1994
through December 31, 1995.
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
Deferred Income Taxes
Deferred income taxes are determined utilizing the liability approach.
This approach gives consideration to the future tax consequences associated
with differences between financial accounting and tax bases of assets and
liabilities. These differences relate to items such as depreciable properties,
inventories and certain liabilities. This approach gives immediate effect to
changes in income tax laws upon enactment. The combined income effect is
derived from changes in deferred income tax assets and liabilities on the
combined balance sheet.
Environmental Expenditures
Environmental related restoration and remediation costs are recorded as
liabilities and expensed when site restoration and environmental remediation
and clean-up obligations are either known or considered probable and the
related costs can be reasonably estimated. Other environmental expenditures,
which are principally maintenance or preventative in nature, are recorded when
expended and are expensed or capitalized as appropriate.
Revenue Recognition
Sales and related costs are recorded by the Group when the product is
shipped. Approximately 15% of total sales and services for the year ended
December 31, 1995 relate to the lubricant blending and antifreeze operations at
the Ghent Chemical Plant in Belgium. Under the terms of the Agreement, Ethyl
will continue to perform the blending at the Ghent Chemical Plant, but will
charge Texaco a processing fee to perform such functions.
Research and Development
Research and development costs are expensed as incurred.
Earnings Per Share
Earnings per share have been omitted from the statement of combined
income since such information is not meaningful and the Group is not a single
entity with its own capital structure.
New Accounting Standard
In March 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." SFAS No. 121, which is effective for fiscal
years beginning after December 15, 1995, requires that long- lived assets to be
held and used be assessed for impairment whenever an event or change in
circumstances indicates that the carrying amount of an asset or group of assets
may not be recoverable from estimated future net undiscounted cash flows. If
an impairment exists, the asset or group of assets must be written down to its
estimated fair value. SFAS No. 121 also requires that assets intended to be
disposed of be carried at the lower of cost or fair value less disposal costs.
Adoption of this Standard in 1996 is not expected to have any impact on the
combined results of operations or financial position of the Group.
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
Note 2. Sale to Ethyl
Pursuant to the terms of the Agreement, as amended on February
23, 1996, the sale of the additive operations, including the
assets and liabilities of TAC, is for a purchase price of $151.2
million, plus the amount of working capital at the date of sale.
The amount of working capital will exclude any deferred tax
assets. Cash proceeds at the February 29, 1996 closing totaled
$135.86 million, which included $44.66 million for the estimated
value of the working capital. In addition, Texaco received from
Ethyl a three-year, interest-bearing note with a face amount of
$60 million. Payment of the note at maturity is subject to Ethyl achieving
certain sales volumes levels of viscosity improver packages and dispersant
inhibitor packages over the next three years as compared to historical 1995
levels. The sale is subject to approval by appropriate regulatory agencies.
Pursuant to the Agreement, Texaco Inc. has agreed, subject to
certain deductibles and other terms, to retain all of the obligations,
liabilities and contingent liabilities of the additive operations
existing at the date of the sale, other than current liabilities
incurred in the ordinary course of business and contractual liabilities
relating to periods after the date of sale. If Texaco Inc. cannot
remove, extinguish or cause to be removed or extinguished the above-
mentioned obligations, liabilities and contingent liabilities, then
Texaco Inc. shall reimburse Ethyl for such obligations and liabilities,
pursuant to the terms of the Agreement.
Note 3. Related Party Transactions
The Group has various business transactions with: (a) Texaco
Inc., other Texaco Inc. subsidiaries and affiliates and the
excluded operations (the "Texaco entities") and (b) Caltex
Petroleum Corporation ("Caltex"), a joint-venture corporation
owned 50% each by subsidiaries of Texaco Inc. and Chevron
Corporation. Transactions with the Texaco entities include the
purchase and sale of raw materials and products, activities
involving administrative support and financings. Transactions
with Caltex represent the sale of products.
The management, professional, technical and administrative
services billed to the Group by the Texaco entities are
summarized below:
Year Ended
December 31,1995
--------------------
(Thousands of Dollars)
Management & Professional (a) $ 2,154
Technical (b) 1,314
Administrative (c) 483
Research & Development 19,406
-------
Total $ 23,357
=======
____________
(a) Primarily Legal, Employee Relations, Finance, Tax and other Corporate
Management.
(b) Primarily Computer and Communications costs.
(c) Primarily Accounting Services.
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
Sales, as well as receivables and payables, to these parties
are disclosed in the statement of combined income and the
combined balance sheet, respectively. A summary of transactions
between the Group and the Texaco entities and Caltex follows:
Year Ended
December 31,1995
--------------------
(Thousands of Dollars)
Group sales and services to:
Texaco entities $ 184,020
Caltex 26,584
--------
Total $ 210,604
========
Group cost of goods sold from:
Texaco entities $ 60,024
========
As of
December 31, 1995
--------------------
(Thousands of Dollars)
Accounts receivable from:
Texaco entities $ 14,702
Caltex 2,376
--------
Total $ 17,078
========
Accounts payable to:
Texaco entities $ 7,002
========
Insurance coverage for the Group is provided by Texaco's
worldwide risk management program arranged through Heddington
Insurance Limited ("Heddington"), an indirect wholly owned
captive insurance subsidiary of Texaco Inc. Texaco Inc. charges
the participating companies for their proportionate share of the
premiums charged by Heddington to Texaco Inc. based upon various
risk factors and other estimates determined by Texaco's
management. Accordingly, the Group's cost for insurance
premiums is charged to expense as incurred, and is included in
the above table in the caption "Group cost of goods sold from
Texaco entities." Such premiums totaled $847 thousand in 1995.
TAC is a member of the Texaco Inc. consolidated United States
income tax return group. The income tax return group operates
under an agreement whereby each member of this group is
allocated its share of the consolidated United States income tax
provision or benefit based on what the member's income tax
provision or benefit would have been had the member filed a
separate return and made the same tax elections. Excluded from
such allocation, and therefore from the Group's financial
statements, are any Federal alternative minimum tax payments
made by Texaco Inc. in excess of regular tax, which are recorded
by Texaco Inc., offset by a reduction of deferred income taxes,
and are available to reduce future regular income tax payments.
In any event, since TAC assets and liabilities, rather than
stock, are being sold to Ethyl, the Federal alternative minimum
tax credits will remain with Texaco Inc. The results of the
international operations included in the accompanying
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
combined financial statements are reflected in the tax returns
of the respective foreign members of the Group. Each international
operation has been allocated its share of the income tax provision
or benefit in the applicable country based on what the international
operation's income tax provision or benefit would have been had the
international operation filed a separate tax return in that country
and made the same tax elections. Current taxes are charged or credited
to expense and are reflected as related party payables or receivables
until settled after the applicable tax returns have been filed in the
United States or applicable countries.
Note 4. Inventories
Inventories consist of the following:
As of
December 31, 1995
--------------------
(Thousands of Dollars)
Feedstocks $ 22,201
Unfinished products 84
Finished products 27,418
--------
49,703
LIFO reserve adjustment (19,029)
--------
30,674
Materials and supplies 2,251
--------
Total $ 32,925
========
Note 5. Properties, Plant and Equipment
Properties, plant and equipment of the Group in the United
States is principally composed of an additive manufacturing plant
in Port Arthur, Texas, and related facilities and terminals. Outside
the United States, additive manufacturing plants are located in
Ghent, Belgium and Rio de Janeiro, Brazil. In addition, the Group
maintains office buildings, transportation and computer equipment
and furniture and fixtures in virtually all areas of operation.
Included in properties, plant and equipment is certain idle
equipment which is not in current use by the Group. As of December
31, 1995, the net carrying value of this equipment totaled $5,625
thousand.
As of December 31, 1995, properties, plant and equipment
included $1,908 thousand of construction in progress.
Note 6. Intercompany Investments and Advances from Texaco
Intercompany investments and advances from Texaco are
comprised of the following: a) all intercompany charges and
allocations, including payments and receipts of cash on behalf
of TAC by Texaco; b) the historical net investment in the Group,
excluding TAC and Texaco Korea Ltd.; c) the transferring of the
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
excluded operations from the Group to Texaco; and d) intercompany
interest allocations based upon the balance in the intercompany
investments and advances account.
In February 1986, Texaco Inc. and various subsidiaries entered
into a Master Credit Agreement ("Credit Agreement"), whereby Texaco
Inc. and such subsidiaries may, from time to time, be borrowers or
lenders pursuant to the Credit Agreement. The Credit Agreement was
subsequently amended for minor revisions in June 1986, January 1987
and April 1987. While TAC is not a party to the Credit Agreement,
the combined financial statements are prepared as if TAC and the
other members of the Group had been a party to the Credit Agreement
with Texaco. As a result, interest is calculated based on the Short-
Term Applicable Federal Rate as published by the Internal Revenue
Service in its Internal Revenue Bulletin. The average annual interest
rates utilized ranged from 5.51% to 7.19% for the period presented.
Interest accrued during the year and outstanding at year-end was added
to the principal balance of the intercompany account and itself became
interest bearing. Interest expense totaled $3,489 thousand in 1995.
For purposes of these combined financial statements, interest began
accruing as of January 1, 1994.
Note 7. Lease Commitments and Rental Expense
The Group has operating leases in Houston, Texas and Ghent,
Belgium. The lease obligation is reflected in the Group's
statement of combined income as rental expense, included in
"Operating Expenses", and totaled $352 thousand for the year
1995.
As of December 31, 1995, the Group had estimated minimum
commitments for payment of rentals (net of noncancelable
sublease rentals) under the above-mentioned leases which, at
inception, had a noncancelable term of more than one year, as
follows:
Operating
leases
--------------------
(Thousands of Dollars)
1996 $ 243
1997 238
1998 241
1999 199
2000 164
After 2000 534
-----
Total lease commitments $ 1,619
=====
Note 8. Income Taxes
Income taxes for the Group have been calculated as described
in Note 1, Basis of Presentation and Description of Significant
Accounting Policies-Deferred Income Taxes, and in Note 3, Related
Party Transactions. However, as more fully discussed in Note 2,
Sale to Ethyl, Texaco Inc. will remain primarily liable for income
tax liabilities associated with the Group that arise prior to the
date of sale.
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
Year Ended
December 31, 1995
--------------------
(Thousands of Dollars)
Provision (benefit) for income taxes
Current
U.S. Federal $ 780
U.S. state and local 242
Foreign 1,775
Deferred
U.S. Federal (586)
Foreign (1,297)
-------
Total provision for income taxes $ 914
=======
As of December 31, 1995, the deferred income tax assets and
liabilities included in the combined balance sheet amounted to
$5,151 thousand as net current assets and $6,241 thousand as net
noncurrent liabilities. The table that follows shows deferred
income tax assets and liabilities by category.
(Liability) Asset As of
December 31, 1995
----------------------
(Thousands of Dollars)
Depreciation $(8,867)
------
Inventories 4,533
Employee accrued vacation 96
Repairs 347
Other deferred tax assets 2,801
-------
7,777
-------
Total-net $ (1,090)
=======
The following schedule reconciles the differences between
income taxes at the U.S. Federal statutory rate and the provision
for income taxes as reflected in the Group's accounts.
Year Ended
December 31,1995
--------------------
(Thousands of Dollars)
Income taxes at the U. S. Federal statutory rate $ 496
Tax rate differential on international operations 260
Other (net) 158
-----
Provision for income taxes as reflected in the
Group's accounts $ 914
=====
During 1995, pre-tax earnings aggregated $793 thousand for
companies operating in the United States and $624 thousand for
companies with operations located outside the United States.
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
Note 9. Employee Benefit Plans
Active employees and retirees of the Group participate in
various Texaco-sponsored benefit plans. The costs of the savings,
health care and life insurance plans relative to employees' active
service are shared by the Group and its employees. Texaco Inc.
charges the participating companies for their proportionate share
of these costs, and accordingly, the Group's costs for these plans
are charged to expense as incurred.
Employee Stock Ownership Plans
Texaco sponsors a Thrift Plan for the benefit of its salaried
employees and a Savings Plan for the benefit of its hourly employees.
Amendments to the Thrift Plan in 1988 and the Savings Plan in 1990
created an Employee Stock Ownership Plan ("ESOP") feature. For the
Thrift Plan, the ESOP purchased 833,333 1/3 shares of Series B ESOP
Convertible Preferred Stock ("Series B") from Texaco Inc. for $600
per share, or an aggregate purchase price of $500 million. For the
Savings Plan, the ESOP purchased 67,796.61 shares of Series F ESOP
Convertible Preferred Stock ("Series F") from Texaco Inc. for $737.50
per share, or an aggregate purchase price of $50 million. In both
instances, Texaco Inc. guaranteed the loans made to the ESOP, which
were used to acquire the shares of Series B and Series F.
These Plans are designed to provide a participant in the
Thrift Plan or Savings Plan with a maximum benefit of approximately
6% of base pay, which is payable in shares of Series B or Series F,
respectively. Participants may partially convert their Series B or
Series F into common stock of Texaco Inc. beginning at age 55, or
may elect full conversion upon retirement or separation from service
with Texaco Inc. or a participating company.
The Group recorded ESOP expense of $109 thousand in 1995.
Pension Plans
Substantially all Group employees participate in Texaco Inc.
and other subsidiary-sponsored pension plans. Generally, these
plans provide defined pension benefits based on final average
pay. However, the level of benefits and terms of vesting vary
among plans. Amounts charged to pension expense, as well as
amounts funded, are generally based on actuarial studies.
Pension plan assets are administered by trustees and are
principally invested in equity and fixed income securities and
deposits with insurance companies. At December 31, 1995, the
plan assets exceeded accumulated benefit obligations. The
total expense for the Group's participation in these pension
plans was $909 thousand in 1995.
In addition, charges made against income related to
pre-pension costs to cover eligible employees in Belgium totaled
$5,602 thousand in 1995, and are included on the statement of
combined income in "Operating expenses". Accruals for these costs
totaled $8,570 thousand at December 31, 1995, and are included on
the combined balance sheet in "Other Noncurrent Liabilities"
($7,922 thousand) and "Accrued Liabilities" ($648 thousand).
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
Other Postretirement Benefits
Group employees, primarily in the U.S., participate in Texaco
Inc. sponsored postretirement plans that provide health care and
life insurance for retirees and eligible dependents. The Group's
U.S. health insurance obligation is its fixed dollar contribution.
The plans are unfunded, and the costs are shared by the Group and
its employees.
The total expense for postretirement plans other than pensions
of the Group was $68 thousand in 1995.
Note 10. Fair Value of Financial Instruments
The Group's financial instruments consist of cash and cash
equivalents, short-term receivables and payables and intercompany
investments and advances from Texaco. The carrying amounts
approximate fair market value due to the highly liquid nature of
the short-term instruments and the floating interest rates
associated with the long-term intercompany investments and advances
which reflect market rates.
Note 11. Environmental Matters
The Group's operations are subject to extensive environmental
laws and regulations concerning emissions to the air, discharges
to surface and subsurface waters and the generation, handling,
storage, transportation, treatment and disposal of waste materials,
as adopted by various governmental authorities in the jurisdictions
in which the Group operates. The Group makes every effort to remain
in full compliance with existing governmental regulations. The Group,
along with many other companies, may be a potentially responsible party
("PRP") under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), in connection with the past
disposal of waste at certain third-party waste disposal sites.
Although it is difficult to quantify the potential financial
impact of compliance with environmental laws and regulations,
management estimates that there is a reasonable possibility that
the remediation and other costs associated with such regulations
may range between $7.0 million and $9.7 million, and that such
costs would be incurred over a period of several years. The
Group has established financial reserves relating to environmental
restoration and remediation programs which the Group believes are
sufficient for known requirements. Liabilities are recorded when
site restoration and environmental remediation and clean-up
obligations are either known or considered probable and can be
reasonably estimated. These liabilities are based upon all
available facts, existing technology, past experience and cost-
sharing arrangements, including the viability of other parties.
At December 31, 1995, accruals for environmental matters totaled
$876 thousand and are included on the combined balance sheet in
"Other Noncurrent Liabilities." Charges made against income for
recurring environmental matters, included in "Operating Expenses"
on the statement of combined income, totaled $644 thousand in 1995.
Capital expenditures for environmental related matters at existing
facilities approximated $470 thousand for the year ended December
31, 1995. Future environmental related capital expenditures will
be subject to regulatory requirements, as well as timing related
to obtaining necessary permits and approvals.
Estimates of ultimate future environmental restoration and
remediation costs are inherently imprecise due to currently
unknown factors such as the magnitude of possible contamination,
the timing and extent of any restoration and remediation which
may be required, the determination of the Group's liability in
proportion to other parties, the extent to which any costs are
recoverable from insurance and the extent to which environmental laws
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
and regulations may change in the future. However, it is not
anticipated that any future environmental remediation costs will
be material to the Group's combined results of operations or
financial position. As more fully discussed in Note 2, Sale to
Ethyl, Texaco Inc., subject to certain deductibles and other
terms, will remain primarily liable for environmental
liabilities associated with the Group for activities that
occurred prior to the date of sale.
Note 12. Contingent Liabilities
Internal Revenue Service Claims
The Internal Revenue Service ("IRS") has asserted a number of
claims against Texaco Inc. for periods prior to the effective date
of the additive operations sale. Notwithstanding the tax sharing
agreement, TAC, and each of the members of the consolidated U.S.
income tax return group, is jointly and severally liable for any
potential liability to the IRS. However, as more fully discussed
in Note 2, Sale to Ethyl, Texaco Inc. will remain primarily liable
for the Group's tax liabilities that arise prior to the date of sale.
During 1989, Texaco commenced an action in the United States
Tax Court ("Tax Court"), to challenge certain claimed increases
in Texaco's 1979-1982 Federal income tax liability. Texaco's
action contested, among other items, an IRS claim that during
the 1979-1981 years, Texaco should be taxed as if it had resold
Saudi crude oil at prices higher than those mandated by the
Saudi Arab Government ("Aramco Advantage issue").
On December 22, 1993, the Tax Court issued an opinion
upholding Texaco's position on the Aramco Advantage issue. The
Tax Court held that the IRS was barred from taxing Texaco on
income never received, and which could only have been received
by violating Saudi law. Finding that the Saudi Arab Government's
mandate represented the sovereign law of that country, the Tax
Court determined that Texaco was required to comply with the
Saudi Arab Government's mandate and did in fact observe it.
The IRS has appealed to the United States Court of Appeals for the
Fifth Circuit. All other issues relating to the 1979-1982 years
have been resolved by trial or settlement.
In March 1988, prior to the commencement of the Tax Court
action, Texaco, as a condition of its emergence from Chapter 11
proceedings, agreed to make certain cash deposits with the IRS
in contemplation of potential tax claims ("Deposit Fund"). From
time to time, Texaco has applied Deposit Fund amounts to final
liabilities agreed upon by Texaco and the IRS for income tax and
windfall profit tax years of Texaco and Getty not involved in
the Tax Court litigation. A portion of the Deposit Fund also
will be applied to issues settled in the 1979-1982 litigation
years. After satisfaction of all liabilities associated with
settled issues, it is anticipated that approximately $700 million
will remain in the Deposit Fund and continue to accrue interest.
If Texaco ultimately prevails on the appeal of the Aramco Advantage
issue, the amount remaining in the Deposit Fund will be refunded to
Texaco, with interest. No portion of the Deposit Fund is an asset
of the Group.
The Group has not established any financial reserves related
to the Aramco Advantage issue.
<PAGE>
<PAGE>
TEXACO ADDITIVE GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS-(Continued)
Other Contingent Liabilities
There are various legal proceedings and claims against the
Group which have arisen in the ordinary course of business, none
of which are material to the Group. As more fully discussed in
Note 2, Sale to Ethyl, Texaco Inc. will remain primarily liable
for any and all of the Group's contingent liabilities that arise
prior to the date of sale.
____________________________
In the Group's opinion, while it is impossible to ascertain
the ultimate legal and financial liability with respect to the
above-mentioned and other contingent liabilities and commitments,
including lawsuits, claims, guarantees, Federal taxes and Federal
regulations, the aggregate amount of such liability in excess of
financial reserves is not anticipated to be materially important
in relation to the Group's combined results of operations, financial
position or cash flows.
Note 13. Financial Data by Geographic Area
The Group is a worldwide supplier of lubricating oil additives,
which are blended into automotive crankcase oil, transmission
and hydraulic fluids, gear oils, industrial engine oils and general
industrial and metal working oils. Corporate/nonoperating sales and
services represent intergeographic eliminations. Corporate/nonoperating
net income represents interest expense, net of income taxes.
<TABLE>
<CAPTION>
United Other Western Eastern Corporate/
States Hemisphere Hemisphere Nonoperating Total
------ ------------- ---------- ------------ -----
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Sales and services
Outside $ 87,279 $ 8,110 $ 90,319 $ - $185,708
Related parties 115,998 16,174 78,432 - 210,604
Intergeographic 8,021 - 24,484 (32,505) -
------- ------- ------- ------- -------
Total sales and services $211,298 $24,284 $193,235 $(32,505) $396,312
======= ======= ======= ======= =======
Net income $ 742 $ (85) $ 1,940 $ (2,094) $ 503
======= ======= ======== ======= =======
As of December 31, 1995
Identifiable assets $109,059 $11,791 $ 50,653 $ - $171,503
======= ======= ======= ======= =======
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Texaco Additive Group of Companies:
We have audited the combined balance sheet of the Texaco
Additive Group of Companies identified in Note 1 ("the Group")
as of December 31, 1995, and the related statements of combined
income and retained earnings, and combined cash flows for the
year then ended. These combined financial statements are the
responsibility of the Group's management. Our responsibility is
to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the combined 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 combined financial statements referred to
above present fairly, in all material respects, the combined financial
position of the Group as of December 31, 1995, and the combined
results of its operations and its cash flows for the year then ended,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 11, 1996
<PAGE>
The following unaudited pro forma financial information presents a summary of
the combined results of Ethyl Corporation ("the Company") and the worldwide
lubricant additives business of the Texaco Additives Group of Companies of
Texaco Inc. ("Texaco") acquired on February 29, 1996. This summary is
presented for informational purposes only and may not necessarily reflect the
results of operations or financial position of Ethyl had the acquired business
operated as part of the Company as of and for the year ended December 31,
1995. The pro forma income statement is presented as if the acquisition had
occurred at January 1, 1995, giving effect to adjustments for interest expense
that would have been incurred to finance the purchase and other purchase
accounting adjustments. The pro forma balance sheet reflects the financial
position of Ethyl assuming the purchase had occurred on December 31, 1995,
including a preliminary estimate of the allocation of purchase price.
Pro Forma Condensed Statement of Income
(In thousands except per share amounts) (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
Texaco
Additives
Ethyl Adjustments Pro Forma
------- ---------- ---------
<S> <C> <C> <C>
Net sales $960,450 $396,312 (a)
(52,750)(b) $1,304,012
Cost of goods sold 636,056 354,240 (a)
(52,750)(b)
(4,931)(d) 932,615
------- ------- ---------
Gross profit 324,394 47,003 371,397
Selling, R&D, and general expenses 177,215 39,880 (a)
(22,756)(c) 194,339
Special charge 4,750 - 4,750
------- ------- ---------
Operating profit 142,429 29,879 172,308
Interest and financing expenses 26,833 3,489 (a)
5,059 (e) 35,381
Other (income), net (580) (2,714)(a) (3,294)
------- ------- ---------
Income before income taxes 116,176 24,045 140,221
Income taxes 42,213 914 (a)
8,599 (f) 51,726
------- ------- ---------
Net Income $ 73,963 $ 14,532 $ 88,495
======= ======= =========
Earnings per share $0.62 $0.75
======= =========
</TABLE>
<PAGE>
Pro Forma Condensed Balance Sheet
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
December 31, 1995
Texaco
Additives
Ethyl Adjustments(g) Pro Forma
------- ------- ---------
<S> <C> <C> <C>
Assets
Current assets $388,512 $ 73,568 $ 462,080
Property, plant and equipment, (net) 428,308 33,021 461,329
Other assets and deferred charges 151,833 49,087 200,920
Goodwill 15,134 - 15,134
------- ------- ---------
Total Assets $983,787 $155,676 $1,139,463
======= ======= =========
Liabilities and Shareholders' Equity
Current liabilities $145,770 $ 24,386 $ 170,156
Long-term debt 302,973 128,584 (h) 431,557
Deferred income taxes 40,745 (3,640) 37,105
Other noncurrent liabilities 84,171 6,346 90,517
Shareholders' equity 410,128 410,128
------- ------- ---------
Total Liabilities and Shareholders' Equity $983,787 $155,676 $1,139,463
======= ======= =========
</TABLE>
<PAGE>
Notes to Pro Forma Financial Statements:
(a) To reflect the historical results of operations of the
worldwide lubricant additives business of Texaco prior to
purchase accounting adjustments.
(b) To adjust revenues and cost of goods sold to change
the customer blending operation to a tolling operation and to
eliminate intercompany sales of $4,072.
(c) To adjust selling, general, and administrative expenses,
including research, development and testing expenses, to
reflect the planned integration of the business and related
efficiencies.
(d) To record incremental depreciation and amortization expense
resulting from the preliminary allocation of the purchase price
and certain other adjustments.
(e) To record the incremental interest expense on additional
revolving credit debt that would have been incurred to finance
the acquisition assuming that the acquisition occurred on
January 1, 1995. Interest on the additional debt was computed
at the weighted average interest rate of 6.51%, based on Ethyl's
interest rates during 1995 under its revolving credit agreement.
(f) To record the estimated income tax effects of the pro forma
adjustments described in Notes (b)-(e) at an assumed combined
state and federal income tax rate of 38%.
(g) To record the acquired assets and working capital of the
worldwide lubricant additives business of Texaco, certain acquisition
costs, pension reserves and related taxes resulting from the preliminary
purchase price allocation and the incremental revolving credit facility
debt of $128,584 which was assumed to be used to finance the acquisition
assuming the acquisition occurred December 31, 1995.
(h) Long-term debt does not include a contingent payment of
up to $60 million which may become due on February 26, 1999.
The actual amount of the contingent payment and related interest
will be determined using an agreed upon formula based on volumes
of certain acquired product lines.<PAGE>
<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
(Registrant)
Date: May 9, 1996 By: /s/ D A Fiorenza
Name: D A Fiorenza
Title: Vice President-Business
Evaluation & Support
