<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission file number 1-5263
THE LUBRIZOL CORPORATION
29400 Lakeland Boulevard
Wickliffe, Ohio 44092-2298
(Name of registrant and address of principal executive offices)
OHIO 34-0367600
(State of incorporation) (I.R.S. Employer Identification No.)
Registrant's telephone number, including area code: (216) 943-4200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
-------------------------------- ---------------------
Common Shares without par value New York Stock Exchange
Common Share purchase rights New York Stock Exchange
Preferred Share purchase rights New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value (on basis of closing sale price) of voting stock held
by non-affiliates as of March 3, 1995: $2,118,855,519
Number of the registrant's Common Shares, without par value, outstanding as
of March 3, 1995: 64,754,607
Documents Incorporated by Reference
-----------------------------------
Portions of the registrant's 1994 Annual Report to its shareholders
(Incorporated into Part I and II of this Form 10-K)
Portions of the registrant's Proxy Statement dated March 15, 1995
(Incorporated into Part III of this Form 10-K)
<PAGE> 2
PART I
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ITEM 1. BUSINESS
The Lubrizol Corporation was organized under the laws of Ohio in 1928. The
company began business as a compounder of special-purpose lubricants, and in
the early 1930's was among the first to commence research in the field of
lubricant additives. Today, the company is a full service supplier of
performance chemicals to diverse markets worldwide. These specialty chemical
products are created through the application of advanced chemical, mechanical
and biological technologies to enhance the performance and quality of the
customer products in which they are used. The company develops, produces and
sells specialty additive systems for gasoline and diesel engine lubricating
oils, for automatic transmission fluids and for gear oils, and marine and
tractor lubricants. The company also supplies specialty products for
industrial lubricants and functional fluids, fuel additives and diversified
specialty chemical products.
Prior to December 1, 1992, the company had a separately reportable
Agribusiness segment. That segment developed, produced and marketed planting
seeds and specialty vegetable oils, and also conducted strategic biotechnology
research and development. As described in Note 16 to the Financial Statements
(included in the company's 1994 Annual Report to its shareholders and
incorporated herein by reference), the company transferred substantially all of
its Agribusiness segment, other than the specialty vegetable oil operations, to
Mycogen Corporation and a joint venture partnership formed with Mycogen. The
transferred assets were related to the seed business activities of the
company's former Agrigenetics Division. The Agribusiness assets and operations
retained by the company are not reportable as a separate industry segment after
1992.
Financial information for the industry segments, prior to December 1, 1992,
is contained in Note 14 to the Financial Statements included in the company's
1994 Annual Report to its shareholders and is incorporated herein by reference.
SPECIALTY CHEMICALS
PRINCIPAL PRODUCTS. The company's principal products are additive systems
for gasoline and diesel engine oils, automatic transmission fluids, gear oils,
industrial fluids, metalworking compounds and fuels. The company also offers
other specialty chemical products. Additives for engine oils accounted for 51%
of consolidated revenues in 1994, 50% in 1993, and 48% in 1992. Additives for
driveline oils accounted for 24%, 19% and 18% of consolidated revenues for
these respective periods.
Additives improve the lubricants and fuels used in cars, trucks, buses,
off-highway equipment, marine engines and industrial applications. In
lubricants, additives enable oil to withstand a broader range of temperatures,
limit the buildup of sludge and varnish deposits, reduce wear, inhibit the
formation of foam, rust and corrosion, and retard oxidation. In fuels,
additives help maintain efficient operation of the fuel delivery system, help
control deposits and corrosion, improve combustion and assist in preventing
decomposition during storage.
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Due to the variety in the properties and applications of oils, a number of
different chemicals are used to formulate the company's products. Each
additive combination is designed to fit the characteristics of the customer's
base oil and the level of performance specified. Engine oils for passenger
cars contain a combination of chemical additives which usually includes one or
more detergents, dispersants, oxidation inhibitors and wear inhibitors, pour
point depressants and viscosity improvers. Other chemical combinations are
used in heavy duty engine oils for trucks and off-highway equipment and in
formulations for gear oils, automatic transmission fluids, industrial oils,
metalworking fluids, and gasoline, diesel and residual fuels.
COMPETITION. The chemical additive field is highly competitive in terms of
price, product performance and customer service. The company's principal
competitors, both in the United States and overseas, are four major petroleum
companies and one chemical company. The petroleum companies produce lubricant
and fuel additives for their own use, and also sell additives to others. These
competing companies are also customers of Lubrizol. Excluding viscosity
improvers, management believes, based on volume sold, that the company is the
largest supplier to the petroleum industry of performance chemicals for
lubricants.
CUSTOMERS. In the United States, the company markets its additive products
through its own sales organization. The company's additive customers consist
primarily of oil refiners and independent oil blenders and are located in more
than 100 countries. Approximately 60% of the company's sales are made to
customers outside of North America. The company's ten largest customers, most
of which are international oil companies and a number of which are groups of
affiliated entities, accounted for approximately 45% of consolidated sales in
1994. Although the loss of any one of these customers could have a material
adverse effect on the company's business, each is made up of a number of
separate business units that the company believes make independent purchasing
decisions with respect to chemical additives. Sales to Royal Dutch Petroleum
Company (Shell) and its affiliates accounted for 9% of consolidated sales in
1994.
RAW MATERIALS. The company utilizes a broad variety of chemical raw
materials in the manufacture of its additives and uses oil in processing and
blending additives. These materials are obtainable from several sources, and
for the most part are derived from petroleum. Unstable political and economic
conditions in the Middle East have caused and may continue to cause the cost of
raw materials to fluctuate significantly; however, the availability of raw
materials to the company has not been significantly affected when these
conditions occurred. The company expects raw materials to be available in
adequate quantities during 1995.
RESEARCH, TESTING AND DEVELOPMENT. The company has historically emphasized
research and has developed a large percentage of the additives it manufactures
and sells. Technological developments in the design of engines and other
automotive equipment, combined with rising demands for environmental protection
and fuel economy, require increasingly sophisticated chemical additives to meet
industry performance standards. These standards change periodically and the
frequency of these performance upgrades compress the time cycles for new
product development and affect the company's technical spending patterns.
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Research and development expenditures were $90.7 in 1994, $88.5 million in
1993 and $76.2 million for 1992. These amounts were equivalent to 5.7%, 5.8%
and 5.3% of the respective revenues for such years. These amounts include
expenditures for the performance evaluation of additive developments in engines
and other types of mechanical equipment as well as expenditures for the
development of specialty chemicals for industrial applications. In addition,
$74.8 million, $83.0 million and $63.6 million was spent in 1994, 1993 and
1992, respectively, for technical service activities, principally for
evaluation in mechanical equipment of specific lubricant formulations designed
for the needs of petroleum industry customers throughout the world.
The company has two research facilities at Wickliffe, Ohio, one of which is
principally for lubricant additive research and the other for research in the
field of other specialty chemicals. The company also maintains a mechanical
testing laboratory at Wickliffe, equipped with a variety of gasoline and diesel
engines and other mechanical equipment to evaluate the performance of additives
for lubricants and fuels. Lubrizol has similar mechanical testing laboratories
in England and Japan and, in addition, makes extensive use of independent
contract research firms. Extensive field testing is also conducted through
various arrangements with fleet operators and others.
Liaison offices in Detroit, Michigan; Hazelwood, England; Hamburg, Germany;
Tokyo, Japan; and Paris, France maintain close contact with the principal
automotive and equipment manufacturers of the world and keep the company
abreast of the performance requirements for Lubrizol products in the face of
changing technologies. These liaison activities also serve as contacts for
cooperative development and evaluation of products for future applications.
Contacts with the automotive and equipment industry are important so the
company may have the necessary direction and lead time to develop products for
use in engines, transmissions, gear sets, and other areas of equipment that
require lubricants of advanced design.
PATENTS. The company owns certain United States patents relating to
lubricant and fuel additives, lubricants, chemical compositions and processes,
and protective coating materials and processes. It also owns similar patents
in foreign countries. While such domestic and foreign patents expire from time
to time, the company continues to apply for and obtain patent protection on an
ongoing basis. Although the company believes that, in the aggregate, its
patents constitute an important asset, it does not regard its business as being
materially dependent upon any single patent or any group of related patents.
The company has filed claims against Exxon Corporation and its affiliates
("Exxon") alleging infringements by Exxon of certain of the company's patents.
These suits are pending in the United States and in Canada, France and the
United Kingdom, and are at various stages. The international suits allege
infringement of patents that correspond to a United States patent admitted as
valid by Exxon in a settlement in 1988. In the suit in Canada, a determination
of liability has been made by the courts against Exxon and in favor of the
company, and the case has been returned to the trial court for an assessment of
damages. In another patent infringement suit, instituted by Exxon in the
United States, liability and
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damages determinations have been made (which are currently in the appeal
process) against the company and in favor of Exxon. For further information
regarding these cases, refer to Note 18 to the Financial Statements included in
the company's 1994 Annual Report to its shareholders.
ENVIRONMENTAL MATTERS. The company is subject to federal, state and local
laws and regulations designed to protect the environment and limit
manufacturing wastes and emissions. The company believes that as a general
matter its policies, practices and procedures are properly designed to prevent
unreasonable risk of environmental damage and the consequent financial
liability to the company. Compliance with the environmental laws and
regulations requires continuing management effort and expenditures by the
company. Capital expenditures for environmental projects are anticipated to be
approximately $20 million in 1995, which is comparable to the
environmental-related expenditures in 1994. Management believes that the cost
of complying with environmental laws and regulations will not have a material
affect on the earnings, liquidity or competitive position of the company.
The company is engaged in the handling, manufacture, use, transportation and
disposal of substances that are classified as hazardous or toxic by one or more
regulatory agencies. The company believes that its handling, manufacture, use,
transportation and disposal of such substances generally have been in accord
with environmental laws and regulations.
Among other environmental laws, the company is subject to the federal
"Superfund" law, under which the company has been designated as a "potentially
responsible party" that may be liable for cleanup costs associated with various
waste sites, some of which are on the U.S. Environmental Protection Agency
Superfund priority list. The company's experience, consistent with what it
believes to be the experience of others in similar cases, is that Superfund
site liability tends to be apportioned among parties based upon contribution of
materials to the Superfund site. Accordingly, the company measures its
liability and carries out its financial reporting responsibilities with respect
to Superfund sites based upon this standard, even though Superfund site
liability is technically joint and several in nature. The company views the
expense of remedial clean-up as a part of its product cost, and accrues for
estimated environmental liabilities with charges to cost of sales. Management
considers its environmental accrual to be adequate to provide for its portion
of costs for all known environmental matters, including Superfund sites. Based
upon consideration of currently available information, management does not
believe liabilities for environmental matters will have a material adverse
effect on the company's financial position, operating results or liquidity.
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AGRIBUSINESS
As discussed in Note 16 to the Financial Statements, on December 1, 1992,
the company transferred substantially all of the Agribusiness segment, other
than the specialty vegetable oil operations, to Mycogen Corporation and to a
joint venture formed with Mycogen. The company's 1994 and 1993 consolidated
revenues, costs and expenses include specialty vegetable oil operations, but do
not include amounts related to the transferred assets. As also discussed in
Note 16 to the Financial Statements, on December 31, 1993, the company
exchanged another portion of its investment in the partnership for additional
Mycogen common stock and cash. The company's investment in Mycogen, which
includes Agrigenetics, Inc. (formerly Agrigenetics, L.P.), is accounted for by
the equity method, under which the company recognizes its share of the earnings
or losses of such entities.
The specialty vegetable oil operation retained by the company sells
specialty vegetable oils and operates an oilseed crushing and refining
facility. Specialty vegetable oil sales consist primarily of high oleic
sunflower oil in either crude or refined forms and safflower oil. Pursuant to
contractual arrangements, the company has agreed to purchase planting seed for
specialty vegetable oils from Agrigenetics, Inc., which in turn is to supervise
production of oilseed for crushing. The company's ability to acquire high
oleic oil seed is subject to governmental, agricultural and export policies as
well as the weather. The discussion below is presented only for historical
purposes except for any references to specialty vegetable oils.
The transferred portion of the Agribusiness operations produced and marketed
planting seeds for agricultural crops. The principal seed products were hybrid
seed corn, hybrid sorghum, soybeans, hybrid sunflowers, alfalfa, and cotton.
Revenues from planting seeds contributed approximately 75% of the Agribusiness
sales in 1992.
Substantially all of the company's planting seed, and oilseed for
crushing, was produced by an established network of growers under specified
planting conditions on a short-term contract basis. The company furnished
parental seed to its growers, primarily from stock developed, multiplied and
maintained by the company. Company personnel supervised planting, growing and
harvesting.
The seed products were marketed through three regional groups representing
eight Agrigenetics seed brands and through an international marketing group and
three overseas subsidiaries, all of which sold planting seeds. The products
were marketed primarily to dealers and distributors, most of whom were farmers
with long-term relationships with the company. The company sold its seeds
primarily in the major farm production areas in the United States. The company
markets specialty vegetable oil through its own sales organization and
commissioned agents. Sales to date have been principally to food processors.
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The United States seed industry is highly competitive and fragmented. Based
on revenue figures from industry sources, management believes the transferred
Agribusiness operations were the sixth largest seed company in the United
States. The market for vegetable oils is very large and very competitive. The
company's TRISUN(R) sunflower oil sells for a premium over regular sunflower
oil. TRISUN(R) oil is very high in monounsaturates, and therefore more stable
and resistant to oxidation than other vegetable oils.
Agribusiness revenues from the sale of planting seeds were earned
principally during the first half of the calendar year, and losses from these
operations were incurred in the last half as a result of continuing operating
expenses with low sales. Working capital needs were also seasonal.
Expenditures for inventories were made during the last half of the year, while
substantial collections on sales were not received until the second and third
quarters of the following year.
Strategic Agribusiness activities consisted principally of internal
biotechnology research and development directed toward developing new products
for the agriculture, food and chemical industries. Agribusiness' research and
development consisted of traditional plant breeding and strategic research in
advanced plant science. Plant breeding attempts to create desirable plants by
crossing selected parent plants. The genetic combinations of the crosses are
then tested under field conditions to determine if desired characteristics
appear. Traditional research expense of the Agribusiness segment was $7.2
million in 1992.
A major portion of Agribusiness' strategic research and development was
conducted at the research laboratory in Madison, Wisconsin. Strategic research
was focused on specialty chemicals and food products derived from oil seed
crops and on genetic improvement of specific attributes of hybrid plant
varieties. Total Agribusiness strategic research expense was $7.7 million in
1992.
The company has two United States patents covering its high oleic sunflower
technology; one covers the seeds and plants and the other covers the oil. On
February 17, 1995, the Court of Appeals for the Federal Circuit upheld the
patent covering the seeds and plants. This patent had previously been rejected
by the United States Patent and Trademark Office (PTO) under a reexamination
initiated in 1988 by a consortium of seed companies. The other patent covering
the oil is also in reexamination and is on appeal to the PTO Board of Patent
Appeals and Interferences.
GENERAL
EMPLOYEES. At December 31, 1994, the company and its wholly-owned
subsidiaries had 4,520 employees of which approximately 60% were in the U.S.
INTERNATIONAL OPERATIONS. Financial information with respect to domestic
and foreign operations is contained in Note 12 to the Financial Statements that
is included in the company's 1994 Annual Report to its shareholders and is
incorporated herein by reference.
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The company supplies its additive customers abroad from overseas
manufacturing plants and through export from the United States. Sales and
technical service offices are maintained in more than 30 countries outside the
United States. As a result, the company is subject to business risks inherent
in non-U.S. activities, including political uncertainty, import and export
limitations, exchange controls and currency fluctuations. The company believes
risks related to its foreign operations are mitigated due to the political and
economic stability of the countries in which its largest foreign operations are
located.
While changes in the dollar value of foreign currencies will affect earnings
from time to time, the longer term economic effect of these changes should not
be significant given the company's net asset exposure, currency mix and pricing
flexibility. Generally, the income statement effect of changes in the dollar
value of foreign currencies is partially or wholly offset by the company's
ability to make corresponding price changes in local currency. The company's
consolidated net income will generally benefit as foreign currencies increase
in value compared to the U.S. dollar and will generally decline as foreign
currencies decrease in value. In 1994, currency fluctuations did not have a
material effect on net earnings.
ITEM 2. PROPERTIES
The general offices of the company are located in Wickliffe, Ohio. The
company has various leases for general office space primarily located in
Eastlake, Ohio; Houston, Texas; and London, England. The company owns three
additive manufacturing plants in the United States; one located in the
Cleveland, Ohio area, at Painesville, and two near Houston, Texas, at Deer Park
and Bayport. Outside the United States, the company owns additive
manufacturing plants in Australia, Brazil, Canada, England, France (three
locations), Japan, South Africa and Singapore. All of these plants, other than
Singapore, are owned in fee. In Singapore, the company owns the plant but
leases the land on which the plant is located. The company owns in fee
mechanical testing facilities in Wickliffe, Ohio; Hazelwood, England; and
Atsugi, Japan. The company also owns an oilseed crushing and refining plant
located in Culbertson, Montana. Finally, the company owns in fee a
manufacturing plant in Germany that manufactures performance chemical additives
for the coatings industry.
Additive manufacturing plants in India, Mexico, Saudi Arabia and Venezuela
are owned and operated by joint venture companies licensed by Lubrizol.
Lubrizol's ownership of each of these companies ranges from 40% to 49%.
The company has entered into long-term contracts for its exclusive use of
major marine terminal facilities at the Port of Houston, Texas. In addition,
Lubrizol has leases for storage facilities in Australia, Chile, Ecuador,
Finland, France, Holland, Singapore, Spain, South Africa, Sweden, and Turkey;
East Liverpool, Ohio; Los Angeles, California; St. Paul, Minnesota; Bayonne,
New Jersey; and Tacoma, Washington. In some cases, the ownership or leasing of
such facilities is through certain of its subsidiaries or affiliates.
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The company initiated a manufacturing rationalization plan during the third
quarter of 1993. The plan will be substantially implemented by the end of 1996
and, through consolidation, is expected to result in a one-third reduction in
the number of units used to produce intermediate products. See Note 17 to the
Financial Statements included in the company's 1994 Annual Report to its
shareholders.
Although the company continues to maintain a capital expenditure program to
support its operations, management of the company believes that its facilities
are adequate for its present operations and for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The company is a party in a case brought by Exxon Corporation and its
affiliates, Exxon Chemical Patents, Inc. and Exxon Research & Engineering
Company, in the Southern District of Texas, Houston Division on September 19,
1989. In December 1992, the trial jury rendered a verdict that the company
willfully infringed an Exxon patent pertaining to an oil soluble copper
additive component. In early 1993, the court prohibited the company from
making or selling any additive packages in the United States that contained
this component and awarded Exxon $18.1 million for attorneys' fees. On
November 18, 1993, another jury in the same case awarded Exxon $48 million in
damages. The findings of infringement and validity of the Exxon patent as well
as the $18.1 million attorneys' fee award are on appeal to the United States
Court of Appeals for the Federal Circuit in Washington, D.C., which has
jurisdiction over all patent cases. Oral argument in this appeal was heard on
December 6, 1993, and the company does not know when a decision will be
announced. On February 18, 1994, acting on a request from Exxon that the
damages amount be tripled, the trial court judge doubled the damages amount and
awarded prejudgment interest, court costs and additional attorneys' fees to
Exxon. The total amount of the judgment, including the previously awarded
attorneys' fees, is $129 million. The company has appealed the February 1994
damages award to the same court in Washington, D.C., as is considering the
appeal of the original verdict. Oral argument in the damages appeal was heard
on March 8, 1995, and the company does not know when a decision will be
announced.
The company's management continues to believe that it has not infringed the
Exxon patent and that the patent is invalid. Based on the advice of legal
counsel, management believes that the December 1992 trial court judgment will
not be upheld on appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of the security holders during the
three months ended December 31, 1994.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the name, age, recent business experience and
certain other information relative to each person who is an executive officer
of the company as of March 1, 1995.
<TABLE>
<CAPTION>
Name Business Experience
---- -------------------
<S> <C>
L. E. Coleman Dr. Coleman, age 64, has been Chairman of the Board
since 1982. He has been Chief Executive
Officer since 1978.
W. G. Bares Mr. Bares, age 53, was elected President in 1982 and
Chief Operating Officer in 1987.
R. A. Andreas Mr. Andreas, age 50, has been Vice President and Chief
Financial Officer since June 1990. From 1983
to 1990 he was Corporate Controller.
J. W. Bauer Mr. Bauer, age 41, became Vice President and General
Counsel in April 1992, after serving as General
Counsel from August 1991. From 1989 to 1991, he was
Corporate Counsel - Litigation.
J. G. Bulger Mr. Bulger, age 59, holds the position of Vice
President - Sales and was named Vice President in
September 1993. From 1989 to 1993, he was Senior
Vice President - Sales for Lubrizol Petroleum
Chemicals Company.
S. A. Di Biase Dr. Di Biase, age 42, is Vice President - Research
and Development and has been Vice President since
September 1993. From 1990 to September 1993, he
was Director of Strategic Research. During 1989
through 1990, he was Manager of Industrial Technology.
G. R. Hill Dr. Hill, age 53, became Senior Vice President -
Business Development in October 1993 and was named
Senior Vice President in 1988.
J. E. Hodge Mr. Hodge, age 52, is Vice President - Operations
and was named Vice President in September 1993.
During 1989 through 1993, he was General Manager
- Deer Park/Bayport Plants.
</TABLE>
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<TABLE>
<CAPTION>
Name Business Experience
---- -------------------
<S> <C>
K. H. Hopping Mr. Hopping, age 48, became Vice President and
Secretary of the Corporation in April 1991 after
serving as Senior Vice President - Marketing and
Product Development for Lubrizol Petroleum
Chemicals Company from 1988 to 1991.
R. Y. K. Hsu Dr. Hsu, age 67, was named Counselor to the Chairman
in 1992, upon reaching the mandatory retirement
age for elected officers. From 1982 to 1992, he
was Senior Vice President.
W. R. Jones Mr. Jones, age 52, has been Treasurer since 1980.
S. F. Kirk Mr. Kirk, age 45, holds the position of Vice
President - Segment Management and was named Vice
President in September 1993. From January 1991 to
1993, he was Senior Vice President - Marketing
and Technology for Lubrizol Petroleum Chemicals
Company. During 1989 through January 1991, Mr. Kirk
was General Manager - North American Sales for
Lubrizol Petroleum Chemicals Company.
Y. Le Couedic Mr. Le Couedic, age 47, is Vice President - Management
Information Systems and became Vice President
in September 1993. From 1991 to 1993, he was Division
Head - Corporate R&D - Administrative Services. From
September 1989 to August 1991 he was Administrative
Manager for the Hazelwood, U.K. Laboratory.
G. P. Lieb Mr. Lieb, age 42, was named Controller - Accounting
and Financial Reporting in November 1993, and
was named Principal Accounting Officer in January
1994. From October 1991 to October 1993, he was
Administrative Manager for the Hazelwood, U.K.
Laboratory. During 1989 to October 1991, Mr. Lieb
was Manager of Accounting and Financial Reporting.
M. W. Meister Mr. Meister, age 40, is Vice President - Human
Resources and was named Vice President in April 1993.
From November 1992 to April 1993, he was General
Manager - Human Resources. During 1989 to 1992, he
was Director - Human Resources for Agrigenetics Company.
</TABLE>
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<TABLE>
<CAPTION>
Name Business Experience
---- -------------------
<S> <C>
D. A. Muskat Mr. Muskat, age 55, was named Operations Manager in
August 1993. From September 1989 to August 1993
he was Vice President - Operations for Lubrizol
Petroleum Chemicals Company.
J. A. Thomas Mr. Thomas, age 56, is Vice President - Corporate
Planning and Development and was named Vice
President in April 1994. From December 1990 to
April 1994, he was General Manager - Sales for Asia
Pacific, Latin America and the Middle East. From
1986 through 1990, Mr. Thomas was Sales Manager -
Asia Pacific.
<FN>
All executive officers serve at the pleasure of the Board.
</TABLE>
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Common Shares of the company are listed on the New York
Stock Exchange under the symbol LZ. The number of shareholders of record of
Common Shares was 6,427 as of March 3, 1995.
Information relating to the recent price and dividend history
of the company's Common Shares follows:
<TABLE>
<CAPTION>
Common Share Price History
-------------------------- Dividends
1994 1993 Per Common Share
---- ---- ----------------
High Low High Low 1994 1993
---- --- ---- --- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st quarter $38 5/8 $32 1/8 $31 1/4 $26 5/8 $ .22 $ .21
2nd quarter 36 7/8 33 1/8 34 1/2 28 7/8 .22 .21
3rd quarter 36 1/2 29 7/8 36 29 .22 .21
4th quarter 34 28 1/2 36 3/8 30 3/4 .23 .22
----- -----
$ .89 $ .85
===== =====
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
The summary of selected financial data for each of the last
five years included in the Historical Summary contained on pages 38 and 39 of
the company's 1994 Annual Report to its shareholders is incorporated herein by
reference. Other income for 1994 and 1993 includes $41.2 million and $42.4
million respectively for the gain on sale of Genentech, and 1993 includes a
special charge of $86.3 million (see Note 17). Included in other income for
1990 is $101.9 million for the gain on sale of Genentech.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Management's Discussion and Analysis of Financial Condition
and Results of Operations contained on pages 20 through 24, inclusive, of the
company's 1994 Annual Report to its shareholders is incorporated herein by
reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the company and its
subsidiaries, together with the independent auditors' report relating thereto,
contained on pages 24 through 36, inclusive, of the company's 1994 Annual
Report to its shareholders, and the Quarterly Financial Data (Unaudited)
contained on page 37 of such 1994 Annual Report are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Election of
Directors" on pages 2 to 6, inclusive, and under "Filings Under Section 16(a)
of the Securities Exchange Act of 1934" on pages 18 and 19 of the company's
Proxy Statement dated March 15, 1995, is incorporated herein by reference.
Information relative to executive officers of the company is contained under
Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information relating to executive compensation contained
under the headings "Committees and Compensation of the Board of Directors" on
pages 6 and 7, "Executive Compensation" on pages 9 through 12 (through "Stock
Option Plans"), inclusive, and under "Employee and Executive Officer Benefit
Plans - Pension Plans" and "- Executive Agreements" on pages 15 through 18,
inclusive, of the company's Proxy Statement dated March 15, 1995, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information relating to security ownership set forth under
the heading "Security Ownership of Directors and Management and Certain
Beneficial Owners" on pages 7 and 8 of the company's Proxy Statement dated
March 15, 1995, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
-13-
<PAGE> 15
PART IV
-------
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Annual Report:
1. The following consolidated financial statements of
The Lubrizol Corporation and its subsidiaries,
together with the independent auditors' report relating
thereto, contained on pages 24 through 36,
inclusive, of Lubrizol's 1994 Annual Report to its
shareholders and incorporated herein by reference:
Independent Auditors' Report
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992
Consolidated Balance Sheets at December 31, 1994 and
1993
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
Quarterly Financial Data (Unaudited)
3. Exhibits
(3)(a) Amended Articles of Incorporation of The
Lubrizol Corporation, as adopted September 23,
1991. (Reference is made to Exhibit (3)(a) to
The Lubrizol Corporation's Annual Report on
Form 10-K for the year ended December 31, 1993,
which Exhibit is incorporated herein by
reference.)
(3)(b) Regulations of The Lubrizol Corporation, as
amended effective April 27, 1992. (Reference
is made to Exhibit (3)(b) to The Lubrizol
Corporation's Annual Report on Form 10-K
for the year ended December 31, 1993, which
Exhibit is incorporated herein by reference.)
(4)(a) Article Fourth of Amended Articles of
Incorporation. (Referenceis made to Exhibit
(4)(a) to The Lubrizol Corporation's Annual
report on Form 10-K for the year ended
December 31, 1993, which Exhibit is
incorporated herein by reference.)
-14-
<PAGE> 16
(4)(b) The company agrees, upon request, to furnish
to the Securities and Exchange Commission
copies of financial documents evidencing
long-term debt, which debt does not exceed 10% of
the total assets of the company and its
subsidiaries on a consolidated basis.
(4)(c) Rights Agreement between The Lubrizol Corporation
and National City Bank dated October 6, 1987.
(Reference is made to Exhibit (4)(c) to The
Lubrizol Corporation's Annual Report on Form
10-K for the year ended December 31, 1993,
which Exhibit is incorporated herein by
reference.)
(4)(d) Amendment to Rights Agreement dated October
6, 1987, between The Lubrizol Corporation and
National City Bank, effective October 24, 1988.
(Reference is made to Exhibit (4)(d) to The
Lubrizol Corporation's Annual Report on Form
10-K for the year ended December 31, 1993, which
Exhibit is incorporated by reference.)
(4)(e) Special Rights Agreement between The Lubrizol
Corporation and National City Bank dated October
31, 1988. (Reference is made to Exhibit (4)(e)
to The Lubrizol Corporation's Annual Report on
Form 10-K for the year ended December 31, 1993,
which Exhibit is incorporated by reference.)
(4)(f) Amendment No. 2 to Rights Agreement dated
October 6, 1987, as amended, between The
Lubrizol Corporation and National City Bank,
effective October 28, 1991. (Reference is made
to Exhibit (4)(f) to The Lubrizol Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1993, which Exhibit is incorporated
by reference.)
(4)(g) Amendment No. 1 to Special Rights Agreement
dated October 31, 1988, between The Lubrizol
Corporation and National City Bank, effective
October 28, 1991. (Reference is made to Exhibit
(4)(g) to The Lubrizol Corporation's Annual
Report on Form 10-K for the year ended December
31, 1993, which Exhibit is incorporated by
reference.)
-15-
<PAGE> 17
(10)(a)* The Lubrizol Corporation 1985 Employee Stock
Option Plan, as amended. (Reference is made to
Exhibit (10)(b) to The Lubrizol Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1993, which Exhibit is incorporated
by reference.)
(10)(b)* The Lubrizol Corporation Amended Deferred
Compensation Plan for Directors.
(10)(c)* Form of Employment Agreement between The
Lubrizol Corporation and certain of its senior
executive officers. (Reference is made to
Exhibit (10)(e) to The Lubrizol Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1993, which Exhibit is
incorporated by reference.)
(10)(d)* The Lubrizol Corporation Excess Defined Benefit
Plan, as amended.
(10)(e)* The Lubrizol Corporation Excess Defined
Contribution Plan, as amended.
(10)(f)* The Lubrizol Corporation Variable Award Plan.
(Reference is made to Exhibit (10)(h) to The
Lubrizol Corporation's Annual Report on Form 10-K
for the year ended December 31, 1993, which
Exhibit is incorporated by reference.)
(10)(g)* The Lubrizol Corporation Executive Death
Benefit Plan, as amended. (Reference is made
to Exhibit (10)(i) to The Lubrizol
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1993, which Exhibit is
incorporated by reference.)
(10)(h)* Amendment No. 1 to the Amended and Restated
Severance Agreement between The Lubrizol
Corporation and Dr. R.Y.K. Hsu. (Reference is
made to Exhibit (10)(k) to The Lubrizol
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1990, which Exhibit
is incorporated herein by reference.)
-16-
<PAGE> 18
(10)(i)* Employment and Consulting Agreement dated
February 23, 1987, between The Lubrizol
Corporation and Dr. R.Y.K. Hsu with Amendment
dated December 28, 1989. (Reference is made
to Exhibit (10)(l) to The Lubrizol
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1990, which Exhibit is
incorporated herein by reference.)
(10)(j)* The Lubrizol Corporation 1991 Stock
Incentive Plan, as amended. (Reference is
made to Exhibit (10)(l) to The Lubrizol
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1993, which Exhibit is
incorporated by reference.)
(10)(k)* The Lubrizol Corporation Deferred Stock
Compensation Plan for Outside Directors.
(Reference is made to Exhibit (10)(m) to The
Lubrizol Corporation's Annual Report on Form 10-K
for the year ended December 31, 1993, which
Exhibit is incorporated by reference.)
(10)(l)* Amendment to Employment and Consulting Agreement
dated October 1, 1992, between The Lubrizol
Corporation and Dr. R.Y.K. Hsu. (Reference is
made to Exhibit (10)(q) to The Lubrizol
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992, which Exhibit is
incorporated herein by reference.)
(10)(m)* The Lubrizol Corporation Officers'
Supplemental Retirement Plan, as amended.
(10)(n)* The Lubrizol Corporation Deferred Compensation
Plan for Officers.
(10)(o)* The Lubrizol Corporation International
Retirement Plan, as amended.
(11) Statement setting forth computation of per share
earnings.
(12) Computation of Ratio of Earnings to Fixed Charges
-17-
<PAGE> 19
(13) The following portions of The Lubrizol
Corporation 1994 Annual Report to its
shareholders:
Pages 20-24 Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Page 24 Independent Auditors' Report
Page 25 Consolidated Statements of Income
for the years ended December 31,
1994, 1993 and 1992
Page 26 Consolidated Balance Sheets at
December 31, 1994 and 1993
Page 27 Consolidated Statements of Cash
Flows for the years ended December
31, 1994, 1993 and 1992
Page 28 Consolidated Statements of
Shareholders' Equity for the years
ended December 31, 1994, 1993 and
1992
Pages 29-36 Notes to Financial Statements
Page 37 Quarterly Financial Data
(Unaudited)
Pages 38-39 Historical Summary
(21) List of Subsidiaries of The Lubrizol Corporation.
(23) Consent of Independent Auditors
(27) Financial Data Schedule
*Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended December 31, 1994.
-18-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on March 27, 1995, on its behalf by the undersigned, thereunto duly
authorized.
THE LUBRIZOL CORPORATION
BY /s/L. E. Coleman
----------------------------------
L. E. Coleman, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below on March 27, 1995, by the following
persons on behalf of the Registrant and in the capacities indicated.
/s/L. E. Coleman Chairman of the Board and Chief
------------------------- Executive Officer and Director
L. E. Coleman (Principal Executive Officer)
/s/R. A. Andreas Vice President and Chief Financial
------------------------- Officer (Principal Financial Officer)
R. A. Andreas
/s/G. P. Lieb Controller, Accounting and Financial
------------------------- Reporting (Principal Accounting
G. P. Lieb Officer)
/s/W. G. Bares President, Chief Operating Officer
------------------------- and Director
W. G. Bares
/s/Edward F. Bell Director
-------------------------
Edward F. Bell
/s/Peggy G. Elliott Director
-------------------------
Peggy G. Elliott
/s/David H. Hoag Director
-------------------------
David H. Hoag
/s/Thomas C. MacAvoy Director
-------------------------
Thomas C. MacAvoy
/s/William P. Madar Director
-------------------------
William P. Madar
/s/Richard A. Miller Director
-------------------------
Richard A. Miller
/s/Ronald A. Mitsch Director
-------------------------
Ronald A. Mitsch
/s/Renold D. Thompson Director
-------------------------
Renold D. Thompson
/s/Karl E. Ware Director
-------------------------
Karl E. Ware
<PAGE> 21
EXHIBIT INDEX
-------------
Exhibits
(3)(a) Amended Articles of Incorporation of The Lubrizol
Corporation, as adopted September 23, 1991. (Reference is
made to Exhibit (3)(a) to The Lubrizol Corporation's
Annual Report on Form 10-K for the year ended December 31,
1993, which Exhibit is incorporated herein by reference.)
(3)(b) Regulations of The Lubrizol Corporation, as amended
effective April 27, 1992. (Reference is made to Exhibit
(3)(b) to The Lubrizol Corporation's Annual Report on Form
10-K for the year ended December 31, 1993, which Exhibit
is incorporated herein by reference.)
(4)(a) Article Fourth of Amended Articles of Incorporation.
(Reference is made to Exhibit (4)(a) to The Lubrizol
Corporation's Annual report on Form 10-K for the year ended
December 31, 1993, which Exhibit is incorporated herein by
reference.)
(4)(b) The company agrees, upon request, to furnish to the
Securities and Exchange Commission copies of financial
documents evidencing long-term debt, which debt does not
exceed 10% of the total assets of the company and its
subsidiaries on a consolidated basis.
(4)(c) Rights Agreement between The Lubrizol Corporation and
National City Bank dated October 6, 1987. (Reference
is made to Exhibit (4)(c) to The Lubrizol
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1993, which Exhibit is incorporated
herein by reference.)
(4)(d) Amendment to Rights Agreement dated October 6, 1987,
between The Lubrizol Corporation and National City Bank,
effective October 24, 1988. (Reference is made to Exhibit
(4)(d) to The Lubrizol Corporation's Annual Report on Form
10-K for the year ended December 31, 1993, which Exhibit is
incorporated by reference.)
(4)(e) Special Rights Agreement between The Lubrizol Corporation
and National City Bank dated October 31, 1988.
(Reference is made to Exhibit (4)(e) to The Lubrizol
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1993, which Exhibit is incorporated by
reference.)
(4)(f) Amendment No. 2 to Rights Agreement dated October 6, 1987,
as amended, between The Lubrizol Corporation and
National City Bank, effective October 28, 1991.
(Reference is made to Exhibit (4)(f) to The Lubrizol
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993, which Exhibit is incorporated by
reference.)
(4)(g) Amendment No. 1 to Special Rights Agreement dated October
31, 1988, between The Lubrizol Corporation and National
City Bank, effective October 28, 1991. (Reference is
made to Exhibit (4)(g) to The Lubrizol Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993,
which Exhibit is incorporated by reference.)
(10)(a) The Lubrizol Corporation 1985 Employee Stock Option Plan,
as amended. (Reference is made to Exhibit (10)(b) to The
Lubrizol Corporation's Annual Report on Form 10-K for the
year ended December 31, 1993, which Exhibit is incorporated
by reference.)
<PAGE> 22
(10)(b) The Lubrizol Corporation Amended Deferred Compensation Plan
for Directors.
(10)(c) Form of Employment Agreement between The Lubrizol
Corporation and certain of its senior executive officers.
(Reference is made to Exhibit (10)(e) to The Lubrizol
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1993, which Exhibit is incorporated by
reference.)
(10)(d) The Lubrizol Corporation Excess Defined Benefit Plan, as
amended.
(10)(e) The Lubrizol Corporation Excess Defined Contribution Plan, as
amended.
(10)(f) The Lubrizol Corporation Variable Award Plan.
(Reference is made to Exhibit (10)(h) to The Lubrizol
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993, which Exhibit is incorporated by
reference.)
(10)(g) The Lubrizol Corporation Executive Death Benefit Plan, as
amended. (Reference is made to Exhibit (10)(i) to The
Lubrizol Corporation's Annual Report on Form 10-K for the
year ended December 31, 1993, which Exhibit is incorporated
by reference.)
(10)(h) Amendment No. 1 to the Amended and Restated Severance
Agreement between The Lubrizol Corporation and Dr. R.Y.K.
Hsu. (Reference is made to Exhibit (10)(k) to The Lubrizol
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1990, which Exhibit is incorporated herein
by reference.)
(10)(i) Employment and Consulting Agreement dated February 23,
1987, between The Lubrizol Corporation and Dr. R.Y.K. Hsu
with Amendment dated December 28, 1989. (Reference is made
to Exhibit (10)(l) to The Lubrizol Corporation's Annual
Report on Form 10-K for the year ended December 31, 1990,
which Exhibit is incorporated herein by reference.)
(10)(j) The Lubrizol Corporation 1991 Stock Incentive Plan, as
amended. (Reference is made to Exhibit (10)(l) to The
Lubrizol Corporation's Annual Report on Form 10-K for the
year ended December 31, 1993, which Exhibit is incorporated
by reference.)
(10)(k) The Lubrizol Corporation Deferred Stock Compensation Plan
for Outside Directors. (Reference is made to Exhibit
(10)(m) to The Lubrizol Corporation's Annual Report on Form
10-K for the year ended December 31, 1993, which Exhibit is
incorporated by reference.)
(10)(l) Amendment to Employment and Consulting Agreement dated
October 1, 1992, between The Lubrizol Corporation and Dr.
R.Y.K. Hsu. (Reference is made to Exhibit (10)(q) to The
Lubrizol Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992, which Exhibit is incorporated
herein by reference.)
(10)(m) The Lubrizol Corporation Officers' Supplemental Retirement
Plan, as amended.
(10)(n) The Lubrizol Corporation Deferred Compensation Plan for
Officers.
(10)(o) The Lubrizol Corporation International Retirement Plan, as
amended.
<PAGE> 23
(11) Statement setting forth computation of per share earnings.
(12) Computation of Ratio of Earnings to Fixed Charges
(13) The following portions of The Lubrizol Corporation 1994
Annual Report to its shareholders:
Pages 20-24 Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 24 Independent Auditors' Report
Page 25 Consolidated Statements of Income for the
years ended December 31, 1994, 1993 and 1992
Page 26 Consolidated Balance Sheets at December 31, 1994
and 1993
Page 27 Consolidated Statements of Cash Flows for the
years ended December 31, 1994, 1993 and 1992
Page 28 Consolidated Statements of Shareholders'
Equity for the years ended December 31, 1994,
1993 and 1992
Pages 29-36 Notes to Financial Statements
Page 37 Quarterly Financial Data (Unaudited)
Pages 38-39 Historical Summary
(21) List of Subsidiaries of The Lubrizol Corporation.
(23) Consent of Independent Auditors
(27) Financial Data Schedule
<PAGE> 1
Exhibit (10)(b)
THE LUBRIZOL CORPORATION
AMENDED DEFERRED COMPENSATION PLAN FOR DIRECTORS
------------------------------------------------
1. PURPOSE. The purpose of this AMENDED DEFERRED COMPENSATION PLAN FOR
DIRECTORS (the "Plan"), entered this 27th day of June, 1994, is to continue to
permit any member of the Board of Directors (the "Participant") of The Lubrizol
Corporation (the "Company") to defer all or a portion of the compensation to be
received as a director until after the Participant ceases to be a director, all
as provided in this Plan.
2. ADMINISTRATION. The Plan shall be administered by the Organization and
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee's interpretation and construction of all
provisions of this Plan shall be binding and conclusive. In the event that a
Participant is a member of the Committee, such Participant shall not
participate in any decision of the Committee relating to that Participant's
participation in this Plan.
3. RIGHT TO DEFER COMPENSATION.
---------------------------
(a) Any director of the Company may, at any time, elect to defer under
this Plan all, or such portion as the director may designate, of (i) that
director's annual retainer fee and/or (ii) the attendance fees for attending
directors' meetings or committees thereof. The annual retainer fee, for this
purpose, shall be deemed to be earned equally and ratably as of the last day of
each calendar quarter during the calendar year. Attendance fees are deemed to
be earned when the director attends the meeting for which the attendance fee is
paid.
(b) The election described in paragraph (a) shall be made by written
notice delivered to the Chief Financial Officer of the Company specifying (i)
the length of time, not less than one year, during which the election shall
apply, (ii) the portion of the retainer fee and/or the attendance fee to be
deferred for such year or years, and (iii) the periodic payment schedule
selected subject to the installment period limitation and the computation of
each installment payment to the Participant pursuant to, and in accordance
with, Section 5.
<PAGE> 2
(c) The election under this Section 3 shall take effect on the first day
of the calendar quarter following the month in which the election is made. A
director may designate that the election shall remain in effect until the
director, on a prospective basis, withdraws the election or changes the amount
to be deferred; provided that, if the director changes only the amount to be
deferred, the periodic payment schedule selected under paragraph (b) (iii)
shall continue to apply.
(d) Any notice of withdrawal of the election or change in the amount to be
deferred shall be effective on the first day of the calendar quarter following
the month in which such notice is given to the Company's Chief Financial
Officer.
4. DEFERRED COMPENSATION ACCOUNTS
------------------------------
(a) On the last day of each calendar month in which compensation deferred
under this Plan would have been payable to a Participant in the absence of an
election under this Plan to defer payment thereof, the amount of such deferred
compensation shall be credited, pursuant to Participant's election, to one or
both of two DEFERRED COMPENSATION ACCOUNTS (the "Participant Accounts"), one of
which shall be designated the "CASH DEFERRAL ACCOUNT" and one of which shall be
designated the "STOCK DEFERRAL ACCOUNT." Each selected account shall be
established and maintained for the Participant in the Company's accounting
books and records.
(b) Interest shall accrue on the month-end balance in each Participant's
CASH DEFERRAL ACCOUNT and shall be computed at the Federal Reserve 90-Day
Composite Rate in effect for the previous calendar quarter. Such interest
amount so determined shall be credited monthly to such CASH DEFERRAL ACCOUNT.
(c) The amount of deferred compensation credited to a Participant's STOCK
DEFERRAL ACCOUNT pursuant to paragraph (a) shall be used to determine the
number of full and fractional units ("Units") representing Lubrizol Common
Shares ("Shares") which the deferred amount would purchase at the closing price
for the Shares on the New York Stock Exchange ("NYSE") composite transactions
reporting system ("composite tape") on the date that the deferred amount is
credited pursuant to paragraph (a) and if Shares were not traded on that date
on the NYSE, then such computation shall be made as of the first preceding day
on which Shares were so traded. The Company shall credit the Participant's
STOCK DEFERRAL ACCOUNT with the number of full and fractional Units so
determined. However, at no time prior to delivery of such Shares, shall the
Company be obligated to purchase or reserve Shares for such STOCK DEFERRAL
ACCOUNT and the Participant shall not have any of the rights of a shareholder
with respect to the Units credited to such Participant's STOCK DEFERRAL
ACCOUNT.
2
<PAGE> 3
(d) As of each dividend record date declared with respect to the Shares, the
Company shall credit the Participant's STOCK DEFERRAL ACCOUNT with an
additional number of whole and/or fractional Units equal to:
(i) the product of (x) the dividend per Share which is payable with
respect to such dividend record date, multiplied by (y) the number of
whole and fractional Units credited to the Participant's STOCK
DEFERRAL ACCOUNT as of such record date;
DIVIDED BY
----------
(ii) the closing price of a Share on the dividend record date (or if
Shares were not traded on that date, on the next preceding day on
which Shares were so traded), as reported on the NYSE - composite
tape.
5. PAYMENT OF DEFERRED COMPENSATION.
--------------------------------
(a) The total amount credited to the Participant Accounts shall be payable
to the Participant as provided in this Section 5, either in a lump sum or in
periodic installments, over such period, not exceeding ten years, as the
Participant shall have selected pursuant to section 3(b)(iii). Such periodic
payments shall begin or the lump sum payment shall be made, as the case may be,
at such time, not more than twelve (12) months after the Participant ceased to
be a director of the Company, as the Participant may have selected pursuant to
Section 3 at the time of entering the Plan. The Participant may, under Section
3, have separate and distinct elections as to how the Participant's CASH
DEFERRAL ACCOUNT and STOCK DEFERRAL ACCOUNT shall be distributed under this
Plan. Payments from the CASH DEFERRAL ACCOUNT shall be in cash and payments
from the STOCK DEFERRAL ACCOUNT shall be in Shares.
(b) The amount of any installment payable to a Participant shall be
determined by dividing the balance of the applicable Participant Accounts by
the number of periodic installments (including the current installment)
remaining to be paid. If the determination of the installment payable from the
Participant's STOCK DEFERRAL ACCOUNT results in a fractional Share being
payable, the installment payment shall exclude any such fractional Share
payment except that, in the final installment payment, any such fractional
Share shall be paid in cash in an amount as determined by the Committee.
(c) Until the Participant's Accounts have been completely distributed, the
balance in the CASH DEFERRAL ACCOUNT shall continue to bear interest calculated
and credited as provided in Section 4(b) and the balance in the STOCK DEFERRAL
ACCOUNT shall continue to be credited with the dividend equivalents on such
balance as provided in Section 4(d).
3
<PAGE> 4
(d) In the event a Participant dies prior to receiving payment of the entire
amount of that Participant's Accounts, the unpaid balance in each of such
Participant's Accounts shall be paid to such beneficiary as the Participant may
have designated in writing to the Chief Financial Officer of the Company as the
beneficiary to receive any such post-death distribution under this Plan or, in
the absence of such written designation, to the Participant's legal
representative or beneficiary designated in the Participant's last will to
receive such distributions. Distributions subsequent to the death of a
Participant may be made in a lump sum and/or in periodic installments from the
Participant's CASH DEFERRAL ACCOUNT or STOCK DEFERRAL ACCOUNT, as the case may
be, in such amounts and over such period, not exceeding ten years from the date
of death, as the Committee may direct and the amount of each installment shall
be computed as provided in paragraph (b) of this Section 5.
6. ACCELERATION OF PAYMENTS. The Committee may accelerate the distribution
of either or both of Participant's Accounts for reasons of severe financial
hardship. For purposes of this Plan, severe financial hardship shall be deemed
to exist in the event the Committee determines that a Participant needs a
distribution to meet immediate and heavy financial needs resulting from a
sudden or unexpected illness or accident of the Participant or a member of
his/her family, loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstance arising as a result of
events beyond the control of the Participant. A distribution based on
financial hardship shall not exceed the amount required to meet the immediate
financial need created by the hardship.
7. NON-ASSIGNABILITY. None of the rights or interests in either of the
Participant's Accounts shall, prior to actual payment or distribution pursuant
to this Plan, be assignable or transferable in whole or in part, either
voluntarily or by operation of law or otherwise, and such rights and interest
shall not be subject to payment of debts by execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner; provided that, upon the
occurrence of any such assignment or transfer or attempted assignment or
transfer, all payments under paragraph 5 shall be payable in the sole and
unrestricted judgment and discretion of the Committee, as to time and amount,
and shall be distributable to the person who would have received the payment
but for this paragraph 7 only at such time or times and in such amounts as the
Committee, from time to time, shall determine.
8. PLAN TO BE UNFUNDED. The Company shall be under no obligation to
segregate or reserve Shares or any funds or other assets for purposes relating
to this Plan and, except as set forth in this Plan, no Participant shall have
any rights whatsoever in or with respect to any Shares or funds or other assets
held by the Company for purposes of this Plan or otherwise. Participants'
Accounts maintained for purposes of this Plan shall merely constitute
bookkeeping entries on records of the Company and shall not constitute any
allocation whatsoever of any assets or
4
<PAGE> 5
shares of the Company or be deemed to create any trust or special deposit with
respect to any of the Company's assets.
9. SHARE CHANGES. In the event of any change in number of outstanding
Shares by reason of any stock dividend, stock split up, recapitalization,
merger, consolidation, exchange of shares or other similar corporate change,
the number of units representing Shares to be credited in accordance with
Section 4(c), the number of units representing Shares in the STOCK DEFERRAL
ACCOUNT and the Shares to be distributed in accordance with this Plan shall be
appropriately adjusted to take into account any such event.
10. AMENDMENT. The Board of Directors of the Company may, from time to
time, amend or terminate this Plan, provided that no such amendment or
termination of the Plan shall adversely affect a Participant's Accounts as they
existed immediately before such amendment or termination or the manner of
distribution thereof, unless such Participant shall have consented thereto in
writing.
5
<PAGE> 1
Exhibit (10)(d)
THE LUBRIZOL CORPORATION
EXCESS DEFINED BENEFIT PLAN
(As Amended)
The Lubrizol Corporation hereby establishes, effective as of January
1, 1986, The Lubrizol Corporation Excess Defined Benefit Plan (the "Plan") for
the purpose of providing supplemental benefits to certain employees, as
permitted by Section 3(36) of the Employee Retirement Income Security Act of
l974.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. For the purposes hereof, the following words and
phrases shall have the meanings indicated, unless a different meaning is
plainly required by the context:
(a) CODE. the term "Code" shall mean the Internal Revenue Code as
amended from time to time. Reference to a section of the Code shall include
such section and any comparable section or sections of any future legislation
that amends, supplements, or supersedes such section.
(b) COMPANY. The term "Company" shall mean The Lubrizol Corporation,
an Ohio corporation, its corporate successors and the surviving corporation
resulting from any merger of The Lubrizol Corporation with any other
corporation or corporations.
(c) LUBRIZOL PENSION PLAN. The term "Lubrizol Pension Plan" shall mean
The Lubrizol Corporation Revised Pension Plan as the same shall be in effect on
the date of a Participant's retirement, death, or other termination of
employment.
(d) PARTICIPANT. Effective June 22, 1992, the term "Participant" shall
mean any person employed by the Company who is listed on Appendix A attached
hereto, or who is designated by the Board of Directors as an officer for the
purposes of Section 16 of the Securities Exchange Act of 1934, or whose
benefits under the Lubrizol Pension Plan are limited by the application of
Section 401(a)(17) of the Internal Revenue Code of 1986, as amended.
(e) PLAN. The term "Plan" shall mean the excess defined benefit
pension plan as set forth herein, together with all amendments hereto, which
Plan shall be called "The Lubrizol Corporation Excess Defined Benefit Plan."
(f) TRUST. The term "Trust" shall mean The Lubrizol Corporation Excess
Defined Benefit Plan Trust established pursuant to the Trust Agreement.
(g) TRUST AGREEMENT. The term "Trust Agreement" shall mean The
Lubrizol Corporation Excess Defined Benefit Plan Trust Agreement.
1.2. ADDITIONAL DEFINITIONS. All other words and phrases used herein
shall have the meanings given them in the Lubrizol Pension Plan, unless a
different meaning is clearly required by the context.
<PAGE> 2
ARTICLE II
SUPPLEMENTAL PENSION BENEFIT
2.1 ELIGIBILITY. Effective July 25, 1994, a Participant who
retires, dies, or otherwise terminates his employment with the Company and its
subsidiaries and
(i) whose benefits under the Lubrizol Pension Plan are
limited by the provisions of Section 401(a)(17) or 415 of the Code,
(ii) who either was a Participant on January 1, 1989 or had
attained age 55 on January 1, 1989, and thereafter became a
Participant, and whose benefits under the Lubrizol Pension Plan are
curtailed due to the revision of the pension benefit formula,
effective as of January 1, 1989, to comply with the requirements of
the Tax Reform Act of 1986, as amended, or
(iii) who participated in The Lubrizol Corporation Deferred
Compensation Plan for Officers (which was adopted effective July 25,
1994)
shall be eligible for a supplemental pension benefit determined in accordance
with the provisions of Section 2.2.
2.2 AMOUNT. Effective July 25, 1994, subject to the provisions of
Article III, the monthly supplemental pension benefit payable to an eligible
Participant shall be an amount which when added to the monthly pension payable
to such Participant under the Lubrizol Pension Plan (prior to any reduction
applicable to an optional method of payment) equals the monthly pension benefit
which would have been payable under the Lubrizol Pension Plan (prior to any
reduction applicable to an optional method of payment and adjusted for any
amount payable under The Lubrizol Corporation Excess Defined Contribution Plan
which is attributable to The Lubrizol Corporation Employees' Profit-Sharing
Plan and which would have affected the benefit that the Participant would have
received under the Lubrizol Pension Plan had it been payable from The Lubrizol
Corporation Employees' Profit-Sharing Plan) if the limitations of Section
401(a)(17) and 415 of the Code were not in effect and, (if he is a Participant
described in Section 2.1(ii)), his benefits had not been curtailed due to the
revision of the Lubrizol Pension Plan effective as of January 1989, to comply
with the provisions of the Tax Reform Act of 1986, as amended, and, (if he is a
Participant described in Section 2.1(iii)), if he did not participate in The
Lubrizol Corporation Deferred Compensation Plan for Officers (which was adopted
effective July 25, 1994).
2.3 PAYMENT. The terms of payment of the supplemental pension benefit
shall be identical to those specified in the Lubrizol Pension Plan for the type
of benefit the Participant receives under the Lubrizol Pension Plan.
2.4 VESTING. Each Participant as of December 31, 1993, shall be 100
percent vested in his supplemental pension benefit determined in accordance
with the provisions of Section 2.2. Each new Participant after December 31,
1993, shall be vested in his supplemental
<PAGE> 3
pension benefit under this Plan as determined in accordance with the vesting
provisions of the Lubrizol Pension Plan.
ARTICLE III
PAYMENT OF BENEFITS
Section 3.1 PAYMENT TO PARTICIPANT. Effective September 30,
1994, payment of a supplemental pension benefit under the Plan to a Participant
shall be made as described by the following provisions.
a. The Participant shall be paid his normal retirement
benefit or early retirement benefit, whichever, is applicable, upon his
retirement in the form of a monthly retirement benefit payable to such
Participant for his lifetime following his retirement, with the continuance to
his Beneficiary of such amount after his death for the remainder, if any, of
the 120-month term commencing with the date as of which the first payment of
such monthly benefit is made, and with any such monthly benefits remaining
unpaid upon the death of the survivor of the Participant and his Beneficiary
to be made to the estate of such survivor.
b. Upon becoming eligible to receive a supplemental
pension benefit in accordance with Article II, the Participant may elect to
receive the actuarial equivalent of the standard form of benefit provided in
paragraph a., above, in accordance with any one of the following options:
i. for Participants hired prior to February 1, 1984,
a single lump-sum payment;
ii. a reduced monthly retirement benefit payable to
a Participant for his lifetime following his retirement, with the
continuance of a monthly benefit equal to fifty percent (50%) of
such reduced amount after his death to his Beneficiary, provided
that such Beneficiary is living at the time of such Participant's
retirement and survives him;
iii. a reduced monthly retirement benefit payable to
such Participant for his lifetime following his retirement, with the
continuance of a monthly benefit equal to one hundred percent
(100%) of such reduced amount after his death to his Beneficiary
during the lifetime of the Beneficiary, provided such Beneficiary
is living at the time of such Participant's retirement and survives
him.
Such optional forms of payment described above shall be calculated
using the same actuarial factors and interest rates used under The Lubrizol
Corporation Pension Plan (or its successor) as in effect on the date the
Participant becomes eligible to receive his supplemental pension benefit;
provided, however, that (i) for any person who was a Participant as of December
31, 1993, who elects to have his supplemental pension benefit paid in a single
lump-sum payment, the interest rate used to discount the portion of the
Participant's supplemental pension benefit which represents his accrued benefit
as of December 31, 1993, and (ii) for R. W. Scher, W. D. Manning, R. J. Senz,
E. V. Luoma and W. J. Herman the interest rate used to discount such
Participant's supplemental pension benefit, shall be the arithmetic average of
the 7-day compound yield rates for the six full calendar months prior to
<PAGE> 4
the month as of which the benefit is payable as published in Donoghue's
Tax-Free MONEY FUND AVERAGE which is reported weekly in BARRON'S; provided
further that such rate with respect to any month shall be the rate reported in
the first issue of BARRON'S published during such month.
Notwithstanding the foregoing provisions of the Plan to the contrary,
if the present actuarial value of any retirement benefit or survivor benefit
under the Plan to any person, determined as described above, is less than
$25,000, such benefit shall be paid in a single lump-sum payment to such person
.
3.2 PAYMENT IN THE EVENT OF DEATH PRIOR TO COMMENCEMENT OF
DISTRIBUTION. If a Participant dies prior to commencement of benefits under the
Plan, his surviving spouse, if any, shall be eligible for a survivor benefit
which is equal to one-half of the reduced monthly benefit the Participant would
have received under the Plan if the Participant had retired on the day before
his death and had elected to receive his benefit under the Lubrizol Pension
Plan in a 50 percent joint and survivor annuity form. In making the
determinations and reductions required in this Section 3.2, the Company shall
apply the assumptions then in use under the Lubrizol Pension Plan. For purposes
hereof, a surviving spouse shall only be eligible for a benefit under this
Section 3.2, if such spouse had been married to the deceased Participant for at
least one year as of the date of the Participant's death.
3.3 SPECIAL FORM OF BENEFIT FOR E. VICTOR LUOMA. Notwithstanding
Section 3.1(b)(i), E. Victor Luoma may elect prior to his retirement or other
termination of employment to receive payment of his supplemental pension
benefit under the Plan in the form of a single sum amount, determined and
payable in accordance with Section 3.1.
ARTICLE IV
ADMINISTRATION
The Company shall be responsible for the general administration of the
Plan, for carrying out the provisions hereof, and for making, or causing the
Trust to make, any required supplemental benefit payments. The Company shall
have all such powers as may be necessary to carry out the provisions of the
Plan, including the power to determine all questions relating to eligibility
for and the amount of any supplemental pension benefit and all questions
pertaining to claims for benefits and procedures for claim review; to resolve
all other questions arising under the Plan, including any questions of
construction; and to take such further action as the Company shall deem
advisable in the administration of the Plan. The Company may delegate any of
its powers, authorities, or responsibilities for the operation and
administration of the Plan to any person or committee so designated in writing
by it and may employ such attorneys, agents, and accountants as it may deem
necessary or advisable to assist it in carrying out its duties hereunder. The
actions taken and the decisions made by the Company hereunder shall be final
and binding upon all interested parties.
<PAGE> 5
ARTICLE V
AMENDMENT AND TERMINATION
The Company reserves the right to amend or terminate the Plan in whole
or in part at any time and to suspend operation of the Plan, in whole or in
part, at any time, by resolution or written action of its Board of Directors or
by action of a committee to which such authority has been delegated by the
Board of Directors; provided, however, that no amendment shall result in the
forfeiture or reduction of the interest of any Participant or person claiming
under or through any one or more of them pursuant to the Plan. Any amendment
of the Plan shall be in writing and signed by authorized individuals.
ARTICLE VI
MISCELLANEOUS
6.1 NON-ALIENATION OF RETIREMENT RIGHTS OR BENEFITS. No Participant
shall encumber or dispose of his right to receive any payments hereunder, which
payments or the right thereto are expressly declared to be non-assignable and
non-transferable. If a Participant attempts to assign, transfer, alienate or
encumber his right to receive any payment hereunder or permits the same to be
subject to alienation, garnishment, attachment. execution, or levy of any kind,
then thereafter during the life of such Participant, and also during any period
in which any Participant is incapable in the judgment of the Company of
attending to his financial affairs, any payments which the Company is required
to make hereunder may be made, in the discretion of the Company, directly to
such Participant or to any other person for his use or benefit or that of his
dependents, if any, including any person furnishing goods or services to or for
his use or benefit or the use or benefit of his dependents, if any. Each such
payment may be made without the intervention of a guardian, the receipt of the
payee shall constitute a complete acquittance to the Company with respect
thereto, and the Company shall have no responsibility for the proper allocation
thereof.
6.2 PLAN NON-CONTRACTUAL. Nothing herein contained shall be construed
as a commitment or agreement on the part of any person employed by the Company
to continue his employment with the Company, and nothing herein contained shall
be construed as a commitment on the part of the Company to continue the
employment or the annual rate of compensation of any such person for any
period, and all Participants shall remain subject to discharge to the same
extent as if the Plan had never been established.
6.3 TRUST. In order to provide a source of payment for its obligations
under the Plan, the Company has established the Trust, the terms of which are
governed by the Trust Agreement.
6.4 INTEREST OF A PARTICIPANT. Subject to the provisions of the Trust
Agreement, the obligation of the Company under the Plan to provide a
Participant with a supplemental pension benefit constitutes the unsecured
promise of the Company to make payments as provided herein, and no person shall
have any interest in, or a lien or prior claim upon, any property of the
Company.
<PAGE> 6
6.5 CONTROLLING STATUS. No Participant shall be eligible for a benefit
under the Plan unless such Participant is a Participant on the date of his
retirement, death, or other termination of employment.
6.6 CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no
event be construed as giving any person, firm or corporation any legal or
equitable right as against the Company, its officers, employees, or directors,
except any such rights as are specifically provided for in the plan or are
hereafter created in accordance with the terms and provisions of the Plan.
6.7 SEVERABILITY. The invalidity or unenforceability of any particular
provision of the Plan shall not affect any other provision hereof, and the Plan
shall be construed in all respects as if such invalid or unenforceable
provision were omitted herefrom.
6.8 GOVERNING LAW. The provisions of the Plan shall be governed and
construed in accordance with the laws of the State of Ohio.
<PAGE> 7
<TABLE>
APPENDIX A
TO
THE LUBRIZOL CORPORATION
EXCESS DEFINED BENEFIT PLAN
<CAPTION>
PARTICIPANTS1 EFFECTIVE DATE
----------------------------------------------------------------------------------
<S> <C>
1. L. E. Coleman December 31, 1986
2. W. G. Bares December 31, 1986
3. R. Y. K. Hsu December 31, 1986
4. G. R. Hill December 31, 1986
5. W. R. Jones December 31, 1986
6. R. A. Andreas December 31, 1986
7. J. R. Ahern April 1, 1990
8. K. H. Hopping April 21, 1991
9. J. W. Bauer April 27, 1992
10. D. A. Muskat April 27, 1992
11. J. G. Bulger June 22, 1992
12. S. F. Kirk April 26, 1993
13. Y. Le Couedic April 26, 1993
14. J. E. Hodge April 26, 1993
15. M. W. Meister April 26, 1993
16. S. A. Di Biase April 26, 1993
17. G. P. Lieb April 25, 1994
18. J. A. Thomas April 25, 1994
FORMER PARTICIPANTS2
--------------------
1. P. L. Krug (R)
2. W. T. Beargie (R)
3. W. D. Manning (R)
4. R. W. Scher (R)
5. J. P. Arzul (D)
6. J. R. Cooper (R)
7. J. I. Rue (R)
8. R. J. Senz (T)
9. E. V. Luoma (R)
<FN>
__________________________________
1 This listing of Participants is limited to those Participants who are also
officers for purposes of Section 16 of the Securities Exchange Act of 1934.
2 R = Retired, D = Deceased, T = Terminated.
</TABLE>
<PAGE> 1
Exhibit (10)(e)
THE LUBRIZOL CORPORATION
EXCESS DEFINED CONTRIBUTION PLAN
(As Amended)
The Lubrizol Corporation hereby establishes, effective as of December
31, 1986, The Lubrizol Corporation Excess Defined Contribution Plan (the
"Plan") for the purpose of supplementing the benefits of certain employees, as
permitted by Section 3(36) of the Employee Retirement Income Security Act of
1974.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For the purposes hereof, the following words and
phrases shall have the meanings indicated, unless a different meaning is
plainly required by the context:
(a) BENEFICIARY. The term "Beneficiary" shall mean the person or
persons who shall be designated by a Participant to receive distribution of
such Participant's interest under the Plan in the event such Participant dies
before full distribution of his interest.
(b) CODE. The term "Code" shall mean the Internal Revenue Code as
amended from time to time. Reference to a section of the Code shall include
such section and any comparable section or sections of any future legislation
that amends, supplements, or supersedes such section.
(c) COMPANY. The term "Company" shall mean The Lubrizol
Corporation, an Ohio corporation, its corporate successors and the surviving
corporation resulting from any merger of The Lubrizol Corporation with any
other corporation or corporations.
(d) FUND. The term "Fund" shall mean each separate investment fund
established and maintained under the Trust Agreement.
(e) LUBRIZOL PROFIT-SHARING PLAN. The term "Lubrizol
Profit-Sharing Plan" shall mean The Lubrizol Corporation Employees' Profit-
Sharing Plan as the same shall be in effect on the date of a Participant's
retirement, death, or other termination of employment.
(f) PARTICIPANT. Effective September 30, 1994, The term
"Participant" shall mean any person employed by the Company who is listed on
Appendix A attached hereto, or who is designated by the Board of Directors as
an officer for the purposes of Section 16 of the Securities Exchange Act of
1934, or whose benefits under the Profit-Sharing Plan are limited by the
application of Section 401(a)(17) of the Internal Revenue Code of 1986, as
amended.
(g) PLAN. The term "Plan" shall mean the excess defined contribution
retirement plan as set forth herein, together with all amendments hereto, which
Plan shall be called "The Lubrizol Corporation Excess Defined Contribution
Plan."
(h) PLAN YEAR. The term "Plan Year" shall mean the calendar year.
<PAGE> 2
(i) SUPPLEMENTAL COMPANY CONTRIBUTIONS. The term "Supplemental
Company Contributions" shall mean the contributions made by the Company under
the Plan in accordance with the provisions of Section 2.2.
(j) TRUST AGREEMENT. The term "Trust Agreement" shall mean The
Lubrizol Corporation Excess Defined Contribution Plan Trust Agreement.
(k) TRUST ASSETS. The term "Trust Assets" shall mean all property held
by the Trustee pursuant to the Trust Agreement.
(l) TRUSTEE. The term "Trustee" shall mean the trustee of The Lubrizol
Corporation Excess Defined Contribution Trust.
(m) VALUATION DATE. The term "Valuation Date" shall mean the last day
of each Plan Year and any other date as may be agreed upon by the Company and
the Trustee.
(n) SEPARATE ACCOUNTS. The term "Separate Accounts" shall mean each
account established on behalf of a Participant under the Plan and credited with
Supplemental Company Contributions in accordance with the provisions of Section
2.3.
(o) LUBRIZOL DEFERRED COMPENSATION PLAN. Effective July 1, 1994, the
term "Lubrizol Deferred Compensation Plan" shall mean The Lubrizol Corporation
Deferred Compensation Plan for Officers (which was adopted effective July 25,
1994), as shall be in effect on the date of the Participant's retirement,
death, or other termination of employment.
1.2 ADDITIONAL DEFINITIONS. All other words and phrases used herein
shall have the meanings given them in the Lubrizol Profit-Sharing Plan, unless
a different meaning is clearly required by the context.
ARTICLE II
SUPPLEMENTAL CONTRIBUTIONS
2.1 ELIGIBILITY. Effective September 30, 1994, a Participant
whose benefits under the Lubrizol Profit-Sharing Plan are limited with respect
to any Plan Year by Section 401(a)(17) or 415 of the Code, or who participated
in the Lubrizol Deferred Compensation Plan, shall be eligible to have
contributions made with respect to him under the Plan in accordance with the
provisions of this Article II.
2.2 SUPPLEMENTAL COMPANY CONTRIBUTIONS. Effective September 30,
1994, in the event that Company contributions under the Lubrizol Profit-Sharing
Plan with respect to a Participant are limited for any Plan Year due to the
provisions of Section 401(a)(17) or 415 of the Code, or due to the
Participant's participation in the Lubrizol Deferred Compensation Plan, the
amounts by which such contributions are limited shall be credited under the
Plan by the Company and shall be designated as Supplemental Company
Contributions.
2.3 ALLOCATION OF CONTRIBUTIONS. Effective September 30, 1994,
Supplemental Company Contributions shall be allocated among the Separate
Accounts of the Participants on whose behalf such contributions are made.
<PAGE> 3
2.4 ADMINISTRATION OF SEPARATE ACCOUNTS. Effective September 30,
1994, each Separate Account to which contributions under Sections 2.2 and 2.3
are credited and allocated shall be credited monthly with the net monthly
increase experienced by the General Fund of the Lubrizol Profit-Sharing Plan.
ARTICLE III
DISTRIBUTION
3.1 VESTING. Each Participant as of December 31, 1993, shall be 100
percent vested in the value of his Separate Accounts. Each new Participant
after December 31, 1993, shall be vested in the value of his Separate Accounts
under this Plan as determined in accordance with the vesting provisions of the
underlying qualified plans.
3.2 DISTRIBUTION. Effective September 30, 1994, each Participant who
terminates employment with the Company and its related corporations shall
receive the balance in his Separate Account as soon as reasonably practical
after his termination in one of the following optional forms of benefit chosen
by the Participant prior to termination:
(i) a single lump-sum payment; or
(ii) annual installments of up to ten payments, the first
of which shall be paid within 30 days of the Participant's
termination, and subsequent installments of which shall be paid on the
anniversary date of the payment of the first installment. Such
installments shall be determined by dividing the value of the
Participant's Separate Account (determined in the same manner as under
the Lubrizol Profit-Sharing Plan) by the number of installments to be
paid and adjusting for interest based on the PBGC interest rate in
effect on the date of termination. Installments after the first
installments shall include such interest which accrues during the
12-month period occurring since the date the prior installment was
paid.
Notwithstanding the foregoing provisions of the Plan to the contrary,
if the present value of the Separate Account is less than $25,000, such benefit
shall be paid in a single lump-sum payment.
3.3 DISTRIBUTION IN THE EVENT OF DEATH. Effective September 30,
1994, in the event of the death of a Participant prior to distribution in full
of his interest under the Plan, his Beneficiary shall receive distribution of
such interest. In the event of death of a Participant prior to making an
election for benefits, such Beneficiary shall receive distribution of such
interest as soon as practicable after such Participant's death in the form
elected by such Beneficiary pursuant to Section 3.2. The Beneficiary under
this Section 3.3 shall be the person designated as the Participant's
beneficiary under the Lubrizol Profit-Sharing Plan. If no Beneficiary survives
such Participant or if no Beneficiary has been designated by such Participant,
the estate of such Participant shall be the Beneficiary and receive
distribution thereof. If any Beneficiary dies after becoming entitled to
receive distribution hereunder and before such distribution is made in full,
and if no other person or persons have been designated to receive the balance
of such distribution upon the happening of such contingency, the estate of such
deceased Beneficiary shall become the Beneficiary as to such balance.
<PAGE> 4
ARTICLE IV
ADMINISTRATION
The Company shall be responsible for the general administration of the
Plan, for carrying out the provisions hereof, and for making any required
supplemental benefit payments. The Company shall have all such powers as may be
necessary to carry out the provisions of the Plan, including the power to
determine all questions relating to eligibility for and the amount of any
supplemental retirement benefits and all questions pertaining to claims for
benefits and procedures for claim review; to resolve all other questions
arising under the Plan, including any questions of construction; and to take
such further action as the Company shall deem advisable in the administration
of the Plan. The Company may delegate any of its powers, authorities, or
responsibilities for the operation and administration of the Plan to any person
or committee so designated in writing by it and may employ such attorneys,
agents, and accountants as it may deem necessary or advisable to assist it in
carrying out its duties hereunder. The actions taken and the decisions made by
the Company hereunder shall be final and binding upon all interested parties.
ARTICLE V
AMENDMENT AND TERMINATION
The Company reserves the right to amend or terminate the Plan in whole
or in part at any time and to suspend operation of the Plan, in whole or in
part, at any time, by resolution or written action of its Board of Directors or
by action of a committee to which such authority has been delegated by the
Board of Directors; provided, however, that no amendment shall result in the
forfeiture or reduction of the interest of any Participant or person claiming
under or through any one or more of them pursuant to the Plan. Any amendment
of the Plan shall be in writing and signed by authorized individuals.
ARTICLE VI
MISCELLANEOUS
6.1 NON-ALIENATION OF RETIREMENT RIGHTS OR BENEFITS. No Participant
shall encumber or dispose of his right to receive any payments hereunder, which
payments or the right thereto are expressly declared to be non-assignable and
non-transferable. If a Participant or Beneficiary attempts to assign, transfer,
alienate or encumber his right to receive any payment under the Plan or permits
the same to be subject to alienation, garnishment, attachment, execution, or
levy of any kind, then thereafter during the life of such Participant or
Beneficiary and also during any period in which any Participant or Beneficiary
is incapable in the judgment of the Company of attending to his financial
affairs, any payments which the Company is required to make hereunder may be
made, in the discretion of the Company, directly to such Participant or
Beneficiary or to any other person for his use or benefit or that of his
dependents, if any, including any person furnishing goods or services to or for
his use or benefit or the use or benefit of his dependents, if any. Each such
payment may be made without the intervention of a guardian, the receipt of the
payee shall constitute a complete acquittance to the Company with respect
thereto, and the Company shall have no responsibility for the proper allocation
thereof.
<PAGE> 5
6.2 PLAN NON-CONTRACTUAL. Nothing herein contained shall be construed
as a commitment or agreement on the part of any person employed by the Company
to continue his employment with the Company, and nothing herein contained shall
be construed as a commitment on the part of the Company to continue the
employment or the annual rate of compensation of any such person for any
period, and all Participants shall remain subject to discharge to the same
extent as if the Plan had never been established.
6.3 TRUST. In order to provide a source of payment for its obligations
under the Plan, the Company has established The Lubrizol Corporation Excess
Defined Contribution Plan Trust.
6.4 INTEREST OF A PARTICIPANT. Subject to the provisions of the Trust
Agreement, the obligation of the Company under the Plan to provide a
Participant or Beneficiary with supplemental retirement benefits merely
constitutes the unsecured promise of the Company to make payments as provided
herein, and no person shall have any interest in, or a lien or prior claim
upon, any property of the Company.
6.5 CONTROLLING STATUS. No Participant shall be eligible for a benefit
under the Plan unless such Participant is a Participant on the date of his
retirement, death, or other termination of employment.
6.6 CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no
event be construed as giving any person, firm or corporation any legal or
equitable right as against the Company, its officers, employees, or directors,
except any such rights as are specifically provided for in the Plan or are
hereafter created in accordance with the terms and provisions of the Plan.
6.7 SEVERABILITY. The invalidity or unenforceability of any particular
provision of the Plan shall not affect any other provision hereof, and the Plan
shall be construed in all respects as if such invalid or unenforceable
provision were omitted herefrom.
6.8 GOVERNING LAW The provisions of the Plan shall be governed and
construed in accordance with the laws of the State of Ohio.
<PAGE> 6
<TABLE>
APPENDIX A
TO
THE LUBRIZOL CORPORATION
EXCESS DEFINED CONTRIBUTION PLAN
<CAPTION>
PARTICIPANTS1 EFFECTIVE DATE
------------ ---------------------------------------------------------------------
<S> <C>
1. L. E. Coleman December 31, 1986
2. W. G. Bares December 31, 1986
3. R. Y. K. Hsu December 31, 1986
4. G. R. Hill December 31, 1986
5. W. R. Jones December 31, 1986
6. R. A. Andreas December 31, 1986
7. J. R. Ahern April 1, 1990
8. K. H. Hopping April 21, 1991
9. J. W. Bauer April 27, 1992
10. D. A. Muskat April 27, 1992
11. J. G. Bulger June 22, 1992
12. S. F. Kirk April 26, 1993
13. Y. Le Couedic April 26, 1993
14. J. E. Hodge April 26, 1993
15. M. W. Meister April 26, 1993
16. S. A. Di Biase April 26, 1993
17. G. P. Lieb April 25, 1994
18. J. A. Thomas April 25, 1994
Former Participants2
--------------------
1. P. L. Krug (R)
2. W. T. Beargie (R)
3. W. D. Manning (R)
4. R. W. Scher (R)
5. J. P. Arzul (D)
6. J. R. Cooper (R)
7. J. I. Rue (R)
8. R. J. Senz (T)
9. E. V. Luoma (R)
<FN>
__________________________________
1 This listing of Participants is limited to those Participants who are also
officers for purposes of Section 16 of the Securities Exchange Act of 1934.
2 R = Retired, D = Deceased, T = Terminated.
</TABLE>
<PAGE> 1
Exhibit (10)(m)
THE LUBRIZOL CORPORATION
OFFICERS' SUPPLEMENTAL
RETIREMENT PLAN
(As Amended)
The Lubrizol Corporation hereby establishes, effective as of January
1, 1993, The Lubrizol Corporation Officers' Supplemental Retirement Plan (the
"Plan") for the purpose of providing deferred compensation benefits to a select
group of management or highly compensated employees.
SECTION 1. DEFINITIONS. For the purposes hereof, the following words
and phrases shall have the meanings indicated, unless a different meaning is
plainly required by the context:
A. BENEFICIARY. The term "Beneficiary" shall mean a person who is
designated by a Participant to receive benefits payable upon his death pursuant
to the provisions of Section 7.
B. CODE. The term "Code" shall mean the Internal Revenue Code as
amended from time to time. Reference to a section of the Code shall include
such section and any comparable section or sections of any future legislation
that amends, supplements, or supersedes such section.
C. COMPANY. The term "Company" shall mean The Lubrizol Corporation,
an Ohio corporation, its corporate successors and the surviving corporation
resulting from any merger of The Lubrizol Corporation with any other
corporation or corporations.
D. CREDITED SERVICE. The term "Credited Service" shall mean a
Participant's years of service with the Company equal to the number of full and
fractional years of service (to the nearest twelfth of a year) beginning on the
date the Participant first performed an hour of service for the Company and
ending on the date he is no longer employed by the Company.
E. FINAL AVERAGE PAY. Effective, July 25, 1994, the term "Final
Average Pay" shall mean the aggregated amount of Basic Compensation (as that
term is defined in the Lubrizol Pension Plan modified to add deferrals, if any,
under The Lubrizol Corporation Deferred Compensation Plan for Officers (which
was adopted effective July 25, 1994) received by the Participant during the
three consecutive calendar years during which such Participant received the
greatest aggregate amount of Basic Compensation, as defined above, within the
most recent ten years of employment, divided by 36.
<PAGE> 2
F. LUBRIZOL PENSION PLAN. The term "Lubrizol Pension Plan" shall mean
The Lubrizol Corporation Pension Plan as the same shall be in effect on the
date of a Participant's retirement, death, or other termination of employment.
G. NORMAL RETIREMENT DATE. The term "Normal Retirement Date" shall
mean the first day of the month following the date on which a Participant
attains age sixty-five (65).
H. PARTICIPANT. The term "Participant" shall mean the Chief Executive
Officer, the Chief Operating Officer and any other officer of the Company who
is designated by the Board of Directors of the Company and the Chief Executive
Officer to participate in the Plan, and who has not waived participation in the
Plan.
I. PLAN. The term "Plan" shall mean a deferred compensation plan set
forth herein, together with all amendments hereto, which Plan shall be called
"The Lubrizol Corporation Officers' Supplemental Retirement Plan."
SECTION 2. VESTING. The Participant shall be 100 percent vested in
his accrued supplemental retirement benefit hereunder.
SECTION 3. NORMAL RETIREMENT BENEFIT. Each Participant who retires
from employment with the Company on or after his Normal Retirement Date shall
receive, subject to the provisions of Sections 6, 7 and 8, a monthly
supplemental retirement benefit which shall be equal to two percent (2%) of his
Final Average Pay multiplied by his Credited Service (up to 30 years) offset by
the following amounts:
a. Benefits payable to the Participant under the Lubrizol Pension
Plan;
b. Benefits payable to the Participant under The Lubrizol
Corporation Employees' Stock Purchase and Savings Plan,
including benefits attributable to Matching Contributions, but
excluding benefits attributable to CODA Contributions,
Supplemental Contributions, Rollover Contributions or
Transferred Contributions, as defined thereunder;
c. Benefits payable to the Participant under The Lubrizol
Corporation Employees' Profit-Sharing Plan;
d. Benefits payable to the Participant under The Lubrizol
Corporation Excess Defined Contribution Plan;
e. Benefits payable to the Participant under The Lubrizol
Corporation Excess Defined Benefit Plan;
f. The Participant's Social Security benefits;
g. Any other employer-provided benefits not specifically excluded
herein which are payable to the Participant pursuant to any
qualified or nonqualified retirement plan maintained by the
Company.
<PAGE> 3
Such offsets shall be determined using the actuarial factors provided
in the Lubrizol Pension Plan.
SECTION 4. EARLY RETIREMENT ELIGIBILITY AND DETERMINATION OF BENEFIT.
Each Participant who retires from employment with the Company at or after age
55, but prior to his Normal Retirement Date, shall receive a percentage of his
supplemental retirement benefit determined under Section 3, in accordance with
the early retirement schedule provided in the Lubrizol Pension Plan.
SECTION 5. TERMINATION OF EMPLOYMENT. If a Participant terminates
employment prior to age 55, he shall receive the actuarial equivalent of his
supplemental retirement benefit determined under Section 3 in a single lump-sum
payment; such actuarial equivalent of which shall be calculated using the same
actuarial factors and interest rates used in the Lubrizol Pension Plan as in
effect on the date the Participant terminates employment in accordance with
this Section 5.
SECTION 6. STANDARD FORM OF BENEFIT. The Participant shall be paid
his supplemental retirement benefit under this Plan in the form of a monthly
retirement benefit payable to such Participant for his lifetime following his
retirement under Sections 3 or 4, with the continuance to his Beneficiary of
such amount after his death for the remainder, if any, of the 120-month term
commencing with the date as of which the first payment of such monthly benefit
is made, and with any such monthly benefits remaining unpaid upon the death of
the survivor of the Participant and his Beneficiary to be made to the estate of
such survivor.
SECTION 7. OPTIONAL FORMS OF BENEFIT. Upon becoming eligible to
receive a supplemental retirement benefit under this Plan, the Participant may
elect to receive the actuarial equivalent of the standard form of benefit
provided in Section 6, in accordance with any one of the following options:
a. for Participants hired prior to February 1, 1984, a single
lump-sum payment;
b. a reduced monthly retirement benefit payable to a Participant
for his lifetime following his retirement under Sections 3 or
4, with the continuance of a monthly benefit equal to fifty
percent (50%) of such reduced amount after his death to his
Beneficiary, provided that such Beneficiary is living at the
time of such Participant's retirement or termination and
survives him;
c. a reduced monthly retirement benefit payable to such
Participant for his lifetime following his retirement under
Sections 3 or 4, with the continuance of a monthly benefit
equal to one hundred percent (100%) of such reduced amount
after his death to his Beneficiary during the lifetime of the
Beneficiary, provided such Beneficiary is alive at the time of
such Participant's retirement or termination and survives him;
or
d. annual installments of up to ten payments, the first of which
shall be paid within 30 days of the Participant's retirement
under Sections 3 or 4, or
<PAGE> 4
termination under Section 5, and subsequent installments of
which shall be paid on the anniversary date of the payment of
the first installment. Such installments shall be determined
by dividing the commuted lump-sum equivalent of the
supplemental retirement benefit (determined in the same
manner as under the Lubrizol Pension Plan) by the number of
installments to be paid and adjusting for interest based on
the interest rate used to determine the commuted lump-sum
payment. Installments after the first installment shall
include such interest which accrues during the 12-month period
occurring since the date the prior installment was paid.
Notwithstanding the foregoing provisions of the Plan to the contrary, if the
present actuarial value of any retirement benefit or survivor benefit under the
Plan to any person, determined in accordance with the provisions of Section 9,
is less than $25,000, such benefit shall be paid in a single lump-sum payment
to such person.
SECTION 8. PAYMENT IN THE EVENT OF DEATH PRIOR TO COMMENCEMENT OF
DISTRIBUTION. If a Participant dies prior to commencement of benefits under
the Plan, his surviving spouse, if any, shall be eligible for a survivor
benefit which is equal to one-half of the reduced monthly benefit the
Participant would have received under the Plan if the Participant had
terminated employment on the day before his death and had elected to receive
his benefit hereunder in the form of a 50 percent joint and survivor annuity.
In making the determinations and reductions required in this Section 8, the
Company shall apply the assumptions then in use under the Lubrizol Pension
Plan. For purposes hereof, a surviving spouse shall only be eligible for a
benefit under this Section 8, if such spouse had been married to the deceased
Participant for at least one year as of the date of the Participant's death.
SECTION 9. ACTUARIAL FACTORS. All actuarial assumptions and factors
used in this Plan shall be the same as those used in the Lubrizol Pension Plan.
SECTION 10. FUNDING. The obligation of the Company to pay benefits
provided hereunder shall be unfunded and unsecured and such benefits shall be
paid by the Company out of its general funds. In order to provide a source of
payment for its obligations under the Plan, the Company may cause a trust fund
to be maintained and/or arrange for insurance contracts. Subject to the
provisions of the trust agreement governing any such trust fund or the
insurance contract, the obligation of the Company under the Plan to provide a
Participant with a benefit shall nonetheless constitute the unsecured promise
of the Company to make payments as provided herein, and no person shall have
any interest in, or a lien or prior claim upon, any property of the Company.
SECTION 11. PLAN ADMINISTRATOR. The Company shall be the plan
administrator of the Plan. The plan administrator shall perform all
ministerial functions with respect to the Plan. Further, the plan
administrator shall have full power and authority to interpret and construe the
Plan and shall determine all questions arising in the administration,
interpretation, and application of the Plan. Any such determination shall be
conclusive and binding on all persons. The plan administrator shall employ
such advisors or agents as it may deem necessary or advisable to assist it in
carrying out its duties hereunder.
<PAGE> 5
SECTION 12. NOT A CONTRACT OF CONTINUING EMPLOYMENT. Nothing herein
contained shall be construed as a commitment or agreement on the part of the
Participant to continue his employment with the Company, and nothing herein
contained shall be construed as a commitment or agreement on the part of the
Company to continue the employment or the annual rate of compensation of the
Participant for any period, and the Participant shall remain subject to
discharge to the same extent as if this Plan had never been put into effect.
SECTION 13. RIGHT OF AMENDMENT AND TERMINATION. Effective October 1,
1994, the Company reserves the right to amend or terminate the Plan in whole or
in part at any time and to suspend operation of the Plan, in whole or in part,
at any time, by resolution or written action of its Board of Directors or by
action of a committee to which such authority has been delegated by the Board
of Directors; provided, however, that no amendment shall result in the
forfeiture or reduction of the interest of any Participant or person claiming
under or through any one or more of them pursuant to the Plan. Any amendment
of the Plan shall be in writing and signed by authorized individuals.
SECTION 14. TERMINATION AND DISTRIBUTION OF ACCRUED BENEFITS. The
Plan may be terminated at any time by the Company, and in that event the amount
of the accrued benefits as of the date of such termination shall remain an
obligation of the Company and shall be payable as if the Plan had not been
terminated.
SECTION 15. CONSTRUCTION. Where necessary or appropriate to the
meaning hereof, the singular shall be deemed to include the plural, the plural
to include the singular, the masculine to include the feminine, and the
feminine to include the masculine.
SECTION 16. SEVERABILITY. In the event any provision of the Plan is
deemed invalid, such provision shall be deemed to be severed from the Plan, and
the remainder of the Plan shall continue to be in full force and effect.
SECTION 17. GOVERNING LAW. Except as otherwise provided, the
provisions of the Plan shall be construed and enforced in accordance with the
laws of the State of Ohio.
<PAGE> 1
Exhibit (10)(n)
THE LUBRIZOL CORPORATION
DEFERRED COMPENSATION PLAN FOR OFFICERS
---------------------------------------
1. PURPOSE. The purpose of this Deferred Compensation Plan For Officers (the
"Plan") is to permit an officer (as identified by the Company for Section 16
purposes under the Securities Act of 1934) (sometimes hereinafter referred to
as "officer" or as the "Participant") of The Lubrizol Corporation (the
"Company"), who wishes, to defer a portion of such officer's compensation until
retirement or other termination of employment all as provided in the Plan.
2. ADMINISTRATION. The Plan shall be administered by the Organization and
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee's interpretation and construction of all
provisions of the Plan shall be binding and conclusive upon all Participants
and their heirs and/or successors.
3. RIGHT TO DEFER COMPENSATION.
---------------------------
(a) An officer of the Company may, at any time prior to January 1 of a given
calendar year, elect, for one or more future successive calendar years, to
defer under the Plan a pre-selected amount of such officer's total annual
compensation, including bonus, which such officer may thereafter be entitled to
receive for services performed during such elected calendar year or years.
(b) The election under this Section 3 shall take effect on the first day of
the calendar year following the date on which the election is made and such
election shall be irrevocable for any elected calendar year after such elected
calendar year shall have commenced.
(c) The pre-selected amount that an officer may elect to defer shall be one
or more of the following:
(i) a fixed dollar amount or percentage of the officer's bi-weekly base
salary;
(ii) a fixed dollar amount or percentage of the officer's quarterly pay;
(iii) a fixed dollar amount or percentage of the officer's share in the
variable compensation component, if any;
1
<PAGE> 2
(iv) a fixed dollar amount or percentage of the officer's
participation in the variable award plan, if any.
(d) In addition to the provisions of paragraph (c), an officer may elect to
defer that portion or all of the officer's participation, if any, in (i) the
variable compensation component and/or (ii) the variable award plan for
services rendered during the elected calendar year, to the extent that such
amounts would otherwise be non-deductible by the Company pursuant to section
162(m) of the Internal Revenue Code of 1986. The amount of the election under
this paragraph (d) shall be determined after taking into account the officer's
election, if any, under paragraph (c).
(e) Notwithstanding paragraphs (a) and (b), where an officer first becomes
eligible to participate in the Plan, the newly eligible officer may make the
election under this Section 3 to defer the specified compensation for services
to be performed subsequent to the election and for the remainder of the
calendar year in which the election under this Section 3 is made provided such
election is made within 30 days after the date the officer first becomes
eligible.
(f) All elections under this Plan shall be made by written notice delivered
to the Vice President, Human Resources, of the Company specifying (i) the
number of calendar years, one or more, during which the election shall apply,
(ii) the portion, if any, determined under paragraph (c), of each category of
the Participant's compensation to be deferred for such year or years, as
described above, and (iii) the periodic payment schedule selected subject to
(x) the installment period limitation and (y) the computation of each
installment payment, as provided in Section 5.
(g) A Participant may designate that the election under this Section 3
shall remain in effect until the Participant, on a prospective basis, withdraws
the election or changes the amount to be deferred; PROVIDED THAT, if the
Participant changes only the amount to be deferred, the periodic payment
schedule selected under paragraph (f)(iii) shall continue to apply. Any notice
of the withdrawal of the election shall be effective on the first day of the
calendar year following the date on which such notice is given to the Company's
Vice President, Human Resources; PROVIDED THAT, such notice shall not change,
alter or terminate the deferral of the officer's participation in the variable
award plan for the year in which such notice of withdrawal is given which,
except for the deferral, would be payable in the calendar year following the
date on which such notice of withdrawal is given. Notwithstanding paragraph
(f) and the first sentence of this paragraph (g), any compensation earned after
the end of the first month in which a Participant under this Plan no longer is
an officer of the Company, as defined in Section 1, but continues to be
employed by the Company, shall not be deferred, PROVIDED HOWEVER, the balance
in the
2
<PAGE> 3
Participant's Accounts shall continue to be held and administered pursuant to
the Plan.
4. DEFERRED COMPENSATION ACCOUNTS.
------------------------------
(a) On the last day of each month during which the compensation deferred
under the Plan would have become payable to the Participant in the absence of
an election under the Plan to defer payment thereof, the amount of such
deferred compensation, reduced by the amount of any applicable federal, state
and/or local payroll taxes, shall be credited to a DEFERRED COMPENSATION
ACCOUNT (the "Participant's Account') which shall be established and maintained
for each Participant in the Company's accounting books and records.
(b) Interest shall accrue on the month-end balance in each Participant's
Account as of the last day of each month and shall be computed at the Federal
Reserve 90-day Composite Rate in effect for the previous calendar quarter.
Such interest amount so determined shall be credited monthly to such
Participant's Account.
5. PAYMENT OF DEFERRED COMPENSATION.
--------------------------------
(a) The total amount standing as a credit in a Participant's Account shall,
upon termination of employment, be payable to the Participant either in a lump
sum or in periodic installments over such period, not exceeding ten years, as
the Participant shall have selected pursuant to Section 3(f)(iii). Such
periodic payments shall begin or the lump sum payment shall be made, as the
case may be, from the Participant's Accounts, at such time, not more than
twelve (12) months after the Participant ceases to be an employee of the
Company, as the Participant shall have selected pursuant to Section 3 (f)(iii)
at the time of entering the Plan.
(b) The amount of each installment payable to a Participant shall be
determined by dividing the balance of such Participant's Account by the number
of periodic installments (including the current installment) remaining to be
paid. Until a Participant's Account has been completely distributed, the
balance thereof remaining, from time to time, shall bear interest on a monthly
basis calculated as provided in Section 4(b).
(c) In the event a Participant dies prior to receiving payment of the
entire amount in that Participant's Account, the unpaid balance shall be paid
to such beneficiary as the Participant may have designated in writing to the
Vice President, Human Resources, of the Company as the beneficiary to receive
any such post-death distribution under the Plan or, in the absence of such
written designation, to the Participant's legal representative or to the
beneficiary designated in the Participant's last will as the one to receive
such distributions.
3
<PAGE> 4
Distributions subsequent to the death of a Participant may be made either in a
lump sum or in periodic installments in such amounts and over such period, not
exceeding ten years from the date of death, as the Committee may direct and the
amount of each installment shall be computed as provided in Section 5(b).
6. ACCELERATION OF PAYMENTS. The Committee may accelerate the distribution of
part or all of a Participant's Account for reasons of severe financial
hardship. For purposes of the Plan, severe financial hardship shall be deemed
to exist in the event the Committee determines that a Participant needs a
distribution to meet immediate and heavy financial needs resulting from a
sudden or unexpected illness or accident of the Participant or a member of the
Participant's family, loss of the Participant's property due to casualty, or
other similar extraordinary and unforeseeable circumstance arising as a result
of events beyond the control of the Participant. A distribution based on
financial hardship shall not exceed the amount required to meet the immediate
financial need created by the hardship.
7. NON-ASSIGNABILITY. None of the rights or interests in a Participant's
Account shall, at any time prior to actual payment or distribution pursuant to
the Plan, be assignable or transferable in whole or in part, either voluntarily
or by operation of law or otherwise, and such rights and interest shall not be
subject to payment of debts by execution, levy, garnishment, attachment,
pledge, bankruptcy or in any other manner; provided that, upon the occurrence
of any such assignment or transfer or the attempted assignment or transfer, all
payments under Section 5 shall be payable in the sole and unrestricted judgment
and discretion of the Committee, as to time and amount (including a lump sum
amount), and shall be distributable to the person who would have received the
payment but for this Section 7 only at such time or times and in such amounts
as the Committee, from time to time, and in its sole and unrestricted judgment
and discretion, shall determine. Should an event covered by this Section 7
occur prior to the death of a Participant, the balance, if any, in the
Participant's Account shall, after such death, be thereafter distributed as
provided in Section 5(c) subject to the provisions of this Section 7.
8. PLAN TO BE UNFUNDED. The Company shall be under no obligation to segregate
or reserve any funds or other assets for purposes relating to the Plan and,
except as set forth in this Plan, no Participant shall have any rights
whatsoever in or with respect to any funds or other assets held by the Company
for purposes of the Plan or otherwise. Each Participant's Account maintained
for purposes of the Plan merely constitutes a bookkeeping entry on records of
the Company, constitutes the unsecured promise and obligation of the Company to
make payments as provided herein, and shall not constitute any allocation
whatsoever of any cash or other assets of the Company or be deemed to create
any trust or special deposit with respect to any of the Company's assets.
4
<PAGE> 5
9. AMENDMENT. The Board of Directors of the Company may, from time to
time, amend or terminate the Plan, provided that no such amendment or
termination of the Plan shall adversely affect the a Participant's Account as
it existed immediately before such amendment or termination or the manner of
distribution thereof, unless such Participant shall have consented thereto in
writing. Any reduction in the quarterly interest rate set forth in Section
4(b), by amendment to the Plan, shall affect only contributions made to the
Plan for calendar years subsequent to the adoption of the amendment. The
balance in a Participant's Account prior to the effective date of any such
interest rate reduction shall continue to bear interest at the rate in effect
prior to any such reduction in interest rate. Notice of any amendment or
termination of the Plan shall be given promptly to all Participants.
10. PLAN IMPLEMENTATION. This Plan is adopted and effective on the 25th
day of July, 1994.
5
<PAGE> 1
Exhibit (10)(o)
THE LUBRIZOL CORPORATION
INTERNATIONAL RETIREMENT PLAN
(As Amended)
The Lubrizol Corporation International Retirement Plan (hereinafter
referred to as the "Plan") shall provide retirement benefits to certain
employees of The Lubrizol Corporation and its affiliates (hereinafter referred
to as the "Corporation") who work outside their home country, in accordance
with the provisions hereinafter set forth.
Section 1. DEFINITIONS. For Plan purposes, each of the following
words and phrases shall have the meanings set forth in this Section 1 unless a
different meaning is clearly required by the context:
a. The term "BENEFICIARY" shall mean a person who is designated
by a Participant to receive benefits payable upon his death
pursuant to the provisions of Section 5 or 6.
b. The term "CREDITED SERVICE" shall mean a Participant's years
of service with the Corporation equal to the number of full
and fractional years of service (to the nearest twelfth of a
year) beginning on the date the Participant first performed an
hour of service for the Corporation and ending on the date he
is no longer employed by the Corporation. Credited Service
shall be limited to thirty-five (35) years of service.
c. The term "CORPORATION" shall mean The Lubrizol Corporation and
its affiliates.
d. The term "FINAL AVERAGE SALARY" shall mean the aggregate
amount of Pensionable Salary received by a Participant during
the most recent three (3) years of employment divided by
thirty-six (36).
e. The term "HOME COUNTRY" shall mean the country of origin.
f. The term "HOST COUNTRY" shall mean the country of assignment.
g. The term "NORMAL RETIREMENT DATE" shall mean the first day of
the month following the date on which a Participant attains
age sixty-five (65).
h. The term "PARTICIPANT" shall mean an employee designated by
the Chief Executive Officer of the Corporation to participate
in the Plan and who, (1) is on a permanent transfer to The
Lubrizol Corporation or any of its affiliates in a Host
Country and who is not credited with his full amount of
service as an employee of the Corporation or any of its
subsidiaries under the Host Country retirement plan, or who
would not otherwise receive full benefits under such plan; or
(2) is on temporary transfer and who during the temporary
transfer is not covered by employee retirement plans in his
Home Country. Appendix A provides a list of the initial
Participants as of January 1, 1991.
<PAGE> 2
i. The term "PENSION EQUIVALENT" shall mean the actuarial
equivalent of any retirement benefit determined in the form of
a monthly retirement benefit payable to the Participant for
his lifetime following his retirement, with the continuance to
his Beneficiary of such amount after his death for the
remainder, if any, of the 120-month term commencing with the
date as of which the first payment of such monthly benefit is
made, and with any such remaining unpaid upon the death of the
survivor of the Participant and his Beneficiary to be made to
the estate of such survivor; provided, however, effective July
1, 1993, the Pension Equivalent of the Participant's benefit
under The Lubrizol Corporation Employees' Profit-Sharing Plan
shall be determined based on the value of the Participant's
account balance as of the valuation date next preceding the
date of the Participant's termination of employment.
j. The term "PENSIONABLE SALARY" shall mean the Participant's
base salary or wages, plus quarterly pay, bonuses, unreduced
disability benefits to which the Participant is entitled under
a long-term disability program maintained by the Corporation,
elective contributions made on behalf of the Participant under
a cash or deferred arrangement maintained by the Corporation
and qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended, but excluding commissions and
extraordinary compensation of a recurring or non-recurring
nature not included in the list above.
k. The term "PLAN" shall mean The Lubrizol Corporation
International Retirement Plan.
Section 2. NORMAL RETIREMENT BENEFIT. Effective July 1, 1993, the
benefit for each Participant who retires from employment with the Corporation
on or after his Normal Retirement Date shall be determined as a monthly normal
retirement benefit which shall be equal to two percent (2%) of his Final
Average Salary multiplied by his Credited Service offset by the following
amounts:
a. Three and one-third percent (3 1/3%) of any United States
Social Security benefits multiplied by Credited Service (for a
total up to a maximum of 100% of the Social Security benefit);
plus
b. One hundred percent (100%) of the Pension Equivalent of any
employer-funded retirement benefit from any other retirement
plan or arrangement sponsored by the Corporation or any of its
subsidiaries which provides benefits for any years of service
counted in Credited Service; plus
c. One hundred percent (100%) of the Pension Equivalent of any
termination indemnity, provident fund or other mandatory
benefits which are required or payable by a domestic or
foreign government, that relate to any years of service
counted in Credited Service; provided, however, that the
foregoing offset provision in this paragraph (c) shall not
apply to any such termination indemnity, provident fund or
other mandatory benefits received prior to January 1, 1991 by
a Participant listed in Appendix A; provided, further,
<PAGE> 3
effective January 1, 1994, that any offset for U.S. Social
Security Benefits shall be limited to 50% of such benefit.
Section 3. UNITED STATES SOCIAL SECURITY BENEFITS. For purposes of
Section 2(a) above, a Participant's Social Security benefits shall be the
estimate of his primary insurance amount under the provisions of the United
States Federal Social Security Act as in effect on the date on which the
Participant becomes entitled to any payment of benefits under this Plan based
on the assumption that he would receive no earnings from employment in the
United States subsequent to his termination of employment with the Corporation
or any of its subsidiaries, all as set forth in tables prepared for that
purpose by the actuary designated by the Corporation.
Section 4. EARLY RETIREMENT ELIGIBILITY AND DETERMINATION OF BENEFIT.
Each Participant who retires from employment with the Corporation at or after
age 55, but prior to his Normal Retirement Date, shall receive a percentage of
his normal retirement benefit determined under Section 2, in accordance with
the following schedule:
<TABLE>
<CAPTION>
COMMENCEMENT OF BENEFITS PERCENTAGE OF NORMAL
AT OR AFTER AGE: RETIREMENT BENEFIT PAID:
------------------------ ------------------------
<S> <C>
65 100%
64 99%
63 97%
62 94%
61 90%
60 85%
59 80%
58 75%
57 70%
56 65%
55 60%
</TABLE>
If benefits do not begin in the month following the Participant's
birthday, the reduction shown above shall be adjusted for the number of months
elapsed since his last birthday for the purposes of this Section 4.
Section 5. STANDARD FORM OF BENEFIT. Effective January 1, 1994,
the Participant shall be paid his normal retirement benefit or early retirement
benefit, whichever, is applicable, upon his retirement in the form of a monthly
retirement benefit payable to such Participant for his lifetime following his
retirement, with the continuance to his Beneficiary of such amount after his
death for the remainder, if any, of the 120-month term commencing with the date
as of which the first payment of such monthly benefit is made, and with any
such monthly benefits remaining unpaid upon the death of the survivor of the
Participant and his Beneficiary to be made to the estate of such survivor.
Section 6. OPTIONAL FORMS OF BENEFIT. Effective January 1,
1994, upon becoming eligible to receive a normal or early retirement benefit in
accordance with
<PAGE> 4
Section 2 or 4, the Participant may elect to receive the actuarial equivalent
of the standard form of benefit provided in Section 5, in accordance with any
one of the following options:
a. for Participants hired prior to February 1, 1984, a single
lump-sum payment;
b. a reduced monthly retirement benefit payable to a Participant
for his lifetime following his retirement, with the continuance
of a monthly benefit equal to fifty percent (50%) of such
reduced amount after his death to his Beneficiary, provided
that such Beneficiary is living at the time of such
Participant's retirement and survives him;
c. a reduced monthly retirement benefit payable to such
Participant for his lifetime following his retirement,
with the continuance of a monthly benefit equal to one hundred
percent (100%) of such reduced amount after his death to his
Beneficiary during the lifetime of the Beneficiary, provided
such Beneficiary is living at the time of such Participant's
retirement and survives him.
Such optional forms of payment described above shall be calculated using the
same actuarial factors and interest rates used under The Lubrizol Corporation
Pension Plan (or its successor) as in effect on the date the Participant
becomes eligible to receive his normal or early retirement benefit.
Notwithstanding the foregoing provisions of the Plan to the contrary, if the
present actuarial value of any retirement benefit or survivor benefit under the
Plan to any person, determined as described above, is less than $25,000, such
benefit shall be paid in a single lump-sum payment to such person.
Section 7. TERMINATION OF EMPLOYMENT. If a Participant terminates
employment after five (5) or more years of service as a Participant in the
Plan, but prior to becoming eligible for an early retirement benefit under
Section 4, he shall receive a single lump-sum benefit which shall be the
actuarial equivalent of his benefit determined under Section 2 as of the date
of his termination of employment; provided, however, that the five (5) year
service requirement described above shall not apply to the Participants listed
in Appendix A. Such benefit shall be calculated using the same actuarial
factors and interest rates used under The Lubrizol Corporation Revised Pension
Plan (or its successor) as in effect on the date the Participant terminates
employment in accordance with this Section 7.
Section 8. DISABILITY. In the event that the Participant becomes
totally and permanently disabled and is eligible for benefits under the
Corporation's United States long-term disability plan, the Participant shall
continue to accrue Credited Service during the period which he is receiving
long-term disability benefits. The Participant's Pensionable Salary for the
period during which he is receiving long-term disability benefits shall be
based on his salary (including quarterly pay and annual bonuses) in effect
immediately prior to such disability. If the Participant attains age 65 while
he is so disabled and his eligibility for and receipt of long-term disability
benefits ceases, he will be entitled to his normal retirement benefit as
described in Section 2 above, in lieu of any disability benefit.
<PAGE> 5
Section 9. PRE-RETIREMENT DEATH BENEFIT. If a Participant dies before
commencement of his normal or early retirement benefit, his surviving spouse,
if any, will be paid a survivor annuity for the spouse's life which will be
equal to one of the following amounts:
a. if the Participant dies on or after age 55, payments to his
surviving spouse will be equal to a fifty percent (50%)
survivor annuity as described in Section 6.b., above,
calculated under Section 2 as if the Participant had retired
with a fifty percent (50%) joint and survivor annuity on the
day before he died; or
b. if the Participant dies before age 55, payments to his
surviving spouse will be equal to a fifty percent (50%)
survivor annuity as described in Section 6.b., above,
calculated under Section 2 as if the Participant had separated
from service on the day before he died, survived to age 55,
retired with a fifty percent (50%) joint and survivor annuity
on that date, and died on the day after he reached age 55.
If the Participant dies before commencement of his normal or early
retirement benefit and does not have a surviving spouse, his Beneficiary shall
receive the death benefit, if any, under this Agreement in accordance with his
benefit election, only, however, if the Participant has retired at the time of
his death and is entitled to receive benefits but has not yet started to
receive them.
Section 10. ENTITLEMENT TO BENEFITS. A Participant shall be entitled
to benefits under this Plan solely in the forms and at the times of payment
provided hereunder.
Section 11. DESIGNATION OF BENEFICIARY. In the event of a
Participant's death, any benefits payable to a Beneficiary pursuant to the
provisions hereunder shall be paid in accordance with the Beneficiary
designation which the Participant makes on the form provided by the Corporation
and files with the Corporation prior to his death. Such Beneficiary
designation may be revoked or changed by the Participant at any time prior to
his death by filing a new form with the Corporation.
Section 12. CURRENCY. All benefits payable hereunder shall be
calculated and paid in United States currency. The exchange rate in effect on
the date that the Participant becomes entitled to the payment of benefits under
this Plan shall be used to convert the applicable foreign currency into United
States currency for the purpose of calculating such benefit.
Section 13. FUNDING. The obligation of The Lubrizol Corporation to
pay benefits provided hereunder shall be unfunded and unsecured and such
benefits shall be paid by The Lubrizol Corporation out of its general funds.
In order to provide a source of payment for its obligations under the Plan, The
Lubrizol Corporation may cause a trust fund to be maintained and/or arrange for
insurance contracts. Subject to the provisions of the trust agreement
governing any such trust fund or the insurance contract, the obligation of The
Lubrizol Corporation under the Plan to provide a Participant or a Beneficiary
with a benefit shall nonetheless constitute the unsecured promise of The
Lubrizol Corporation to make payments as provided herein, and no person shall
have any interest in, or a lien or prior claim upon, any property of The
Lubrizol Corporation.
Section 14. PLAN ADMINISTRATOR. The Lubrizol Corporation shall be
the plan administrator of the Plan. The plan administrator shall perform all
ministerial functions with
<PAGE> 6
respect to the Plan. Further, the plan administrator shall have full power and
authority to interpret and construe the Plan and shall determine all questions
arising in the administration, interpretation, and application of the Plan.
Any such determination shall be conclusive and binding on all persons. The
plan administrator shall employ such advisors or agents as it may deem
necessary or advisable to assist it in carrying out its duties hereunder.
Section 15. NOT A CONTRACT OF CONTINUING EMPLOYMENT. Nothing herein
contained shall be construed as a commitment or agreement on the part of the
Participant to continue his employment with the Corporation, and nothing herein
contained shall be construed as a commitment or agreement on the part of the
Corporation to continue the employment or the annual rate of compensation of
the Participant for any period, and the Participant shall remain subject to
discharge to the same extent as if this Agreement had never been put into
effect.
Section 16. RIGHT OF AMENDMENT AND TERMINATION. The Company reserves
the right to amend or terminate the Plan in whole or in part at any time and to
suspend operation of the Plan, in whole or in part, at any time, by resolution
or written action of its Board of Directors or by action of a committee to
which such authority has been delegated by the Board of Directors; provided,
however, that no amendment shall result in the forfeiture or reduction of the
interest of any Participant or person claiming under or through any one or more
of them pursuant to the Plan. Any amendment of the Plan shall be in writing
and signed by authorized individuals.
Section 17. TERMINATION AND DISTRIBUTION OF ACCRUED BENEFITS. The
Plan may be terminated at any time by the Corporation, and in that event the
amount of the accrued benefits as of the date of such termination shall remain
an obligation of the Corporation and shall be payable as if the Plan had not
been terminated.
Section 18. CONSTRUCTION. Where necessary or appropriate to the
meaning hereof, the singular shall be deemed to include the plural, the plural
to include the singular, the masculine to include the feminine, and the
feminine to include the masculine.
Section 19. SEVERABILITY. In the event any provision of the Plan is
deemed invalid, such provision shall be deemed to be severed from the Plan, and
the remainder of the Plan shall continue to be in full force and effect.
Section 20. GOVERNING LAW. Except as otherwise provided, the
provisions of the Plan shall be construed and enforced in accordance with the
laws of the State of Ohio.
Section 21. LIMITED PERIOD SPECIAL RETIREMENT PROGRAM - 1993.
Effective July 1, 993, this Section 21 is applicable only to a Participant who
elects to retire under the Limited Period Special Retirement Program pursuant
to the terms of Section 4.10 of The Lubrizol Corporation Pension Plan (each
such Participant hereinafter shall be referred to in this Section 21 as an
"Electing Participant"). Except as hereinafter otherwise provided, the normal
retirement benefit determined under Section 2 of an Electing Participant for
all purposes of this Plan, shall be determined and payable as follows:
(a) The monthly normal retirement or early retirement benefit
of an Electing Participant shall be equal to two percent (2%) of his
Final Average Salary multiplied by the sum of his Credited Service
plus three, offset by the amounts specified in Section 2.a., b., and c.
<PAGE> 7
(b) In addition to the amount determined in (a) above, a
supplemental benefit shall be payable to an Electing Participant
who retires before age 62 (or his Beneficiary, if he should die before
all of the payments hereunder are completed) equal to monthly
installments of $500.00 commencing with the month in which his normal
or early retirement occurs and continuing to age 62, offset by any
amounts he receives pursuant to Section 4.10(b) of The Lubrizol
Corporation Pension Plan.
(c) The full amount of the benefits determined pursuant to
paragraph (a) above, shall be paid to Electing Participants who are at
least age 62 as of the date of retirement; otherwise, benefits
hereunder shall be paid in accordance with the chart set forth in
Table I-A attached hereto and made part of the Plan, based upon the
Participant's age to the nearest month as of the date of retirement.
(d) For the benefit determined in paragraph (a) above, the
Electing Participant may elect any form of benefit for which he is
otherwise eligible to elect pursuant to the terms of this Plan. The
benefit determined pursuant to paragraph (b) above, shall be paid in
the same form (i.e., commuted lump sum or annual installments) as
elected by the Electing Participant for the benefit determined in
paragraph (a) above.
<PAGE> 8
APPENDIX A
THE LUBRIZOL CORPORATION
INTERNATIONAL RETIREMENT PLAN
INITIAL PARTICIPANTS AS OF JANUARY 1, 1991
------------------------------------------
J. G. Bulger
J. Dable
D. Elliot
M. Olivier
P. S. Pereira
B. D. Ross
J. A. Thomas
<PAGE> 9
<TABLE>
TABLE I-A
THE LUBRIZOL CORPORATION INTERNATIONAL RETIREMENT PLAN
EARLY RETIREMENT FACTORS USED FOR
LIMITED PERIOD SPECIAL RETIREMENT PROGRAM - 1993
% OF DEFERRED BENEFIT BASED ON AGE AT DATE OF COMMENCEMENT
----------------------------------------------------------
<CAPTION>
AGE TO NEAREST MONTH
AGE IN ----------------------------------------------------------------------------------------------------------------------
YEARS 0 1 2 3 4 5 6 7 8 9 10 11
------- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 75% 75.42% 75.83% 76.25% 76.67% 77.08% 77.50% 77.92% 78.33% 78.75% 79.17% 79.58%
56 80% 80.42% 80.83% 81.25% 81.67% 82.08% 82.50% 82.92% 83.33% 83.75% 84.17% 84.58%
57 85% 85.42% 85.83% 86.25% 86.67% 87.08% 87.50% 87.92% 88.33% 88.75% 89.17% 89.58%
58 90% 90.33% 90.67% 91.00% 91.33% 91.67% 92.00% 92.33% 92.67% 93.00% 93.33% 93.67%
59 94% 94.25% 94.50% 94.75% 95.00% 95.25% 95.50% 95.75% 96.00% 96.25% 96.50% 96.75%
60 97% 97.17% 97.33% 97.50% 97.67% 97.83% 98.00% 98.17% 98.33% 98.50% 98.67% 98.83%
61 99% 99.08% 99.17% 99.25% 99.33% 99.42% 99.50% 99.58% 99.67% 99.75% 99.83% 99.92%
62 100%
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT 11
THE LUBRIZOL CORPORATION
Computation of Per Share Earnings (Note A)
(In Thousands, Except Per Share Data)
The computation of primary earnings per share and fully diluted earnings per
share is as follows:
<CAPTION>
For the Year Ended December 31
----------------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Average shares outstanding
for computation of primary
earnings per share 65,737 67,706 68,966
Add adjustment to treat
shares for options exercised
as if such shares were out-
standing during the entire
year 183 257 234
Add equivalent shares for
unexercised options at end
of year (B) 473 550 626
------ ------ ------
Average shares outstanding
for computation of fully
diluted earnings per share 66,393 68,513 69,826
====== ====== ======
Primary earnings per share $2.67 $ .67 $1.81
===== ===== =====
Fully diluted earnings per
share (C) $2.64 $ .67 $1.79
===== ===== =====
<FN>
NOTES: (A) Share and per share data have been restated to reflect
2-for-1 stock split effected on August 31, 1992.
(B) Computed under the "Treasury Stock Method" using the higher
of quoted ending or average market price.
(C) Fully diluted earnings per share have not been presented in
the consolidated statements of income because the dilutive
effect is less than 3%.
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT 12
THE LUBRIZOL CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(all amounts except ratios are shown in thousands)
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Pretax income $251,459 $119,651 $177,144 $178,140 $271,212
Deduct earnings of less
than 50% owned affiliates
(net of distributed
earnings) included in
pretax income (871) (2,355) 9 (3,796) (3,401)
Add losses of less than 50%
owned affiliates included
in pretax income 490 21,063 2,769 53 -0-
Add fixed charges net of
capitalized interest 3,149 4,154 3,615 7,738 6,049
Add previously capitalized
interest amortized during
period 452 272 162 96 6
------- ------- ------- ------- -------
"Earnings" $254,679 $142,785 $183,699 $182,231 $273,866
======= ======= ======= ======= =======
Gross interest expense
including capitalized
interest ("Fixed Charges") $ 6,922 $ 6,292 $ 4,981 $ 9,049 $ 7,070
Ratio of earnings to
fixed charges 36.8 22.7 36.9 20.1 38.7
Special adjustments:
-------------------
"Earnings" $254,679 $142,785 $273,866
Plus special charges 86,303
Less Genentech gain (41,235) (42,443) (101,921)
Plus Agribusiness write-off 9,734
------- ------- -------
Adjusted "Earnings" $213,444 $186,645 $181,679
======= ======= =======
Ratio of adjusted earnings
to fixed charges 30.8 29.7 25.7
</TABLE>
<PAGE> 1
Exhibit 13
THE LUBRIZOL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Lubrizol Corporation is a full service supplier of performance
chemicals to diverse markets worldwide. These specialty chemical products are
created through the application of advanced chemical, mechanical and biological
technologies to enhance the performance, quality and value of the products in
which they are used. The company develops, produces and sells specialty
additive systems for gasoline and diesel engine lubricating oils, for automatic
transmission fluids and for gear oils, and marine and tractor lubricants. The
company also supplies specialty products for industrial lubricants and
functional fluids, fuel additives and diversified specialty chemical products.
Prior to December 1, 1992, the company had a separately reportable Agribusiness
segment. That segment developed, produced and marketed planting seeds and
specialty vegetable oils, and also conducted strategic biotechnology research
and development. As described in Note 16 to the financial statements, the
company transferred substantially all of its Agribusiness segment, other than
the specialty vegetable oil operations, to Mycogen Corporation and to a joint
venture formed with Mycogen. The transferred assets are referred to in the
following discussion as "Agrigenetics." The agribusiness assets and operations
retained by the company are not reportable as a separate industry segment after
1992.
In 1993, the company began initiatives to eliminate its separate business unit
structure and realign activities into one combined organization, consolidate
intermediate production activities, improve the timeliness of product
development, simplify its product offerings and continued the restructuring of
its agribusiness investments.
As discussed in Note 17 to the financial statements, the company recorded a
special pretax charge of $86.3 million in the third quarter of 1993 primarily
for the manufacturing rationalization and organizational realignment
initiatives. When substantially complete in 1996, the number of intermediate
production units will have been reduced by one-third, and the number of
employees will have been reduced by approximately 5%. Through December 31,
1994, the company has completed approximately one-half of the production unit
reductions and two-thirds of the employee reductions. Approximately $22
million has been expended since the third quarter of 1993 implementing the
initiatives, primarily for employee reductions. Future cash expenditures of $24
million are estimated to be necessary to complete implementation of the
initiatives. These initiatives reduced the rate of increase in 1994 costs, as
compared to historical trends, which resulted in estimated savings in 1994 of
$20 to $25 million. These savings resulted from fewer employees, lower
operating costs and reductions in the number of manufacturing units. When fully
implemented, annual savings are expected to approximate $50 million of which $40
million will represent cash savings.
1994 RESULTS OF OPERATIONS
IN 1994, the company achieved record revenues and results of operations. As
discussed below, the primary factors contributing to 1994 results were higher
average selling prices, lower research, testing and development expenses and
better results from agribusiness investments.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Revenues by Segment(millions)
<S> <C> <C> <C> <C> <C>
Specialty Chemicals $1,335.5 $1,348.8 $1,433.4 $1,525.5 $1,599.0
Agribusiness $117.2 $127.5 $118.9
</TABLE>
In 1994, consolidated revenues were $1.6 billion, an increase of $73.5 million
or 5% from 1993. This increase was comprised of 4% higher average selling
prices, including currency, and 1% volume increases. Average selling prices
increased primarily as a result of price increases and new product
introductions. The company implemented price increases in the first quarter of
1994 to more fully recover the costs of product technology and the costs
resulting from increased requirements of environmental, health and safety
regulations at the company's facilities. Higher performing products, which
carry higher selling prices, were introduced late in 1993 to meet new passenger
car motor oil standards in the U.S. markets.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Gross Profit by Segment(millions)
<S> <C> <C> <C> <C> <C>
Specialty Chemicals $398.2 $429.9 $451.0 $485.4 $520.7
Agribusiness $40.2 $45.7 $39.3
</TABLE>
Gross profit (sales less cost of sales) increased 7% to $520.7 million in 1994
from $485.4 million in 1993. The improvement in gross profit was primarily
attributable to the positive effects of implementing selling price increases,
new product introductions and growth from business development activities.
These improvements were partially offset by higher material costs in the second
half of the year and higher manufacturing costs. Gross profit as a percentage
of sales increased to 32.7% in 1994 from 32.0% in 1993.
Raw material prices increased during the last half of 1994, and at year-end
were approximately 7% higher than the prior year. Additionally, plant operating
costs to comply with changing environmental, health and safety regulations have
continued to increase. The company was able to manage the near-term impact of
the higher raw material costs through operating expense control. However, these
higher material costs will impact future earnings if not recovered through
higher prices; therefore, the company is implementing worldwide price increases
of 5% to 7% in the first quarter of 1995.
Selling and administrative expenses increased less than 1% to $159.5 million
in 1994. This increase is significantly lower than the company's previous
historical cost trend because of lower legal
20
<PAGE> 2
expenses and a decline in the number of employees as a result of early
retirements related to the company's realignment initiative.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Research Testing and
Development by Segment (millions)
<S> <C> <C> <C> <C> <C>
Specialty Chemicals $107.4 $127.7 $139.8 $171.5 $165.5
Agribusiness $16.6 $16.3 $15.0
</TABLE>
Research, testing and development expenses (technology expenses) decreased $6.1
million or 4% to $165.5 million in 1994. This decrease is primarily
attributable to completion in early 1994 of testing required for passenger car
motor oil specification upgrades, the decline in the number of employees
resulting from realignment and increased efficiencies in the product
development process.
Primarily as a result of the above factors, consolidated revenues increased
$38.8 million more than the increase in total costs and expenses in 1994.
The company continued its program of selling its investment in Genentech common
stock. During 1994 and 1993, respectively, the company sold 869,100 and
1,001,776 shares of Genentech common stock resulting in pretax gains of $41.2
million and $42.4 million. The net proceeds of these sales were used to
repurchase common shares of the company.
Other income-net increased $6.8 million primarily due to improved equity
earnings from the company's investment in Mycogen, including its agribusiness
joint venture, net of a gain on the sale of an agribusiness investment in 1993.
The company conducts a significant amount of its business and has a number of
operating facilities in countries outside the United States. As a result, the
company is subject to business risks inherent in non-U.S. activities, including
political uncertainty, import and export limitations, exchange controls and
currency fluctuations. The company believes risks related to its foreign
operations are mitigated due to the political and economic stability of the
countries in which its largest foreign operations are located.
While changes in the dollar value of foreign currencies will affect earnings
from time to time, the longer term economic effect of these changes should not
be significant given the company's net asset exposure, currency mix and pricing
flexibility. Generally, the income statement effect of changes in the dollar
value of foreign currencies is partially or wholly offset by the company's
ability to make corresponding price changes in local currency. The company's
consolidated net income will generally benefit as foreign currencies increase
in value compared to the U.S. dollar and will generally decline as foreign
currencies decrease in value. In 1994, there was not a significant net earnings
effect due to foreign currency fluctuations.
As a result of the above factors and a decrease in interest expense,
consolidated income before taxes increased $131.8 million from 1993. Excluding
the gain on the sales of Genentech stock and the 1993 special charge, income
before taxes increased $46.7 million or 29% from 1993.
The company made donations of Genentech common stock during 1994 (see Note 7
to the financial statements) which reduced the company's 1994 effective tax
rate by 2%. This benefit is nonrecurring. The company anticipates its 1995
effective tax rate will approximate 33%.
Excluding gains on the sales of Genentech common stock and the 1993 special
charge and accounting changes (discussed below), net income was $148.8 million
in 1994 compared to $113.5 million in 1993, and the related earnings per share
amounts improved by 35% to $2.26 in 1994 from $1.67 in 1993.
RETURN ON AVERAGE SHAREHOLDERS' EQUITY
RETURN ON AVERAGE SHAREHOLDERS' EQUITY was 22% in 1994, 6% in 1993 and 15% in
1992. Excluding Genentech gains and the 1993 accounting changes and special
charge, return on average shareholders' equity was 19% in 1994 and 14% in 1993.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on Equity(percent) 27% 16% 15% 6% 22%
</TABLE>
1993 RESULTS OF OPERATIONS
IN 1993, consolidated revenues increased $61.9 million or 4% from 1992 after
excluding $88.6 million of Agrigenetics revenue in 1992. Selling prices
increased 4% as a result of price increases implemented in the fourth quarter
of 1992 and the introduction late in 1993 of higher performing products to meet
new passenger car motor oil standards in the U.S. market. Favorable product mix
(including sales by Langer & Company acquired early in 1993) of 3% was offset
by unfavorable currency effects of 2% and volume decreases of 1%. North
American volume decreased 9% in 1993 from the record levels of volume in 1992
as a result of a decrease in market share. The revenue impact of this volume
decrease was offset by an increase in sales of more profitable products.
International volume increased 6% over 1992 and accounts for approximately 60%
of revenues.
Gross profit increased $30.4 million or 7% from $455.0 million in 1992
(excluding $35.3 million of Agrigenetics gross profit in 1992) primarily as a
result of the higher average selling prices. Gross profit as a percentage of
sales was 32.0% in 1993 compared to 31.2% (excluding Agrigenetics) in 1992.
Excluding Agrigenetics expenses of $29.1 million in 1992, selling and
administrative expenses increased $6.3 million or 4% in 1993 primarily because
of the acquisition of Langer. Technology expenses increased $30.3 million or
21% in 1993 after excluding Agrigenetics expenses of $13.5 million from 1992.
This increase was a result of higher testing costs associated with customer
test programs to meet new industry performance standards for passenger car and
diesel engine oils and automatic transmission fluids. These standards change
periodically as engine and transmission designs are improved by the equipment
manufacturers to meet new
21
<PAGE> 3
emissions, efficiency, durability and other performance factors. The frequency
of these performance upgrades compressed the time cycles for new product
development and resulted in an increase in the company's technology expenses.
As a result of the above factors and increased royalties, after excluding
Agrigenetics from 1992, total cost and expenses increased $5.9 million more
than revenues increased in 1993.
During 1993, the company recorded a special pretax charge of $86.3 million and
pretax gains of $42.4 million on the sale of Genentech common stock as
discussed above. Other income-net was $.5 million in 1993 compared to $11.9
million in 1992. Other income includes the company's share of equity losses in
Mycogen and the agribusiness joint venture. Mycogen recorded restructuring
charges and incurred weather-related problems in the Midwest which adversely
affected agribusiness results. The reduction in other income was attributable
to increased equity losses of $18.3 million in Mycogen and the agribusiness
joint venture, partially offset by increased gains on the sale of investments,
excluding Genentech, of $6.7 million.
The equity losses related to Mycogen and the agribusiness joint venture, net of
preferred stock dividends and a gain on the sale of investment, were $4.1
million less in 1993 than the Agrigenetics operating loss and equity losses
recorded in 1992.
Interest income decreased $3.2 million due to lower average balances of cash
and short-term investments. An increase in borrowings resulted in slightly
higher interest expense in 1993.
As discussed previously, the company conducts a significant amount of its
business outside of the United States and is therefore subject to risks
including currency fluctuations. In 1993, European currencies weakened and the
Japanese yen strengthened resulting in an insignificant net earnings effect.
As a result of the above factors, income before income taxes decreased $57.5
million in 1993 compared to 1992. Net income in 1993, excluding the special
charge, Genentech gain and the accounting changes discussed below, decreased 9%
to $113.5 million or $1.67 per share, from $124.6 million or $1.81 per share in
1992.
As described in Note 10 to the financial statements, effective January 1, 1993,
the company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The company recorded the cumulative effect of
this accounting change of $79.9 million before taxes ($51.5 million or $.76
per common share after taxes) in the first quarter of 1993. As a result of this
accounting change, postretirement health care and life insurance costs
increased $8.1 million ($.08 per share after taxes) in 1993. This expense is
allocated among the various cost and expense categories in the consolidated
statements of income. SFAS 106 has no effect on cash flows since the company
continues to pay claims as incurred.
As described in Note 8 to the financial statements, effective January 1, 1993,
the company also adopted SFAS 109, "Accounting for Income Taxes." The
cumulative effect of this accounting change reduced net deferred tax
liabilities and increased net income in 1993 by $12.1 million or $.18 per
share. The positive effect of adopting SFAS 109 was primarily attributable to
more favorable treatment of the deferred income taxes on intercompany profit in
inventory. SFAS 109 has no effect on cash flows.
1992 RESULTS OF OPERATIONS
Following is a discussion of the results of operations for 1992. The discussion
is presented first on a summary consolidated basis and then on a historical
business segment basis.
IN 1992, consolidated revenues increased $75.9 million or 5% compared to 1991
primarily as a result of record volume in the Specialty Chemicals segment. The
increased revenues were partially offset by increased manufacturing costs in
Specialty Chemicals, and higher specialty vegetable oil production costs, with
the result that gross profit increased $14.7 million or 3%. Gross profit as a
percentage of sales was 31.7% in 1992, compared to 32.4% in 1991. Selling,
administrative and technology expenses increased $19.7 million or 6% (all in
the Specialty Chemicals segment), more than offsetting the higher gross profit.
As a result of these factors and reduced royalties, total cost and expenses
increased $5.8 million more than revenues.
Other income-net increased $2.4 million in 1992, primarily as a result of a
gain on sales of investments of $6.5 million, partially offset by the company's
share of losses related to the agribusiness joint venture formed in December
1992, and expenses related to closing facilities in the mining chemicals
market. Accordingly, combined segment income was $3.4 million lower in 1992
than in 1991. As explained in the segment discussions, this consisted of a $6.0
million increase in Specialty Chemicals and a $9.4 million decrease in
Agribusiness. Net interest income increased $2.4 million primarily as a result
of the repayment of debt early in the year.
As a result of the above factors, income before income taxes was $1.0 million
or 1% lower than 1991. However, due principally to increased tax benefits from
foreign dividends, net income in 1992 increased $1.0 million or 1% over 1991.
SPECIALTY CHEMICALS SEGMENT: In 1992, the Specialty Chemicals segment accounted
for 92% of consolidated revenues. The segment's revenues increased $84.6
million or 6% in 1992 as a volume increase of 8% and favorable currency effects
of 2% were partially offset by unfavorable product and geographic mix of 4%.
Volume was at a record level for the year. North American volume was up 21% for
the year as a result of market share gains and a comparatively weak first half
of 1991. International volume was flat for the year. Average selling prices
declined slightly during the first three quarters. In the fourth quarter, the
company announced price increases which increased revenues for part of the
period.
Gross profit increased $21.1 million or 5% compared to 1991. The increase in
gross profit resulting from higher revenues was partially offset by higher
manufacturing costs that primarily reflected the effects of higher volume,
increased pension and health care costs and environmental costs. As a
percentage of sales, gross profit decreased in 1992 to 31.6% from 32.1% in
1991.
Selling and administrative expenses increased $7.7 million or 6% primarily due
to higher international selling expenses and higher pension and health care
costs. Technology expenses increased $12.1 million or 10% as a result of
increased operating and staffing levels necessary to meet customer and product
development needs relating to new performance standards for gasoline engine oil
effective in July 1993, and diesel engine oils in 1994.
22
<PAGE> 4
In 1992, the U.S. dollar weakened against other currencies, resulting in a net
favorable effect on the company when international transactions were translated
into U.S. dollars.
The increase in gross profit was greater than the increase in expenses, and
when combined with a $5.6 million increase in other income-net, Specialty
Chemicals segment income was $6 million or 3% higher than in 1991.
AGRIBUSINESS SEGMENT: In 1992, Agribusiness revenues decreased $8.6 million or
7% as a result of lower specialty vegetable oil volume due to more competition
in international markets and a fire at a customer's plant in Asia. Gross profit
decreased $6.4 million or 14% as a result of the lower sales, costs associated
with inventory market adjustments and higher storage costs, all of which
related to specialty vegetable oil operations. Gross profit as a percent of
sales decreased in 1992 to 33.1% compared to 35.9% in 1991.
Selling, administrative and research expenses were approximately the same as
1991. Lower specialty vegetable oil selling expenses and lower research
expenses offset costs associated with the company's partnership with Mycogen.
Agribusiness segment loss increased $9.4 million due to the lower gross profit
and the company's share of losses in Mycogen and the agribusiness joint venture.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
The company's cash flows for the years 1992 through 1994 are presented in the
consolidated statements of cash flows. Cash provided from operating activities
during 1994 was $156.8 million, a decrease of $5.7 million compared to 1993.
Cash received from customers increased $69.0 million or 5% due to higher
revenues. However, this increase was more than offset by amounts paid to
suppliers and employees, including payments of $18 million for costs which had
been accrued in the 1993 special charge, and higher income tax payments.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash Provided from Operating
Activities (millions) $114.3 $192.1 $135.2 $162.5 $156.8
</TABLE>
Net cash outflows from investing activities were $117.2 million in 1994
compared to $106.8 million in 1993. Capital expenditures increased $32.7
million or 26% in 1994, of which one-half was attributable to increases at
manufacturing facilities, and the balance was primarily due to improvements and
additions at the company's Wickliffe facilities. During 1993, the company
expended $40.3 million to acquire Langer and certain commercial and technology
assets of Great Lakes Chemical, S.A. Cash proceeds from the sale of Genentech
common stock were $43.6 million in 1994 compared to $44.5 million in 1993. In
1993, investment proceeds also included amounts aggregating $17.0 million
from the sale and redemption of portions of the company's agribusiness
investments.
Throughout 1994, the company continued its share repurchase program. In 1994
and 1993, the net proceeds from the sale of Genentech common stock as well as
cash generated from operations were used to repurchase common shares of the
company. The company repurchased 2,007,721, or 3%, of its common shares for
$68.3 million during 1994 compared to the repurchase of 2,075,645 common shares
for $67.1 million in 1993. At December 31, 1994, there was Board
authorization remaining for the repurchase of 1,031,234 million common shares.
As a result of the activities discussed above and the increase in debt
discussed below, cash and short-term investments at December 31, 1994,
increased by $12.2 million compared to December 31, 1993.
As described in Note 3 to the financial statements, effective January 1, 1994,
the company adopted SFAS 115 "Accounting for Certain Investments in Debt and
Equity Securities." SFAS 115 requires that certain of the company's marketable
equity securities, included in investments in consolidated companies, be
reported at fair value rather than historical cost. The effect at December 31,
1994, of adopting SFAS 115 was to increase investments in nonconsolidated
companies by $35.6 million, increase shareholders' equity by $23.2 million
and increase deferred tax liabilities by $12.4 million. SFAS 115 had no effect
on 1994 net income or cash flows.
The company held 830,900 shares of Genentech common stock as of December 31,
1994. The company has continued to sell Genentech stock during the first
quarter of 1995 and expects to sell its remaining shares throughout 1995.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Capitalization(millions)
Equity $736.2 $794.5 $819.4 $732.2 $832.0
Long-term Debt $54.0 $35.0 $23.3 $55.3 $114.2
</TABLE>
The company's financial position continues to be strong. The ratio of current
assets to current liabilities was 2.5:1 at both December 31, 1994 and 1993. The
level of capital spending and the continuation of the company's share
repurchase program were principal factors in the company incurring net
borrowings of $92.7 million in 1994. Total debt as a percent of capitalization
(shareholders' equity plus short-term and long-term debt) increased to 17% at
the end of 1994 compared to 9% at the end of 1993. The company anticipates
that, during 1995, its capital expenditures, primarily for manufacturing,
technical and administrative support, and its share repurchase program will
continue at approximately the same levels as 1994. Total debt is therefore
expected to continue at or above the December 31, 1994 levels throughout 1995.
The company's strategy of using additional debt to finance capital requirements
reflects management's continuing efforts to enhance shareholder value.
At December 31, 1994, the company had unused revolving credit agreements and
other credit lines aggregating $95 million. Under a currently effective shelf
registration statement, the company has the ability to offer to the public up
to $100 million of debt securities. As described in Note 4 to the financial
statements, the company has
23
<PAGE> 5
the ability to refinance on a long-term basis $56.6 million of outstanding
commercial paper under its revolving credit agreements. Management believes the
company's internally generated funds as well as its credit facilities and shelf
registration will be sufficient to meet its cash requirements.
Implementation of the remaining special charge activities is estimated to
involve future cash outlays aggregating $24 million, primarily in 1995 and
1996. Offsetting the cash outlays will be cash savings which are expected to
grow to approximately $40 million annually after the plans are fully
implemented. The impact of the special charge on the balance sheet at December
31, 1994, after recognition of deferred taxes, was to reduce working capital by
$6.9 million, reduce noncurrent assets by $5.9 million and increase noncurrent
liabilities by $13.5 million.
The company is involved in patent litigation with Exxon Corporation in various
countries. Determinations of liability against the company in the U.S., which
is being heard on appeal, and against Exxon in Canada have been made by the
courts. Management is unable to predict the eventual outcomes of this
litigation and, therefore, their impact on future cash flows is not known. If
Exxon prevails in the U.S. case, management believes the company has sufficient
financial resources to meet any resulting obligation and, other than a
potential one-time charge against income, the litigation would not have a
material adverse effect on future results of operations. Refer to Note 18 for
further information regarding this litigation.
INDEPENDENT AUDITORS' REPORT Deloitte &
Touche LLP
-----------
[DELOITTE & TOUCHE LLP CORPORATION LOGO]
To the Shareholders and Board of Directors of
The Lubrizol Corporation
We have audited the accompanying consolidated balance sheets of The Lubrizol
Corporation and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Lubrizol Corporation and its
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Notes 8 and 10 to the financial statements, in 1993 the
Company changed its method of accounting for income taxes to conform with
Statement of Financial Accounting Standards ("SFAS") No. 109 and its method of
accounting for postretirement benefits to conform with SFAS No. 106.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
February 14, 1995
24
<PAGE> 6
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31
--------------------------------------------
(In Thousands of Dollars Except Per Share Data) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,592,750 $1,517,631 1,544,670
Royalties and other revenues 6,244 7,869 7,578
---------- ---------- ----------
Total revenues 1,598,994 1,525,500 1,552,248
Cost of sales 1,072,025 1,032,199 1,054,376
Selling and administrative expenses 159,459 158,506 181,326
Research, testing and development expenses 165,480 171,540 154,762
---------- ---------- ----------
Total cost and expenses 1,396,964 1,362,245 1,390,464
Special charge (86,303)
Gain on sale of Genentech 41,235 42,443
Other income - net 7,332 537 11,905
Interest income 4,011 3,873 7,070
Interest expense (3,149) (4,154) (3,615)
---------- ---------- ----------
Income before income taxes 251,459 119,651 177,144
Provision for income taxes 75,884 34,676 52,498
---------- ---------- ----------
Income before accounting changes 175,575 84,975 124,646
Cumulative effect of accounting changes (39,375)
---------- ---------- ----------
Net income $ 175,575 $ 45,600 $ 124,646
========== ========== ==========
Per Common Share:
Income before accounting changes $2.67 $1.25 $1.81
Cumulative effect of accounting changes (.58)
----- ----- -----
Net income per share $2.67 $ .67 $1.81
===== ===== =====
Dividends per share $ .89 $ .85 $ .81
===== ===== =====
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
25
<PAGE> 7
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
-----------------------------------------
(In Thousands of Dollars) 1994 1993
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and short-term investments $ 36,379 $ 24,220
Receivables 250,392 225,603
Inventories 298,331 284,537
Other current assets 39,286 34,553
------------ ------------
Total current assets 624,388 568,913
------------ ------------
Property and equipment - at cost 1,266,249 1,089,106
Less accumulated depreciation 707,505 651,471
------------ ------------
Property and equipment - net 558,744 437,635
------------ ------------
Investments in nonconsolidated companies 138,013 103,246
Other assets 73,219 72,786
------------ ------------
TOTAL $ 1,394,364 $ 1,182,580
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ 53,700 $ 14,590
Accounts payable 114,244 116,775
Income taxes and other current liabilities 85,589 92,883
------------ ------------
Total current liabilities 253,533 224,248
------------ ------------
Long-term debt 114,161 55,298
Postretirement health care obligation 98,453 89,423
Noncurrent liabilities 68,799 70,022
Deferred income taxes 27,379 11,353
------------ ------------
Total liabilities 562,325 450,344
------------ ------------
Contingencies and commitments
Preferred stock without par value - unissued
Common shares without par value - Outstanding 64,844,560 shares in 1994
and 66,590,028 shares in 1993 84,059 80,830
Retained earnings 734,533 683,269
Other shareholders' equity 13,447 (31,863)
------------ ------------
Total shareholders' equity 832,039 732,236
------------ ------------
TOTAL $ 1,394,364 $ 1,182,580
============ ============
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
26
<PAGE> 8
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
-------------------------------------------
(In Thousands of Dollars) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED FROM (USED FOR):
OPERATING ACTIVITIES:
Net income $ 175,575 $ 45,600 $ 124,646
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 65,934 61,674 62,013
Deferred income taxes 19,797 (32,751) (37)
Equity (earnings) losses, net of distributions (382) 18,138 2,792
Special charge 86,303
Gain on sale of investments (41,235) (55,617) (6,484)
Cumulative effect of changes in accounting principles. 39,375
Change in current assets and liabilities:
Receivables (20,682) (16,066) (2,400)
Inventories (3,150) (14,043) (30,807)
Accounts payable and accrued expenses (17,745) 16,056 (13,693)
Other current assets (12,921) 7,359 (316)
Increase in noncurrent liabilities 3,246 12,370 714
Other items - net (11,600) (5,887) (1,265)
----------- ----------- -----------
Total operating activities 156,837 162,511 135,163
INVESTING ACTIVITIES:
Proceeds from sale or redemption of investments 43,582 61,494 8,512
Capital expenditures (160,527) (127,855) (95,814)
Acquisitions and investments in nonconsolidated companies (1,734) (40,346) (2,402)
Other - net 1,488 (87) 1,541
----------- ----------- -----------
Total investing activities (117,191) (106,794) (88,163)
FINANCING ACTIVITIES:
Short-term borrowing (repayment) 38,359 168 (3,837)
Long-term borrowing 56,741 36,048 3,690
Long-term repayment (2,370) (23,146) (20,000)
Dividends paid (58,588) (57,608) (55,883)
Common shares purchased, net of options exercised (64,372) (64,073) (19,235)
----------- ----------- -----------
Total financing activities (30,230) (108,611) (95,265)
Effect of exchange rate changes on cash 2,743 521 (1,289)
----------- ----------- -----------
Net increase (decrease) in cash and short-term investments 12,159 (52,373) (49,554)
Cash and short-term investments at the beginning of year 24,220 76,593 126,147
----------- ----------- -----------
Cash and short-term investments at the end of year $ 36,379 $ 24,220 $ 76,593
=========== =========== ===========
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
27
<PAGE> 9
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Shareholders' Equity
--------------------------------------------
Number of Other
Shares Common Retained Shareholders'
Outstanding Shares Earnings Equity
--------------------------------------------------------------------------------------------------------------------
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 69,031,464 $ 77,423 $ 713,229 $ 3,814
Net income 1992 124,646
Cash dividends (55,883)
Translation adjustment for 1992 (24,632)
Common shares - Treasury:
Shares purchased (835,200) (957) (22,086)
Shares issued upon exercise of stock options 254,322 3,808
---------- -------- --------- --------
BALANCE, DECEMBER 31, 1992 68,450,586 80,274 759,906 (20,818)
Net income 1993 45,600
Cash dividends (57,608)
Translation adjustment for 1993 (11,045)
Common shares - Treasury:
Shares purchased (2,075,645) (2,479) (64,629)
Shares issued upon exercise of stock options 215,087 3,035
---------- -------- --------- --------
BALANCE, DECEMBER 31, 1993 66,590,028 80,830 683,269 (31,863)
Net income 1994 175,575
Cash dividends (58,588)
Unrealized gain on marketable securities 23,169
Translation adjustment for 1994 22,141
Common shares - Treasury:
Shares purchased (2,007,721) (2,528) (65,723)
Shares issued upon exercise of stock options 208,210 3,879
Other 54,043 1,878
---------- -------- --------- --------
BALANCE, DECEMBER 31, 1994 64,844,560 $ 84,059 $ 734,533 $313,447
========== ======== ========= ========
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
28
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
(In Thousands of Dollars Unless Otherwise Indicated)
NOTE 1 - ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts of
The Lubrizol Corporation and its majority-owned subsidiaries. For
nonconsolidated companies (affiliates), the equity method of accounting is used
when ownership exceeds 20% or when the company has the ability to exercise
significant influence over the policies of the investee. Other affiliates are
carried at cost or fair market value (see Note 3). Refer to Note 16 regarding
changes in Agribusiness.
ACCOUNTING CHANGES - Effective January 1, 1993, the company changed its method
of accounting for postretirement benefits to conform with Statement of
Financial Accounting Standards (SFAS) 106 (see Note 10) and its method of
accounting for income taxes to conform with SFAS 109 (see Note 8). The
cumulative effect at adoption of these changes in accounting principles, net of
tax, is separately reported on the Consolidated Statements of Income. Effective
January 1, 1994, the company changed its method of accounting for certain
investments in marketable securities to conform to SFAS 115 (see Note 3).
CASH EQUIVALENTS - The company generally invests its excess cash in
short-term investments with various banks and financial institutions.
Short-term investments are cash equivalents as they are part of the cash
management activities of the company and are comprised primarily of investments
having maturities when purchased of less than three months.
INVENTORIES - Inventories are stated at cost which is not in excess of market.
Cost of inventories is determined by the last-in, first-out (LIFO) method in
the United States and the first-in, first-out (FIFO) method elsewhere. The
average cost method is used for specialty vegetable oil.
DEPRECIATION AND AMORTIZATION - Accelerated depreciation methods are used in
computing depreciation on certain machinery and equipment which comprise
approximately 60% of the depreciable assets. The remaining assets are
depreciated using the straight-line method. Effective January 1, 1993, the
company changed to the straight-line method for newly acquired machinery and
equipment. Management believes that straight-line depreciation provides for a
better matching of costs and revenues over the lives of the newly acquired
assets and conforms to predominant industry practices. The new depreciation
method did not have a material effect on net income reported in the periods.
The estimated useful lives are 10 to 40 years for buildings and land
improvements and range from 3 to 20 years for machinery and equipment.
Amortization of intangible and other assets is on a straight-line method over
periods ranging from 5 to 25 years.
For income tax purposes, different methods and rates are used in certain
instances.
RESEARCH, TESTING AND DEVELOPMENT - Research, testing and development costs are
expensed when incurred. Research and development expenses, excluding testing,
were $90.7 million, $88.5 million and $91.2 million in 1994, 1993 and 1992,
respectively.
FOREIGN CURRENCY TRANSLATION - The assets and liabilities of most non-U.S.
subsidiaries are translated into U.S. dollars at exchange rates in effect at
the balance sheet date. Operating results are translated at weighted average
exchange rates in effect during the period. Net unrealized translation
adjustments are recorded as a component of other shareholders' equity and
totaled $(9,722), $(31,863) and $(20,818) at December 31, 1994, 1993 and 1992,
respectively.
PER SHARE AMOUNTS - Net income per share has been computed by dividing net
income by the average number of common shares outstanding during the period.
Net income per share has not been adjusted for the effect of stock options as
the dilution effect would be less than 3% in any year. All share and per share
data have been restated to reflect the 2-for-1 stock split effective August 31,
1992.
<TABLE>
NOTE 2 - INVENTORIES
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Finished products $102,605 $ 89,817
Products in process 98,105 92,067
Raw materials and
supplies 97,621 102,653
-------- --------
$298,331 $284,537
======== ========
</TABLE>
Inventories on the LIFO method were 27% and 25% of consolidated inventories at
December 31, 1994 and 1993, respectively. The current replacement cost of
these inventories exceeded the LIFO cost at December 31, 1994 and 1993 by $49.9
and $43.0 million, respectively.
<TABLE>
NOTE 3 - INVESTMENTS IN NONCONSOLIDATED COMPANIES
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Investments carried at equity $ 60,523 $ 59,909
Investments carried at cost 37,890 43,337
Investments classified as available-
for-sale 39,600
--------- ---------
$ 138,013 $ 103,246
========= =========
</TABLE>
The company adopted SFAS 115 "Accounting for Certain Investments in Debt and
Equity Securities" as of January 1, 1994. SFAS 115 requires that certain
investments in marketable debt and equity securities classified as
available-for-sale be reported at fair value, rather than historical cost, with
the unrealized gain or loss recorded in shareholders' equity. The effect of
adopting SFAS 115 at January 1, 1994 was to increase investments in
nonconsolidated companies by $99.2 million, increase shareholders' equity by
$64.5 million and increase deferred tax liabilities by $34.7 million.
At December 31, 1994, investments classified as available-for-sale had an
average cost basis of $4.0 million and an aggregate fair value of $39.6 million
resulting in unrealized gains of $36.2 million or $23.5 million after tax and
unrealized losses of $.6 million or $.4 million after tax.
The company also holds other investments in nonconsolidated companies,
including certain investments in marketable securities that are either
accounted for on the equity basis or the cost basis due to restrictions placed
on the securities. These marketable investments have quoted market values
which exceed the book carrying values by $17.7 million at December 31, 1994.
29
<PAGE> 11
<TABLE>
NOTE 4 - SHORT-TERM AND LONG-TERM DEBT
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Long-term debt consists of:
Debt supported by long-term
banking arrangements:
Commercial paper at weighted
average rate of 5.97% $ 56,625
6.5% Marine terminal refunding
revenue bonds, due 2000 18,375 $18,375
7.875% Industrial development
revenue bonds, due 2000 1,000 1,000
Term loans:
Yen denominated, at 3.8% to
5.8%, due 1995-2002 24,898 24,210
Deutsche mark denominated, at
6.78%, due 1996 15,484 13,825
Other (5% in 1994, 5.9% in 1993) 325 184
-------- -------
116,707 57,594
Less current portion (2,546) (2,296)
-------- -------
$114,161 $55,298
======== =======
Short-term debt consists of:
Commercial paper at weighted
average rates of 5.97% and 3.3% $ 46,375 $ 4,400
Other short-term debt at weighted
average rates of 5.2% and 6.1% 4,779 7,894
Current portion of long-term debt 2,546 2,296
--------- --------
$ 53,700 $ 14,590
========= ========
</TABLE>
Commercial paper debt is due within one year. The company has available $95
million in credit facilities, including $75 million in committed revolving
credit agreements which would permit the company to borrow at or below the U.S.
prime rate. These facilities, which were unused at December 31, 1994, would
permit the company to refinance for a period beyond one year the Marine
Terminal Refunding Revenue Bonds, whose bondholders have the right to put the
bonds back to the company, and $56.6 million of commercial paper outstanding.
Accordingly, the company has classified these balances as long-term debt.
Amounts due on long-term debt are $2.5 million in 1995, $18.0 million in 1996,
$2.6 million in 1997, $12.1 million in 1998, $3.6 million in 1999 and $77.9
million thereafter, which includes $56.6 million of commercial paper.
The company has an effective shelf registration with the Securities and Exchange
Commission which permits the company to offer up to $100 million of debt
securities in amounts, at prices and on terms, to be determined at the time of
offering. Such debt securities would be unsecured senior securities ranking
equal with all other unsecured senior securities of the company.
The Marine Terminal Refunding Revenue Bonds have a variable interest rate. The
company has entered into an interest rate swap agreement that effectively fixes
the interest rate at 6.5%.
During 1994, 1993 and 1992, interest paid, net of amounts capitalized, amounted
to $3.0 million, $3.9 million and $5.2 million, respectively.
<TABLE>
NOTE 5 - OTHER BALANCE SHEET INFORMATION
<CAPTION>
Receivables: 1994 1993
----------- -----------
<S> <C> <C>
Customers $ 219,475 $ 200,218
Affiliates 9,174 10,459
Other 21,743 14,926
----------- -----------
$ 250,392 $ 225,603
=========== ===========
</TABLE>
30
<PAGE> 12
Receivables are net of allowance for doubtful accounts of $2.6 million in 1994
and $2.1 million in 1993.
<TABLE>
<CAPTION>
Other Current Assets: 1994 1993
----------- -----------
<S> <C> <C>
Deferred income taxes $ 20,232 $ 28,453
Other 19,054 6,100
----------- -----------
$ 39,286 $ 34,553
=========== ===========
Property and Equipment: 1994 1993
----------- -----------
Land and improvements $ 90,069 $ 80,669
Buildings and improvements 217,002 181,618
Machinery and equipment 828,340 727,409
Construction in progress 130,838 99,410
----------- -----------
$ 1,266,249 $ 1,089,106
=========== ===========
Depreciation expense was $61.3 million in 1994, $59.6 million in 1993 and $58.4
million in 1992.
<CAPTION>
Other Assets: 1994 1993
------------ ------------
<S> <C> <C>
Goodwill and other intangibles $ 41,381 $ 36,609
Deferred income taxes 18,229 25,821
Other 13,609 10,356
------------ ------------
$ 73,219 $ 72,786
============ ============
Accumulated amortization of intangible and other assets was $19.0 million and
$14.3 million at December 31, 1994 and 1993, respectively.
Accounts Payable: 1994 1993
------------ ------------
Trade $ 109,151 $ 106,005
Affiliates 5,093 10,770
------------ ------------
$ 114,244 $ 116,775
============ ============
Income Taxes and Other Current
Liabilities: 1994 1993
------------ ------------
Employee compensation $ 33,763 $ 30,369
Income taxes 10,504 25,714
Taxes other than income 11,030 9,793
Other 30,292 27,007
------------ ------------
$ 85,589 $ 92,883
============ ============
Noncurrent Liabilities: 1994 1993
------------ ------------
Employee benefits $ 35,687 $ 35,070
Other 33,112 34,952
------------ ------------
$ 68,799 $ 70,022
============ ============
</TABLE>
NOTE 6 - SHAREHOLDERS' EQUITY
The company has 147 million authorized shares consisting of 2 million shares of
Serial Preferred Stock, 25 million shares of Serial Preference Shares and 120
million Common Shares, each of which is without par value. The outstanding
Common Shares shown on the balance sheets exclude Common Shares held in
treasury of 21,351,334 and 19,605,866 at December 31, 1994 and 1993,
respectively. The company effected a two-for-one stock split effective August
31, 1992.
The company has a shareholder rights plan under which one right to buy one-half
Common Share has been distributed for each Common Share held. The rights may
become exercisable under certain circumstances involving actual or potential
acquisitions of 20% or more of the Common Shares by a person or affiliated
persons who acquire such stock without complying with the requirements of the
company's articles of incorporation. The rights would entitle shareholders,
other than such person or affiliated persons, to purchase Common Shares of the
company or of certain acquiring persons at 50% of then current market value.
At the option of the directors, the rights may be exchanged for Common Shares,
and may be redeemed in cash, securities or other consideration. The rights will
expire in 1997 unless earlier redeemed.
Under another shareholder rights plan, each holder of Common Shares has one
right to buy shares of Serial Preferred Stock for each Common Share held. The
rights may become exercisable under certain circumstances involving actual or
potential acquisitions of 20% or more of the company's Common Shares by a
person or affiliated persons. The rights would entitle shareholders, other than
such person or affiliated persons, to purchase shares of Serial Preferred Stock
at the purchase price of 1 dollar plus 25 rights per share. The dividend and
redemption value of the Serial Preferred Stock would be determined in relation
to after-tax amounts which have been or may be recovered by the company from
Exxon or its affiliates as a result of certain patent claims. The rights will
expire in November 1996 unless earlier redeemed.
NOTE 7 - OTHER INCOME AND GENENTECH GAIN
The company sold 869,100 and 1,001,776 shares of Genentech, Inc. redeemable
common stock for cash during 1994 and 1993, respectively. The gains realized
on these transactions were $41.2 million in 1994 and $42.4 million in 1993 and,
after tax, contributed $.41 per share in each year. At December 31, 1994, the
company held 830,900 shares of Genentech redeemable common stock. Genentech, at
its option, may redeem the common stock in whole, but not in part, at various
redemption prices per share ranging from $58.75 at January 1, 1995, to $60 at
June 30, 1995.
<TABLE>
Other income - net consists of the following:
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Equity earnings (losses) of non-
consolidated companies $ 2,972 $(15,966) $ 1,798
Gain on donations of
Genentech stock 13,967
Donations of Genentech stock
to The Lubrizol Foundation (14,581)
Gain on sale of investments,
excluding Genentech 13,174 6,484
Other - net 4,974 3,329 3,623
-------- -------- --------
$ 7,332 $ 537 $ 11,905
======== ======== ========
</TABLE>
NOTE 8 - INCOME TAXES
Effective January 1, 1993, the company adopted SFAS 109, which is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the company's financial statements and tax returns. In estimating
future tax consequences, SFAS 109 generally considers all expected future
events other than changes in tax laws or rates not yet enacted. Previously, the
company accounted for income taxes under SFAS 96, which gave no recognition to
future events other than the recovery of assets and settlement of liabilities
at their carrying value. As permitted under SFAS 109, the company elected not
to restate the financial statements of any prior years. The cumulative effect
of adopting SFAS 109 at January 1, 1993 increased net income by $12.1 million,
or $.18 per share. The effects of the change on both income before income taxes
and the effective tax rate for the years ended December 31, 1994 and 1993, were
not material.
<TABLE>
Income before income taxes consists of the following:
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
United States $163,508 $ 68,673 $ 80,248
Foreign 87,951 50,978 96,896
-------- -------- --------
Total $251,459 $119,651 $177,144
======== ======== ========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Current:
United States $ 28,698 $ 31,560 $ 13,981
Foreign 27,389 34,774 37,791
--------- --------- ---------
56,087 66,334 51,772
--------- --------- ---------
Deferred:
United States 12,605 (15,306) 1,603
Foreign 7,192 (16,352) (877)
--------- --------- ---------
19,797 (31,658) 726
--------- --------- ---------
Total $ 75,884 $ 34,676 $ 52,498
========= ========= =========
</TABLE>
Foreign taxes include withholding taxes. The United States tax provision
includes the U.S. tax on foreign income distributed to the company. U.S. and
foreign income tax rate changes occurring during the periods presented did not
have a material effect on the company's provision for income taxes. The
differences between the provision for income taxes at the U.S. statutory rate
(35% for 1994 and 1993 and 34% for 1992) and the tax shown in the consolidated
statements of income are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Tax at statutory rate $ 88,011 $ 41,878 $ 60,229
Contribution of appreciated
property (5,050)
Foreign sales corporation
earnings (3,885) (2,964) (3,702)
Equity income (812) (1,551) (1,955)
Other - net (2,380) (2,687) (2,074)
--------- --------- ---------
Provision for income taxes $ 75,884 $ 34,676 $ 52,498
========= ========= =========
</TABLE>
31
<PAGE> 13
<TABLE>
The components of deferred tax assets (liabilities) as of December 31 are as
follows:
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Accrued compensation and
benefits $ 42,468 $ 42,425 $ 2,791
Intercompany profit in
inventory 12,055 11,208 3,829
Net operating losses carried
forward 5,660 6,668
Equity investments and
partnerships 1,495 (2,003) (5,964)
Depreciation and other
basis differences (40,111) (28,238) (32,555)
Marketable securities
valuation (12,476)
Undistributed foreign
equity income (4,124) (3,877) (3,644)
Other - net 3,174 13,892 4,378
-------- -------- --------
Net deferred tax assets
(liabilities) $ 8,141 $ 40,075 $(31,165)
======== ======== ========
</TABLE>
At December 31, 1994, certain foreign subsidiaries have net operating loss
carry forwards of $13 million for income tax purposes, of which $6 million
expires in years 1995 through 2002 and $7 million has no expiration. After
evaluating tax planning strategies and historical and projected profitability,
the tax benefit of these net operating loss carry forwards has been recognized
as a deferred tax asset.
U.S. income taxes or foreign withholding taxes are not provided on
undistributed earnings of foreign subsidiaries which are considered to be
indefinitely reinvested in the operations of such subsidiaries. The amount of
such earnings was approximately $275 million at December 31, 1994.
Determination of the net amount of unrecognized U.S. income tax with respect to
these earnings is not practicable. Income taxes paid during 1994, 1993 and
1992, amounted to $70.9 million, $61.2 million and $62.6 million, respectively.
NOTE 9 - PENSION AND PROFIT SHARING PLANS
The company has retirement plans, including non-contributory defined benefit
pension plans and a profit sharing plan, covering most employees in the United
States and at non-U.S. subsidiaries. Pension benefits are based on years of
service and the employee's compensation. The company's funding policy in the
United States is to contribute amounts to satisfy the Internal Revenue Service
funding standards and elsewhere to fund amounts in accordance with local
regulations. Several defined benefit plans are unfunded. Plan assets are
invested principally in marketable equity securities and fixed income
instruments.
Expense for all retirement plans was $24.1 million in 1994, $25.1 million in
1993 and $20.0 million in 1992, including profit sharing contributions in the
U.S. of $5.7 million in 1994, $3.8 million in 1993 and $3.9 million in 1992.
<TABLE>
Net periodic pension cost of U.S. and significant international defined benefit
plans consists of:
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned
during period $ 11,454 $ 10,107 $ 9,814
Interest cost on projected
benefit obligation 16,769 16,115 14,787
Actual return on plan assets 1,510 (24,830) (17,926)
Net amortization and
deferral (14,695) 16,363 5,779
-------- -------- --------
Net periodic pension cost $ 15,038 $ 17,755 $ 12,454
======== ======== ========
</TABLE>
The increase in net periodic pension cost for 1993 results largely from the
company's realignment and early retirement programs accounted for in the
special charge (see Note 17).
<TABLE>
The weighted average assumptions used at December 31 were:
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Discount rate for determin-
ing funded status 8.2% 7.2% 8.0%
Compensation increase 5.2% 5.1% 5.8%
Return on plan assets 8.6% 8.5% 8.9%
</TABLE>
<TABLE>
The funded status of such defined benefit pension plans and the amounts
recognized in the consolidated balance sheets at December 31 is as follows:
<CAPTION>
1994 1993
------------------- ------------------
Assets Accum. Assets Accum.
Exceed Benefits Exceed Benefits
Accum. Exceed Accum. Exceed
Benefits Assets Benefits Assets
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fair value of plan
assets $180,905 $ 6,273 $133,755 $ 48,142
Projected benefit
obligation (186,988) (36,599) (140,363) (79,541)
-------- -------- -------- --------
Projected benefit
obligation in
excess of plan
assets (6,083) (30,326) (6,608) (31,399)
Unrecognized net
transition
obligation (asset) (14,871) 3,531 (12,794) 119
Unrecognized net
loss (gain) 14,408 1,670 (446) 12,049
Unrecognized prior
service cost 15,299 4,222 17,566 3,179
Minimum liability
adjustment (983) (3,177)
-------- -------- -------- --------
Accrued pension
asset (liability) $ 8,753 $(21,886) $ (2,282) $(19,229)
======== ======== ======== ========
Accumulated
benefit obligation $138,258 $ 26,020 $ 88,735 $ 70,608
======== ======== ======== ========
Vested benefits $133,880 $ 21,901 $ 83,543 $ 67,344
======== ======== ======== ========
</TABLE>
32
<PAGE> 14
NOTE 10 - POSTRETIREMENT HEALTH CARE
The company provides certain postretirement benefits other than pensions,
primarily health care, for retired employees. Currently, substantially all of
the company's full-time employees in the U.S. become eligible for these
benefits after attaining specified years of service and age 55 at retirement.
Participants contribute a portion of the cost of such benefits. The company's
postretirement health care plans are not funded.
Effective January 1, 1993, the company adopted SFAS 106 which requires the
company to accrue the estimated cost of retiree benefit payments during the
years the employee provides services. The company previously expensed the cost
of these benefits as claims were incurred. The company elected to immediately
recognize the cumulative effect of this change in accounting principle.
The cumulative effect at January 1, 1993 of adopting SFAS 106 was to record a
liability for the accumulated postretirement benefit obligation of $79.9
million, an increase in deferred income tax assets of $28.4 million and a
decrease in net income of $51.5 million ($.76 per share).
<TABLE>
The status of the U.S. health care plans at December 31 is as follows:
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Accumulated postretirement benefit
obligations:
Retirees $33,778 $32,885
Fully eligible active plan participants 16,941 20,866
Other active plan participants 18,724 38,198
------- -------
Total accumulated postretirement
benefit obligation 69,443 91,949
Unrecognized net (loss) gain 7,949 (2,526)
Unrecognized net reduction in prior
service costs 20,036
------- -------
Accrued postretirement health
care costs $97,428 $89,423
======= =======
</TABLE>
The net postretirement health care cost for 1994 was determined based on the
provisions of the company's medical plan in effect on January 1, 1994. In late
1994, the company amended its U.S. health care plan, including several changes
with delayed effective dates. These amendments changed the eligibility
requirements by requiring 15 years of service prior to retirement for new
employees and current employees under the age of 40 at the effective date of
January 1, 1995, and changed the cost sharing provisions of the plan by
indexing deductibles and copayments and introducing a cap on the company's
share of future premium costs. These changes reduced the accumulated
postretirement benefit obligation at December 31, 1994 by $20.0
million, which will be amortized as a reduction in annual cost on a
straight-line basis over 12 years.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10.5% in 1994 (11.25% in 1993), with
subsequent annual decrements of .75% to an ultimate trend rate of 6%. A
one-percentage-point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation by
approximately 14% and net postretirement benefit cost by approximately 23%.
The discount rate used in determining the accumulated postretirement benefit
obligation was 8.75% in 1994 and 7.5% in 1993.
<TABLE>
Net postretirement health care cost consists of the following components for
the company's U.S. plans:
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Service cost - benefits earned during
the year $ 2,916 $ 2,620
Interest cost on accumulated
postretirement benefit obligation 7,131 6,724
-------- -------
Net postretirement health care cost $ 10,047 $ 9,344
======== =======
</TABLE>
In 1994, the company applied SFAS 106 for its international locations and
recognized expense and accrued postretirement health care cost of $4.0 million
for the transition obligation.
The postretirement health care cost increased $8.1 million ($.08 per share
after taxes) in 1993 as a result of adopting SFAS 106. Postretirement health
care expense on a pay-as-you-go basis was $1.8 million in 1992.
NOTE 11 - LEASES
The company has commitments under operating leases primarily for office space,
terminal facilities, land, railroad tank cars and various office equipment.
Rental expense was $19.3 million in 1994, $19.0 million in 1993 and $18.3
million in 1992. Future minimum rental commitments under operating leases
having initial or remaining non-cancelable lease terms exceeding one year are
$14.0 million in 1995, $7.3 million in 1996, $5.4 million in 1997, $3.5 million
in 1998, $2.2 million in 1999 and $23.4 million thereafter.
33
<PAGE> 15
<TABLE>
NOTE 12 - OPERATIONS IN GEOGRAPHIC AREAS
Financial data by geographic area, based on the location of the subsidiary
which shipped and billed the product, is as follows:
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues from customers:
United States $ 707,103 $ 660,674 $ 734,273
Europe 512,279 501,551 472,982
Far East 215,632 203,327 178,702
Other 163,980 159,948 166,291
---------- ---------- ----------
1,598,994 1,525,500 1,552,248
Intercompany transfers
United States 296,693 290,487 258,673
Europe 28,835 22,276 20,657
Far East 360 496
Other 27,717 26,707 32,674
---------- ---------- ----------
353,605 339,966 312,004
---------- ---------- ----------
Gross revenues 1,952,599 1,865,466 1,864,252
Less: Intercompany
transfers (353,605) (339,966) (312,004)
---------- ---------- ----------
Consolidated revenues $1,598,994 $1,525,500 $1,552,248
========== ========== ==========
Operating profit:
United States $ 145,971 $ 105,591 $ 94,800
Europe 49,783 58,781 63,141
Far East 15,486 14,374 9,493
Other 14,251 11,392 13,640
Eliminations (2,249) (129) 6,500
---------- ---------- ----------
223,242 190,009 187,574
General corporate expenses: (21,212) (26,754) (25,790)
Special charge (86,303)
Gain on sale of Genentech 41,235 42,443
Other income - net 7,332 537 11,905
Interest - net 862 (281) 3,455
---------- ---------- ----------
Income before income taxes $ 251,459 $ 119,651 $ 177,144
========== ========== ==========
Identifiable assets:
United States $ 731,651 $ 637,919 $ 548,601
Europe 337,457 289,649 248,723
Far East 157,344 143,542 124,132
Other 74,768 71,651 73,836
Eliminations (81,640) (88,012) (88,619)
---------- ---------- ----------
1,219,580 1,054,749 906,673
Corporate assets 174,784 127,831 220,447
---------- ---------- ----------
Total assets $1,394,364 $1,182,580 $1,127,120
========== ========== ==========
<FN>
Notes:
A. Intercompany transfers are made at prices comparable to normal unaffiliated
customer sales for similar products.
B. Affiliated companies are not allocated to geographic segments.
C. Corporate assets consist of short-term investments and investments in
affiliated companies.
</TABLE>
Export sales from the United States to customers, primarily in Latin America,
the Middle East and Asia, were $139 million in 1994, $119 million in 1993 and
$136 million in 1992.
Net assets of non-U.S. subsidiaries at December 31, 1994 and 1993 were $388
million and $326 million, respectively. Net income of these subsidiaries was
$55 million in 1994, $42 million in 1993 and $59 million in 1992; and dividends
received from the subsidiaries were $8 million, $34 million and $26 million,
respectively.
NOTE 13 - FINANCIAL INSTRUMENTS
The company has various financial instruments, including cash and
short-term investments, investments in nonconsolidated companies, foreign
currency forward contracts, interest rate swaps and short- and long-term debt.
The company has determined the estimated fair value of these financial
instruments by using available market information and generally accepted
valuation methodologies. The use of different market assumptions or estimation
methodologies could have a material effect on the estimated fair value amounts.
The company believes the carrying values of financial instruments approximate
their fair values except for certain investments in marketable securities (see
Note 3). The company uses derivative financial instruments only to manage
well-defined foreign currency, interest rate and commodity price risks, as
described below. The company does not use derivative financial instruments for
trading purposes.
The company is exposed to the effect of changes in foreign currency rates on
its earnings and cash flow as a result of doing business internationally. In
addition to working capital management, pricing and sourcing, the company
selectively uses foreign currency forward contracts to lessen the potential
effect of these changes. Such contracts are generally in connection with
transactions with maturities of up to one year.
Realized and unrealized gains or losses on these contracts are recorded in the
statement of income, or in the case of transactions designated as hedges of net
foreign investments, in the cumulative translation adjustment account in other
shareholders' equity. Additionally, foreign currency forward contract gains and
losses on certain future transactions may be deferred until the future
transaction is recorded. The company's deferred currency gains at December 31,
1994 on foreign exchange contracts were insignificant.
At December 31, 1994, the company had short-term forward contracts to sell
currencies at various dates during 1995 for $12.2 million.
The maximum amount of foreign currency forward contracts outstanding
at any one time was $25.7 million in 1994 and $45.6 million in 1993.
The company has also entered into an interest rate swap to effectively convert
floating rate debt to a fixed rate on $18.4 million of Marine Terminal
Refunding Revenue Bonds due July 1, 2000 (see Note 4). The company also uses
commodity futures contracts to reduce its exposure to fluctuations in raw
material costs for its specialty vegetable oils. Realized gains and losses on
these contracts are included in inventory cost.
34
<PAGE> 16
NOTE 14 - BUSINESS SEGMENT INFORMATION
The company has a concentration of sales and receivables in the oil and
chemical industries. The ten largest customers, most of which are international
oil companies and a number of which are groups of affiliated entities,
accounted for approximately 45% in 1994 and 44% of consolidated sales in 1993
and 1992. Although the largest single group accounted for 9% of sales in 1994
and 1993 and 10% in 1992, this group is made up of a number of separate
entities that the company believes make independent purchasing decisions.
The company's Agribusiness activities ceased being reportable as a separate
industry segment after December 1, 1992 (see Note 16). A description of the
company's reportable segments prior to December 1, 1992, is contained on page
20. Industry segment information as of and for the year ended December 31,
1992, is presented below:
<TABLE>
<CAPTION>
Specialty
Chemicals Agribusiness Total
--------- ------------ -----
<S> <C> <C> <C>
Operating results:
Revenues $1,433,358 $ 118,890 $1,552,248
Gross profit 450,967 39,327 490,294
Selling and administrative
expenses 147,653 33,673 181,326
Research, testing and
development expenses 139,810 14,952 154,762
Segment income (loss) 185,148 (11,459) 173,689
Identifiable assets 871,401 104,339 975,740
Other related disclosures:
Capital expenditures 89,172 6,642 95,814
Depreciation and
amortization 55,024 6,989 62,013
</TABLE>
Segment income (loss) is before interest and taxes. Consolidated total assets
at December 31, 1992 included corporate investments of $151,380 which are not
allocable to industry segments.
NOTE 15 - STOCK OPTIONS
The 1991 Stock Incentive Plan provides for granting of options to buy Common
Shares intended either to qualify as "incentive stock options" under the
Internal Revenue Code or "non-statutory stock options" not intended to so
qualify, up to an amount equal to one percent of the outstanding Common Shares
at the beginning of any year, plus any unused amount from prior years. Under the
1991 Plan, options generally become exercisable 50% one year after grant, 75%
after two years, and 100% after three years, and expire up to ten years after
grant. "Reload options," which are options to purchase additional shares if a
grantee uses already-owned shares to pay for an option exercise are granted
automatically under the 1991 Plan and may be granted in the discretion of the
administering committee under their 1985 Employee Stock Option Plan. The 1991
Plan generally supersedes the 1985 Plan, although options outstanding under the
1985 Plan remain exercisable until their expiration dates. The option price
under both plans is the fair market value of the shares on the date of grant.
Both plans permit or permitted the granting of stock appreciation rights in
connection with the grant of options, and the 1991 Plan also permits the grant
of restricted and unrestricted shares. In addition, the 1991 Plan provides for
an automatic annual grant to each outside director of the company of an option
to purchase 2,000 Common Shares, with terms generally comparable to employee
stock options.
<TABLE>
Information regarding these option plans is as follows:
<CAPTION>
Number of Shares
---------------------------------------
1994 1993 1992
---------- --------- ---------
<S> <C> <C> <C>
Outstanding, January 1 2,338,875 2,147,263 1,970,446
Granted at $26.06 to
$37.50 per share 614,815 624,546 596,290
Exercised at $9.31 to
$32.81 per share (364,519) (394,178) (407,697)
Surrendered at $11.69 to
$37.50 per share (5,450) (38,756) (11,776)
---------- --------- ---------
Outstanding, December 31 2,583,721 2,338,875 2,147,263
========= ========= =========
Exercisable, December 31 1,652,012 1,341,767 1,210,767
========= ========= =========
Available for grant,
December 31 1,873,286 1,816,751 1,718,036
========= ========= =========
</TABLE>
The 1985 Plan options expire June 1995 to November 2004, with an average option
price of $24.72. The 1991 Plan options expire April 2001 to June 2004, with an
average option price of $33.33.
NOTE 16 - TRANSACTIONS WITH MYCOGEN CORPORATION
On December 1, 1992, the company transferred certain of its Agribusiness assets
to Mycogen Corporation in exchange for 2,294,590 shares of Mycogen Common Stock
and $39.4 million par value of Mycogen Series A Preferred Stock. The remainder
of its Agribusiness assets, plus cash of $4.6 million, and exclusive of
specialty vegetable oil operations, was transferred to Agrigenetics, L.P., a
partnership with Mycogen, in exchange for a 49% partnership interest.
On December 31, 1993, the company sold 29.54% of Agrigenetics, L.P. to Mycogen
in exchange for cash of $7.0 million and 2,000,000 shares of Mycogen Common
Stock valued at $20.5 million. This transaction increased the company's
ownership of the outstanding Mycogen Common Stock from 25% to 32%. Mycogen
liquidated Agrigenetics, L.P. into a successor corporation named Agrigenetics
Inc. ("AGI") and issued to the company AGI common shares representing a 19.46%
ownership interest.
The company has the right to convert some or all of its interest in AGI into
Mycogen Common Stock or, after November 30, 2000, the company may require
Mycogen to purchase, and Mycogen may require the company to sell, some or all
of its then remaining interest in AGI for cash. The company and Mycogen have
agreed the value for the conversion or sale of the company's interest in AGI
will not be less than $21.4 million nor more than $26.3 million.
On December 1, 1993, Mycogen mandatorily redeemed $10 million of the Preferred
Stock for cash. The Preferred Stock held by the company pays cumulative
dividends of 5% per year through November 30, 1996; 8.5% from December 1, 1996
through
35
<PAGE> 17
November 30, 2000; and the higher of 10% or prime plus 3% per annum thereafter.
At Mycogen's option, dividends may be paid in cash or additional shares of
Preferred Stock through November 30, 1997 and, thereafter, are payable in cash.
The company, at its option, may convert the Preferred Stock into Mycogen Common
Stock at the lower of $17.96 per share or 125% of the market price.
At December 31, 1994, the book carrying values of the company's investments
aggregated $41.2 million for Mycogen and AGI Common Stock and $30.0 million
for Mycogen Preferred Stock.
The company uses the equity method of accounting for its investment in the
Common Stock of Mycogen which includes AGI (formerly Agrigenetics, L.P.).
Other income-net includes the following amounts related to these investments.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Preferred dividends $ 1,454 $ 1,975 $ 164
Equity losses (94) (20,997) (2,708)
Gain on sale of investments 13,174
-------- -------- --------
$ 1,360 $ (5,848) $ (2,544)
======== ======== ========
</TABLE>
The 1992 consolidated financial statements include revenues of $88.6 million,
costs and expenses of $95.9 million and segment loss of $6.1 million related to
the agribusiness transferred assets.
NOTE 17 - SPECIAL CHARGE
The company recorded a special charge of $86.3 million ($.83 per share after
tax) in the third quarter of 1993 in connection with manufacturing
rationalization and organizational realignment initiatives. The manufacturing
rationalization plan will be substantially complete by the end of 1996 and
through consolidation is resulting in cost savings from a reduced number of
employees, lower operating costs and fewer manufacturing units used to produce
intermediate products.
Approximately $51 million of the special charge relates to the manufacturing
rationalization of which $27 million relates to asset write-downs, including $16
million for the shutdown of manufacturing units used to produce intermediate
products. The remainder of the rationalization portion of the special charge
relates to expected employee reduction at manufacturing locations through early
retirements, equipment cleanup and dismantling, employee relocation and other
transitional costs.
The organizational realignment relates to the consolidation of the company's
nonmanufacturing activities. This portion of the special charge is approximately
$35 million and includes $16 million for employee early retirement and
relocation. The remainder of this portion of the special charge relates to asset
write-downs of $13 million, primarily in the company's Agribusiness investments
and accruals for transitional costs.
In 1994, the company updated the estimated costs to complete the initiatives and
as a result reclassified approximately $5 million of the special charge from the
manufacturing rationalization portion to the organizational realignment portion.
This reclassification reduced the amount of asset write-downs and increased the
amount related to employee reductions and other transitional items related to
the two initiatives.
Cash outlays related to the special charge were approximately $18 million during
1994 and $4 million in 1993. Included in liabilities at December 31, 1994, are
future cash outlays of $24 million, primarily for employee reductions and lease
terminations, of which $9 million is expected to be spent in 1995.
NOTE 18 - LITIGATION
On November 18, 1993, a federal court jury in Houston, Texas, awarded Exxon
Corporation $48 million in damages in a patent case brought, in 1989, against
the company. The damages award relates to a December 1992 verdict that the
company willfully infringed an Exxon patent pertaining to an oil soluble copper
additive component. On February 18, 1994, the trial court judge doubled the
damages amount and awarded prejudgment interest, court costs and additional
attorneys' fees to Exxon. The total amount of the judgment, including
previously awarded attorneys' fees, is $129 million. The company has obtained a
bond to stay enforcement of the judgment pending the company's appeal discussed
below.
The original December 1992 finding of willful infringement, as well as the
jury's determination that the patent is valid, remains on appeal to the
United States Court of Appeals for the Federal Circuit Court in Washington,
D.C., which has jurisdiction over all patent cases. Oral arguments on this
appeal were held on December 6, 1993, and the company does not know when a
decision will be announced. This decision could reverse or modify the judgment
against the company. In addition, oral arguments on the company's appeal of the
February 1994 damages award will be heard by the same court in Washington,
D.C., on March 8, 1995. The company's management continues to believe that it
has not infringed the Exxon patent and that the patent is invalid. Based on the
advice of legal counsel, management believes that the December 1992 trial court
judgment will not be upheld on appeal. Therefore, no amount related to the
judgment has been recorded in the company's financial statements.
The company has prevailed in a separate case brought in Canada against Exxon's
Canadian affiliate, Imperial Oil, Ltd., for infringement of the company's
patent pertaining to dispersant, the largest additive component used in motor
oils. A 1990 trial court verdict in favor of the company regarding the issue of
liability was upheld by the Federal Court of Appeals of Canada in December
1992, and in October 1993, the Supreme Court of Canada dismissed Imperial Oil's
appeal of the Court of appeals decision. The case has returned to the trial
court for an assessment of damages. On October 4, 1994, the trial court judge
awarded the company $15 million (Canadian) in special penalty damages, plus
attorneys' fees, against Imperial Oil for disregarding an earlier injunction
for the manufacture or sale of the dispersant which is the subject of this
case. Imperial Oil commenced proceedings to appeal the award of penalty
damages. The company has not reflected the award of penalty damages within its
financial statements pending the outcome of the appeal process. The penalty
damages are in addition to compensation damages, as to which no date has been
set for a determination. A reasonable estimation of the company's potential
recovery for compensation damages cannot be made at this time.
36
<PAGE> 18
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
Three Months Ended
--------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands of Dollars Except Per Share Data)
1994
Net sales $397,816 $407,163 $396,478 $391,293
Gross profit 125,210 134,721 134,601 126,193
Genentech gain (net of tax) 7,483 7,719 7,812 3,789
Net income 43,281 49,132 47,933 35,229
Net income per share $.65 $.74 $.73 $.54
1993
Net sales $365,580 $392,236 $390,819 $368,996
Gross profit 118,168 121,625 129,225 116,414
Genentech gain (net of tax) 13,070 14,517
Income before accounting changes 35,431 31,342 (15,905) 34,107
Net income (3,944) 31,342 (15,905) 34,107
Net income per share:
Before accounting change .52 .46 (.24) .51
Net income $(.06) $.46 $(.24) $.51
<FN>
In the third quarter of 1993, the company recorded a special charge decreasing net income $56.1 million ($.83 per share).
</TABLE>
37
<PAGE> 19
<TABLE>
HISTORICAL SUMMARY
<CAPTION>
(In Thousands of Dollars Except Per Share Data) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues $1,598,994 $1,525,500 $1,552,248
Cost of sales 1,072,025 1,032,199 1,054,376
Selling, administrative, research, testing and development expenses 324,939 330,046 336,088
----------- ---------- ----------
Total cost and expenses 1,396,964 1,362,245 1,390,464
Other income (charges) 49,429 (43,604) 15,360
----------- ---------- ----------
Income before income taxes 251,459 119,651 177,144
Provision for income taxes 75,884 34,676 52,498
Changes in accounting principles (39,375)
----------- ---------- ----------
Net income $ 175,575 $ 45,600 $ 124,646
=========== ========== ==========
For the Year:
Net income per share $2.67 $.67 $1.81
Dividends declared per share .89 .85 .81
Average Common Shares outstanding (in thousands) 65,737 67,706 68,966
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Current assets $ 624,388 $ 568,913 $ 591,016
Property - net 558,744 437,635 375,587
Other assets 211,232 176,032 160,517
----------- ---------- ----------
Total assets 1,394,364 1,182,580 1,127,120
Less:
Short-term debt 53,700 14,590 25,140
Other current liabilities 199,833 209,658 181,108
Long-term debt 114,161 55,298 23,258
Other noncurrent liabilities 194,631 170,798 78,252
----------- ---------- ----------
Shareholders' equity $ 832,039 $ 732,236 $ 819,362
=========== ========== ==========
OTHER DATA
Return on average shareholders' equity 22% 6% 15%
Capital investments $ 162,261 $ 168,201 $ 98,216
Depreciation 61,278 59,595 58,435
At End of Year:
Number of employees 4,520 4,613 4,609
Number of shareholders 6,494 6,616 6,822
Common Shares outstanding (in thousands) 64,845 66,590 68,451
Shareholders' equity per share $12.83 $11.00 $11.97
<FN>
All share and per share data have been restated to reflect the 2-for-1 stock split effected on August 31, 1992.
</TABLE>
38
<PAGE> 20
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985 1984
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,476,306 $1,452,701 $1,227,910 $ 1,125,731 $1,022,277 $ 985,182 $ 913,351 $ 844,175
992,275 1,006,341 864,576 783,113 713,152 695,068 659,130 627,378
316,401 282,050 245,132 226,776 203,236 180,650 158,358 114,501
--------- ---------- ---------- ----------- ---------- --------- ---------- ----------
1,308,676 1,288,391 1,109,708 1,009,889 916,388 875,718 817,488 741,879
10,510 106,902 19,544 69,908 23,310 19,200 7,582 12,788
---------- ---------- ---------- ----------- ---------- --------- ---------- ----------
178,140 271,212 137,746 185,750 129,199 128,664 103,445 115,084
54,481 81,166 43,766 54,544 47,864 50,479 43,221 47,353
8,751
---------- ---------- ---------- ----------- ---------- --------- ---------- ----------
$ 123,659 $ 190,046 $ 93,980 $ 139,957 $ 81,335 $ 78,185 $ 60,224 $ 67,731
========== ========== ========== =========== ========== ========= ========== ==========
$1.79 $2.67 $1.26 $1.81 $1.03 $.99 $.74 $.87
.77 .73 .69 .65 .61 .59 .58 .56
69,260 71,121 74,665 77,391 79,117 79,356 80,817 78,276
$ 701,571 $ 668,810 $ 543,166 $ 573,002 $ 513,342 $ 462,982 $ 447,441 $ 376,050
380,030 353,551 316,493 298,670 297,573 289,078 290,298 251,735
90,082 92,235 100,525 98,999 128,463 125,847 116,706 74,189
---------- ---------- ---------- ----------- ---------- --------- ---------- ----------
1,171,683 1,114,596 960,184 970,671 939,378 877,907 854,445 701,974
32,801 12,552 8,002 5,483 13,561 4,303 31,448 9,381
229,361 235,799 172,906 179,405 155,605 158,494 151,095 122,871
34,982 54,023 53,180 55,339 56,138 52,616 73,444 30,416
80,073 76,011 62,832 66,136 92,441 89,815 79,160 64,963
---------- ---------- ---------- ----------- ---------- --------- ---------- ----------
$ 794,466 $ 736,211 $ 663,264 $ 664,308 $ 621,633 $ 572,679 $ 519,298 $ 474,343
========== ========== ========== =========== ========== ========= ========== ==========
16% 27% 14% 22% 14% 14% 12% 14%
$ 83,541 $ 92,231 $ 82,720 $ 71,891 $ 56,460 $ 52,986 $ 103,990 $ 49,001
54,614 53,960 48,682 46,598 47,229 42,591 44,605 38,723
5,299 5,169 5,030 4,781 4,817 4,802 5,205 4,176
6,767 6,692 7,370 7,782 8,335 9,240 10,803 10,804
69,031 69,397 74,016 76,020 77,922 79,382 79,321 78,221
$11.51 $10.61 $8.96 $8.74 $7.98 $7.21 $6.55 $6.06
</TABLE>
39
<PAGE> 1
<TABLE>
EXHIBIT 21
THE LUBRIZOL CORPORATION
<CAPTION>
% OF STATE/COUNTRY
PRINCIPAL SUBSIDIARIES OWNERSHIP OF INCORPORATION
<S> <C> <C>
Lubrizol A.G. 99.7% Switzerland
Lubrizol do Brasil Aditivos, Ltda. 100% Brazil
Lubrizol Canada Limited 100% Canada
Lubrizol de Chile Limitada 100% Chile
Lubrizol China, Inc. 100% Ohio
Lubrizol Espanola, S.A. 100% Spain
Lubrizol France S.A. 99.995% France
Lubrizol Gesellschaft m.b.H. 100% Austria
Lubrizol G.m.b.H. 100% Germany
Lubrizol Great Britain Limited 100% United Kingdom
Lubrizol International Inc. 100% Cayman Islands
Lubrizol International Management
Corporation 100% Nevada
Lubrizol Italiana, S.p.A. 100% Italy
Lubrizol Japan, Limited 100% Japan
Lubrizol Limited 100% United Kingdom
Lubrizol de Mexico, S. de R.L. 100% Mexico
Lubrizol Overseas Trading Corporation 100% Delaware
Lubrizol Scandinavia AB 100% Sweden
Lubrizol Servicios Tecnicos S. de R.L. 100% Mexico
Lubrizol South Africa (Pty.) Limited 100% South Africa
Lubrizol Southeast Asia (Pte.) Ltd. 100% Singapore
Lubrizol de Venezuela C.A. 99.9% Venezuela
Anedco Inc. 100% Nevada
Gate City Equipment Company, Inc. 100% Georgia
Langer & Company G.m.b.H. 100% Germany
SVO Specialty Products, Inc. 100% Delaware
AFFILIATES
Lubrizol India Limited 40% India
Industrais Lubrizol S.A. de C.V. 40% Mexico
Lubrizol Transarabian Company Limited 49% Saudi Arabia
C.A. Lubricantes Quimicos L.Q. 49% Venezuela
Solub Product Application Laboratory 40% Russia
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
=============================
THE LUBRIZOL CORPORATION
We consent to the incorporation by reference in Registration Statement No.
2-99983 on Form S-8, in Post-Effective Amendment No. 1 to Registration
Statement No. 33-430 on Form S-8, in Registration Statement No. 33-2842 on Form
S-8, in Registration Statement No. 33-29409 on Form S-8, in Registration
Statement No. 33-42211 on Form S-8 and in Registration Statement No. 33-68246
on Form S-3 of our report dated February 14, 1995, incorporated by reference in
this Annual Report on Form 10-K of The Lubrizol Corporation for the year ended
December 31, 1994.
/s/Deloitte & Touche LLP
-------------------------------------
DELOITTE & TOUCHE LLP
Cleveland, Ohio
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000060751
<NAME> THE LUBRIZOL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1.0
<CASH> 36,379
<SECURITIES> 0
<RECEIVABLES> 221,107
<ALLOWANCES> 2,604
<INVENTORY> 298,331
<CURRENT-ASSETS> 624,388
<PP&E> 1,266,249
<DEPRECIATION> 707,505
<TOTAL-ASSETS> 1,394,364
<CURRENT-LIABILITIES> 253,533
<BONDS> 114,161
<COMMON> 84,059
0
0
<OTHER-SE> 747,980
<TOTAL-LIABILITY-AND-EQUITY> 1,394,364
<SALES> 1,592,750
<TOTAL-REVENUES> 1,598,994
<CGS> 1,072,025
<TOTAL-COSTS> 1,072,025
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,626
<INTEREST-EXPENSE> 3,149
<INCOME-PRETAX> 251,459
<INCOME-TAX> 75,884
<INCOME-CONTINUING> 175,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,575
<EPS-PRIMARY> 2.67
<EPS-DILUTED> 2.64
</TABLE>
