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Previous: EQUITABLE RESOURCES INC /PA/, 8-K/A, 2000-04-28 |
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Page 1 of 15 pages
[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, 2000 Commission File Number 1-5112
ETHYL CORPORATION
(Exact name of registrant as specified in its charter)
| VIRGINIA | 54-0118820 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
| 330 SOUTH FOURTH STREET P. O. BOX 2189 |
||
| RICHMOND, VIRGINIA | 23218-2189 | |
| (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 March 31, 2000: 83,465,460. | ||
| ETHYL CORPORATION | ||||
|---|---|---|---|---|
| I N D E X | ||||
| Page | ||||
| Number | ||||
| PART I. FINANCIAL INFORMATION | ||||
| ITEM 1. Financial Statements | ||||
| Consolidated Statements of Income - Three Months | ||||
| Ended March 31, 2000 and 1999 | 3 | |||
| Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 | 4 | |||
| Condensed Consolidated Statements of Cash Flows - | ||||
| Three Months Ended March 31, 2000 and 1999 | 5 | |||
| Notes to Financial Statements | 6-8 | |||
| ITEM 2. Management's Discussion and Analysis of Results | ||||
| of Operations and Financial Condition | 9-13 | |||
| ITEM 3. Quantitative and Qualitative Disclosures About Market Risk | 13 | |||
| PART II. OTHER INFORMATION | ||||
| ITEM 6. Exhibits and Reports on Form 8-K | 14 | |||
| SIGNATURE | 15 | |||
| 2 | ||||
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31
----------------------------
2000 1999
----------------------------
Net sales $198,512 $205,326
Cost of goods sold 156,248 161,880
-------- -------
Gross profit 42,264 43,446
TEL marketing agreements services 5,148 13,676
Selling, general and administrative expenses 18,980 18,106
Research, development and testing expenses 17,918 15,306
Special items income, net 42,369 7,200
-------- -------
Operating profit 52,883 30,910
Interest and financing expenses 8,368 8,851
Other (expense) income, net (550) 902
-------- -------
Income before income taxes 43,965 22,961
Income taxes 16,141 7,657
-------- -------
Net income $ 27,824 $ 15,304
======= =======
Basic and diluted earnings per share $ .33 $ .18
======= =======
Shares used to compute basic and diluted earnings per share 83,465 83,465
======= =======
Cash dividends per share of common stock $ .0625 $ .0625
======= =======
See accompanying notes to financial statements.
3
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31
2000 December 31
(unaudited) 1999
--------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,968 $ 15,846
Accounts receivable, less allowance for doubtful
accounts ($968 - 2000; $975 - 1999) 135,488 133,291
Receivable - TEL marketing agreements services 12,161 22,655
Inventories:
Finished goods and work-in-process 144,428 145,557
Raw materials 24,127 21,094
Stores, supplies and other 9,006 8,141
---------- ---------
177,561 174,792
Deferred income taxes and prepaid expenses 17,119 18,274
---------- ---------
Total current assets 350,297 364,858
---------- ---------
Property, plant and equipment, at cost 768,602 769,307
Less accumulated depreciation and amortization 452,267 436,331
---------- --------
Net property, plant and equipment 316,335 332,976
---------- --------
Other assets and deferred charges 250,168 194,383
Goodwill and other intangibles, net of amortization 97,864 99,163
---------- --------
Total assets $1,014,664 $991,380
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 57,170 $ 64,945
Accrued expenses 49,737 53,304
Dividends payable 5,217 5,217
Long-term debt, current portion 77,102 67,088
Income taxes payable 10,927 12,538
---------- --------
Total current liabilities 200,153 203,092
---------- --------
Long-term debt 392,046 407,134
Other noncurrent liabilities 108,443 102,707
Deferred income taxes 77,113 63,238
Shareholders' equity
Common stock ($1 par value)
Issued - 83,465,460 in 2000 and 1999 83,465 83,465
Accumulated other comprehensive loss (12,735) (11,828)
Retained earnings 166,179 143,572
---------- --------
236,909 215,209
---------- --------
Total liabilities and shareholders' equity $1,014,664 $991,380
========== ========
See accompanying notes to financial statements.
4
ETHYL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Three Months Ended
March 31
------------------------
2000 1999
------------------------
Cash and cash equivalents at beginning of year $ 15,846 $ 8,403
------- -------
Cash flows from operating activities:
Net income 27,824 15,304
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization 16,669 16,303
Deferred income taxes 15,068 334
Prepaid pension cost (3,713) (3,559)
Special items income, net (42,369) -
Working capital (increase) decrease (10,124) 3,259
Other, net 2,025 (1,675)
------- -------
Cash provided from operating activities 5,380 29,966
------- -------
Cash flows from investing activities:
Capital expenditures (3,383) (4,052)
Other, net 434 380
------- -------
Cash used in investing activities (2,949) (3,672)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (5,000) (10,000)
Cash dividends paid (5,217) (5,217)
Other, net (92) (1,328)
------ -------
Cash used in financing activities (10,309) (16,545)
------ -------
(Decrease)increase in cash and cash equivalents (7,878) 9,749
------ -------
Cash and cash equivalents at end of period $ 7,968 $18,152
======= =======
Supplemental investing and financing noncash transactions
Assignment of note payable to Texaco Inc. $ - $29,208
See accompanying notes to financial statements.
5
| 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 contain all necessary adjustments to present fairly, in all material respects, our consolidated financial position as of March 31, 2000, as well as the consolidated results of operations and the consolidated cash flows for the three-months ended March 31, 2000 and 1999. All adjustments are of a normal, recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the December 31, 1999 Annual Report and Form 10-K. The results of operations for the three-month period ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. |
| Ethyl adopted Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivatives and Hedging Activities", on January 1, 1999. FAS 133 has been consistently applied for all periods presented. | |
| 2. | Ethyl’s Swiss subsidiaries have entered marketing agreements with Alcor Chemie AG and Alcor Chemie Vertriebs AG (the “Alcor Group”), to market and sell TEL outside North America and the European Economic Area. The Alcor Group was purchased by Octel Corporation (“Octel”) in the fall of 1999. These agreements are similar to the marketing agreements currently in place with Octel’s subsidiary, The Associated Octel Company Limited. On April 19, 2000, a payment of $39 million was made to the Alcor Group as a prepayment for services provided under the terms of the marketing agreements. These payments were funded under current loan agreements. The proceeds earned by Ethyl under these marketing agreements are reflected in the Consolidated Statements of Income in the caption, “TEL Marketing Agreement Services.” |
3. Long-term debt consisted of the following: March 31 December 31
2000 1999
---- ----
Revolving credit agreement $240,000 $215,000
Term loan agreement 210,000 240,000
Medium-term notes due through 2001 13,500 13,500
------- -------
Total long-term debt 463,500 468,500
Obligations under capital lease 5,731 5,823
Less unamortized discount (83) (101)
------- -------
Net long-term debt 469,148 474,222
Less current portion (77,102) (67,088)
------- -------
Long-term debt $392,046 $407,134
======= =======
6
| 4. | Comprehensive income, defined as net income and other comprehensive income, was $26.9 million for the first quarter of 2000 and $5.2 million for the first quarter of 1999. Other comprehensive income includes changes in unrealized gains and losses on marketable securities and derivative instruments, foreign currency translation adjustments, and minimum pension liability adjustments recorded net of the related deferred income taxes. The components of comprehensive income consist of the following: |
Three Months Ended
March 31
-----------------
2000 1999
---- ----
Net income $ 27,824 $ 15,304
Other comprehensive (loss) income, net of tax
Unrealized gain/(loss) on marketable
equity securities 2,528 (1,318)
Foreign currency translation adjustments (2,162) (9,188)
Minimum pension liability adjustment (1,811) -
Unrealized gain on derivative instruments 538 399
------- -------
Other comprehensive (loss) (907) (10,107)
------- -------
Comprehensive income $ 26,917 $ 5,197
======= =======
The components of accumulated other comprehensive
income (loss) consist of the following:
March 31 December 31
2000 1999
---- ----
Unrealized gain on marketable equity securities $ 5,136 $ 2,608
Unrealized loss on derivative instruments (1,361) (1,899)
Minimum pension liability adjustment (1,811) -
Foreign currency translation adjustments (14,699) (12,537)
------- --------
Accumulated other comprehensive (loss) $(12,735) $ (11,828)
======= ========
| 5. | The special items income, net in 2000 consisted of recognition of $49.9 million income ($31.6 million after tax or $.38 per share) related to a pension plan election, offset by a $7.5 million charge ($4.8 million after tax or $.06 per share) related to the write-off of plant assets. In February 2000, an election was made regarding certain contracts in our pension plan. This election resulted in the settlement of liabilities for certain pension contracts and the recognition of a significant gain related to our pension assets. The settlement gain has no cash effect nor will any retiree benefits change. |
| The charge of $7.5 million included in first quarter 2000 special items was for the write-off of the production assets of a previously idled petroleum additives facility. There were no employee or other incremental costs included in this charge. As part of our ongoing cost improvement process, during first quarter 2000 we reviewed our third party supply contract for product as well as our manufacturing facilities. We concluded that the market for product previously produced at this facility had not grown as anticipated and excess supply and production facilities were in place. Further, there are no specific | |
7
| market changes expected to impact these conditions. As a result of this review, we cancelled our original supply contract in first quarter 2000, restructured, and entered a new, more limited supply agreement. There were no one-time charges related to the contract change. We also decided to permanently idle this manufacturing facility and have written off the book value of these assets in the first quarter. | |
| The special income item in 1999 consisted of $7.2 million income ($4.4 million after tax or $.05 per share) from a supply contract amendment. |
8
The following is management’s discussion and analysis of certain significant factors affecting our results of operations and changes in financial condition since December 31, 1999. Our reportable segments, petroleum additives and tetraethyl lead (TEL), are strategic business units that we manage separately.
Some of the information presented in the following discussion constitutes forward-looking comments within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking comments may focus on future objectives or expectations about future performance and may include statements about trends or anticipated events.
Ethyl believes our forward-looking comments are based on reasonable expectations and assumptions, within the bounds of what we know about our business and operations. However, we offer no assurance that actual results will not differ materially from our expectations due to uncertainties and factors that are difficult to predict and beyond our control. We identified certain, but not all, of these factors in the Review of Operations on page 26 of our 1999 Annual Report and incorporate the same herein by reference.
Our consolidated net sales for first quarter 2000 amounted to $198.5 million, representing a reduction of 3% from the 1999 level of $205.3 million. Consolidated net sales for first quarter 2000 are lower than first quarter 1999 primarily reflecting lower petroleum additives net sales which was slightly offset by higher TEL sales. The table below shows our consolidated net sales by segment.
Net Sales By Segment
(in millions)
First Quarter
-------------
2000 1999
---- ----
Petroleum additives $194.8 $202.3
Tetraethyl lead 3.7 3.0
------ ------
Consolidated net sales $198.5 $205.3
====== ======
Petroleum additives net sales in first quarter 2000 of $194.8 million were down $7.5 million or almost 4% from $202.3 million in 1999. Slightly lower volumes shipped when compared to the first quarter 1999 caused a $5.5 million reduction in net sales. Lower selling prices negatively affected net sales by $2.0 million when compared to first quarter 1999. The lower shipments included the result of customer forward buying in late 1999 in anticipation of the price increase that we announced in the fourth quarter last year. In addition, there was some limited customer build-up of inventory in the fourth quarter 1999 for Y2K concerns.
9
Tetraethyl lead sales under the TEL marketing agreements are not recorded as sales by Ethyl. Consequently, TEL net sales reflected in the table above are made by Ethyl in territories not covered by the agreements. The increase of $0.7 million from first quarter 1999 reflects slightly higher shipments of TEL by Ethyl, as well as slightly higher selling prices.
Ethyl evaluates the performance of petroleum additives and TEL based on segment operating profit. Corporate departments and other expenses outside the control of the segment manager are not allocated to segment operating profit. Depreciation on segment property, plant, and equipment and amortization of segment intangible assets are included in the operating profit of each segment.
Combined segment operating profit in first quarter 2000 was $7.9 million and included a nonrecurring expense of $7.5 million for the write-off of a petroleum additives manufacturing facility. First quarter 1999 segment operating profit was $36.0 million and included nonrecurring income of $7.2 million from a supply contract amendment. Excluding these nonrecurring items, combined segment operating profit was down 46% from 1999 levels.
Operating profit by segment and a reconciliation to income before income taxes is shown below followed by a review of the results.
Segment Operating Profit
(in millions)
First Quarter
2000 1999
---- ----
Petroleum additives before
nonrecurring items $12.3 $18.6
Nonrecurring items (7.5) 7.2
----- ----
Total Petroleum additives 4.8 25.8
Tetraethyl lead 3.1 10.2
----- ----
Segment operating profit 7.9 36.0
Corporate unallocated expense (6.8) (6.1)
Interest expense (8.4) (8.9)
Pension gain 49.9 -
Other income, net 1.4 2.0
----- ----
Income before income taxes $44.0 $23.0
===== ====
Petroleum additives operating profit was $4.8 million for first quarter 2000 and $25.8 million for first quarter 1999. Excluding the nonrecurring items, operating profit decreased about 34% from 1999 levels. Improved profits in fuel additives partially offset this overall decrease. The lower operating profit resulted from the impact of significantly higher raw material costs, slightly lower shipments, and an unfavorable foreign exchange effect. The nonrecurring write-off of the idled manufacturing facility is part of our ongoing review of plant rationalization efforts and will improve the petroleum additives cost structure.
10
While we did implement an announced fourth quarter 1999 selling price increase during first quarter 2000, the continuing rise in raw material cost during 2000 has more than offset the benefit of this price increase. We are in the process of implementing another price increase in response to the continuing rise in raw material cost, and expect the new pricing to take effect during second quarter 2000.
First quarter 2000 research, development, and testing (R&D) expenses, as well as selling, general, and administrative (SG&A) expenses, were about 11% higher than first quarter 1999 primarily reflecting an increase in R&D expenses. The increase in R&D expenses reflects additional testing as we prepare for the next generation of additive product specification, as well as ongoing product reformulation. SG&A expenses were slightly higher first quarter 2000 when compared to first quarter 1999.
Similarly, as a percentage of net sales, SG&A, including research, development, and testing expense, increased from 14.0% in 1999 to 16.2% in 2000 reflecting the effect of lower sales revenue and higher R&D expenses.
Our TEL operating profit for the first quarter 2000 amounted to $3.1 million and included $5.1 million from the TEL marketing agreements. In comparison, first quarter 1999 operating profit was $10.2 million with $13.7 million of that total resulting from the marketing agreements. As the TEL market continues its decline, the quarter to quarter results will fluctuate at a higher rate due to the timing of customer bulk orders. The decline in the lead market is proceeding according to our expectations.
Included in both 2000 and 1999 TEL results are the costs of certain facilities that are not allocable to the TEL marketing agreements.The following discussion references the Consolidated Financial Statements beginning on page 3.
The special items income, net for first quarter 2000 totaled almost $42.3 million. A settlement of certain pension contracts resulted in the recognition of special item income of $49.9 million in first quarter 2000. This one-time noncash gain did not affect any pension benefits provided by Ethyl. In addition, first quarter 2000 included special item expense of $7.5 million for the write-off of a manufacturing facility as part of our ongoing plant rationalization review. The special item income of $7.2 million for first quarter 1999 was the supply contract amendment as noted in the segment operating profit discussion.
11
Interest and financing expenses were $8.4 million in first quarter 2000 and $8.9 million in first quarter 1999. Lower average debt outstanding resulted in a decrease in interest and financing expenses of $1.5 million. A higher effective interest rate caused a $1 million increase in interest and financing expenses.
Other (expense) income, net totaled $0.6 million expense in first quarter 2000 as compared to $0.9 million income in 1999. The 1999 total included $1.6 million interest income related to an income tax adjustment.
Income tax expense was $16.1 million for first quarter 2000 as compared to $7.7 million for first quarter 1999. The increase of $8.4 million primarily reflected a 91% increase in our income before income taxes resulting in about $7.0 million higher income tax expense. In addition, the first quarter 2000 effective income tax rate of 36.7% was higher than the 33.3% rate for the same period in 1999 which resulted in about $1.4 million higher taxes. A benefit from a tax adjustment caused the lower effective tax rate in 1999.
Because of the items previously discussed, first quarter 2000 net income was $27.8 million or 33 cents per share. Net income for first quarter 1999 amounted to $15.3 million or 18 cents per share. Excluding nonrecurring items, first quarter 2000 earnings amounted to $1.0 million or one cent per share as compared to first quarter 1999 earnings of $10.9 million or 13 cents per share.
A summary of earnings and earnings per share, both including and excluding the non-recurring items is shown below:
(In millions except per share amounts)
First Quarter
2000 1999
---- ----
Net income:
Earnings excluding
nonrecurring items $ 1.0 $10.9
Nonrecurring items (a) 26.8 4.4
----- -----
Net income $27.8 $15.3
===== =====
Basic and diluted earnings per share:
Earnings excluding
nonrecurring items $ .01 $ .13
Nonrecurring items (a) .32 .05
----- -----
Net income $ .33 $ .18
===== =====
(a)Nonrecurring items after income taxes:
Pension plan gain $31.6 $ -
Manufacturing facility write-off (4.8) -
Supply contract amendment - 4.4
----- -----
$26.8 $ 4.4
===== =====
12
Cash and cash equivalents at March 31, 2000 totaled $8.0 million, which was a decrease of about $7.9 million since December 31, 1999. Our cash flows were more than sufficient to cover operating activities during the 2000 period. Cash flows from operating activities for the three months of 2000 were $5.4 million. This, as well as cash on hand of $7.9 million and about $0.3 million of other funds, were used to make principal payments on long-term debt of $5.0 million, pay dividends of $5.2 million, and fund capital expenditures of $3.4 million. We anticipate that cash provided from operations will continue to be sufficient to cover operating expenses, service debt obligations, including reducing long-term debt, and make dividend payments to our shareholders.
Ethyl has combined current and noncurrent long-term debt of $469.1 million at March 31, 2000 compared to $474.2 million at December 31, 1999. This decrease of $5.1 million primarily represents a repayment of $30.0 million on our term loan mostly offset by an increase of $25.0 million on the revolving credit agreement.
As a percentage of total capitalization, Ethyl's long-term debt, excluding the current portion, decreased from 65% at the end of 1999 to 62% at March 31, 2000.
Ethyl’s Swiss subsidiaries have entered marketing agreements with Alcor Chemie AG and Alcor Chemie Vertriebs AG (the “Alcor Group”), to market and sell TEL outside North America and the European Economic Area. The Alcor Group was purchased by Octel Corporation (“Octel”) in the fall of 1999. These agreements are similar to the marketing agreements currently in place with Octel’s subsidiary, The Associated Octel Company Limited. On April 19, 2000, a payment of $39 million was made to the Alcor Group as a prepayment for services provided under the terms of the marketing agreements. These payments were funded under current loan agreements.
We expect our capital spending during 2000 to be moderately higher than 1999. Ethyl will continue to finance capital spending through cash provided from operations.
Our working capital at March 31, 2000 was $150.1 million resulting in a current ratio of 1.75 to 1. At December 31, 1999, the working capital was $161.8 million and the current ratio was 1.80 to 1. The reduction in working capital and the current ratio primarily reflects a decrease in cash and the receivable from the TEL marketing agreements, as well as an increase in the current portion of long-term debt. Partially offsetting these was a reduction in accounts payable and accrued expenses.
There have been no significant changes in our market risk from the information provided in our Form 10-K for the year ended December 31, 1999.
13
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.
14
| 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: April 28, 2000 | By: s/ J. Robert Mooney |
| J. Robert Mooney | |
| Senior Vice President and | |
| Chief Financial Officer | |
| (Principal Financial Officer) | |
| Date: April 28, 2000 | By: s/ Wayne C. Drinkwater |
| Wayne C. Drinkwater | |
| Controller | |
| (Principal Accounting Officer) | |
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