UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..... to .....
Commission File Number 1-5263
THE LUBRIZOL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0367600
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
29400 Lakeland Boulevard
Wickliffe, Ohio 44092-2298
(Address of principal executive offices)
(Zip Code)
(216) 943-4200
(Registrant's telephone number, including area code)
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 and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Number of the registrant's common shares, without par value, outstanding, as of
October 31, 1995: 63,226,167
<PAGE>
PART I. FINANCIAL INFORMATION
THE LUBRIZOL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
(In Thousands of Dollars) 1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Cash and short-term investments....................... $ 28,818 $ 36,379
Receivables........................................... 272,299 250,392
Inventories:
Finished products................................... 99,049 102,605
Products in process................................. 91,284 98,105
Raw materials and supplies.......................... 115,232 97,621
---------- ----------
305,565 298,331
---------- ----------
Other current assets.................................. 42,882 39,286
---------- ----------
Total current assets............... 649,564 624,388
Property and equipment - net.......................... 661,025 558,744
Investments in nonconsolidated companies.............. 102,003 138,013
Intangible and other assets........................... 76,243 73,219
---------- ----------
TOTAL.......................... $1,488,835 $1,394,364
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt....................................... $ 13,779 $ 53,700
Accounts payable...................................... 111,921 114,244
Income taxes and other current liabilities............ 115,781 85,589
---------- ----------
Total current liabilities........... 241,481 253,533
Long-term debt........................................ 196,366 114,161
Postretirement health care obligation................. 100,973 98,453
Noncurrent liabilities................................ 69,459 68,799
Deferred income taxes................................. 16,088 27,379
---------- ----------
Total liabilities................... 624,367 562,325
---------- ----------
Contingencies and commitments
Shareholders' equity:
Preferred stock without par value - authorized
and unissued:
Serial Preferred Stock - 2,000,000 shares
Serial Preference Shares - 25,000,000 shares
Common Shares without par value:
Authorized 120,000,000 shares
Outstanding - 63,297,216 shares as of September 30,
1995 after deducting 22,898,678 treasury shares,
64,844,560 shares as of December 31, 1994
after deducting 21,351,334 treasury shares........ 83,657 84,059
Retained earnings................................... 774,124 734,533
Unrealized gain on marketable securities............ 23,169
Accumulated translation adjustment.................. 6,687 (9,722)
---------- ----------
Total shareholders' equity......... 864,468 832,039
---------- ----------
TOTAL.......................... $1,488,835 $1,394,364
========== ==========
</TABLE>
Amounts shown are unaudited.
<PAGE>
THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Third Quarter Nine Months
Ended September 30 Ended September 30
------------------- ----------------------
(In Thousands Except Per Share Data) 1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales........................... $412,428 $396,478 $1,264,133 $1,201,457
Royalties and other revenues........ 1,296 1,377 4,776 4,595
-------- -------- ---------- ----------
Total revenues............ 413,724 397,855 1,268,909 1,206,052
Cost of sales....................... 282,443 261,877 847,908 806,925
Selling and administrative expenses. 39,862 38,626 122,952 117,657
Research, testing and development
expenses.......................... 46,421 41,893 132,599 120,683
-------- -------- ---------- ----------
Total cost and expenses... 368,726 342,396 1,103,459 1,045,265
Gain on sale of investments......... 12,019 38,459 35,406
Other income (expense) - net........ (2,905) 1,904 5,570 8,385
Interest income..................... 1,035 952 3,611 2,862
Interest expense.................... (2,278) (494) (6,386) (1,988)
-------- -------- ---------- ----------
Income before income taxes.......... 40,850 69,840 206,704 205,452
Provision for income taxes.......... 12,908 21,907 68,409 65,106
-------- -------- ---------- ----------
Net income.......................... $ 27,942 $ 47,933 $ 138,295 $ 140,346
======== ======== ========== ==========
Net income per share................ $ .44 $ .73 $2.16 $2.13
===== ===== ===== =====
Dividends per share................. $ .23 $ .22 $ .69 $ .66
===== ===== ===== =====
Average number of shares outstanding 63,460 65,486 64,083 65,982
</TABLE>
Amounts shown are unaudited.
<PAGE>
THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------------
(In Thousands of Dollars) 1995 1994
---------- ----------
<S> <C> <C>
Cash provided from (used for):
Operating activities:
Net income................................................... $ 138,295 $ 140,346
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization............................ 54,536 48,122
Deferred income taxes.................................... 1,740 902
Equity earnings, net of distributions.................... (443) (4,078)
Gain on sale of investments.............................. (38,459) (35,406)
Change in current assets and liabilities:
Accounts receivable.................................... (15,199) (19,804)
Inventories............................................ (1,262) 13,435
Accounts payable and accrued expenses.................. 22,260 (2,212)
Other current assets................................... (4,643) (6,891)
Other items - net........................................ (3,660) (3,957)
---------- ----------
Total operating activities......................... 153,165 130,457
Investing activities:
Proceeds from sale of investments............................ 40,160 37,713
Capital expenditures......................................... (143,750) (111,479)
Acquisition of subsidiary.................................... (3,521) (1,502)
Other - net.................................................. 3,170 (366)
---------- ----------
Total investing activities (103,941) (75,634)
Financing activities:
Short-term borrowing (repayment) - net....................... (44,934) 60,487
Long-term borrowing.......................................... 100,064 102
Long-term debt repayment..................................... (14,313) (2,007)
Dividends paid............................................... (44,277) (43,660)
Common shares purchased, net of options exercised............ (54,829) (51,495)
---------- ----------
Total financing activities......................... (58,289) (36,573)
Effect of exchange rate changes on cash...................... 1,504 3,250
---------- ----------
Net increase (decrease) in cash and short-term investments... (7,561) 21,500
Cash and short-term investments at the beginning of period... 36,379 24,220
---------- ----------
Cash and short-term investments at the end of period......... $ 28,818 $ 45,720
========== ==========
</TABLE>
Amounts shown are unaudited.
<PAGE>
THE LUBRIZOL CORPORATION
Notes to Consolidated Financial Statements
September 30, 1995
1. The accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of September 30, 1995 and
December 31, 1994, and the results of operations and the cash flows for
the nine months ended September 30, 1995 and 1994.
2. Certain of the company's marketable equity securities, included in
investments in nonconsolidated companies, were classified as available
for sale and carried at fair market value. During the first half of
1995, the company sold all of its remaining shares of Genentech common
stock realizing proceeds of $40.2 million and a pretax gain of $38.5
million.
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 $56.7 million at
September 30, 1995.
3. On June 26, 1995, the company publicly issued debentures in the aggregate
principal amount of $100 million. The debentures are unsecured, senior
obligations of the company that mature on June 15, 2025, and bear
interest from June 15, 1995 at 7.25% payable semi-annually on June 15 and
December 15 of each year. The debentures are not redeemable prior to
maturity and are not subject to any sinking fund.
4. The company uses derivative financial instruments only to manage well-
defined foreign currency, interest rate and commodity price risk. The
company does not use derivative financial instruments for trading
purposes. The maximum amount of foreign currency forward contracts
outstanding at any one time during the first nine months of 1995 was
$15.2 million of which $1.0 is outstanding at September 30, 1995.
The company has an interest rate swap agreement that effectively converts
floating rate interest payable on $18.4 million of Marine Terminal
Refunding Revenue Bonds due July 1, 2000 to a fixed rate of 6.5%. In
addition during the first quarter of 1995, the company entered into an
interest rate swap agreement that converts $50 million of variable rate
borrowings to a fixed rate of 7.6% for up to 10 years.
<PAGE>
THE LUBRIZOL CORPORATION
Notes to Consolidated Financial Statements
September 30, 1995
5. 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 related 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, was
$129 million.
On September 5, 1995, the United States Court of Appeals for the Federal
Circuit in Washington, D.C., which has jurisdiction over all patent
cases, overturned the jury verdict that the company infringed the Exxon
patent and entered judgment in favor of Lubrizol as a matter of law. The
ruling also vacated an injunction against the company and the $129
million judgment. Exxon is seeking rehearing with the same court in
Washington, D.C.
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.
<PAGE>
THE LUBRIZOL CORPORATION
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Revenues increased by $15.9 million, or 4% in the third quarter of 1995
compared to the third quarter of 1994 and by $62.9 million, or 5% for the
nine months ended September 30, 1995 compared to the nine months ended
September 30, 1994. On a year-to-year comparable period basis, revenues for
the third quarter and first nine months of 1995 were favorably affected by
price/mix and by currency and were unfavorably affected by volume.
Specifically, price increases implemented in early 1995 and more favorable
product mix increased revenues by 2% for the third quarter and by 3% for the
first nine months of 1995. In addition, the impact of translating various
international currencies into a weakened U.S. dollar increased revenues by 3%
for the third quarter and by 4% for the nine month period. Volume was down
1% and 3%, respectively, in the three month and nine month periods ended
September 30, 1995. Sequentially, revenues in the third quarter of 1995 were
6% lower than the second quarter. This revenue decline was caused by
unfavorable price/product mix (2%), lower volume (3%) and unfavorable
currency (1%).
The volume decline in the third quarter was in North America, where volumes
fell 3% as compared to the third quarter of 1994. Sequentially, volume
declined 5% in North America from the second quarter of 1995. Demand for
engine oil lubricants in North America has been weak, causing lower additive
shipment volumes. For the comparative nine month period, volume in
international markets declined 4% and in North America was even compared with
the prior year. International volume was lower due to spot business in the
Middle East that occurred primarily during the first half of 1994 and that
did not recur in 1995. Excluding this spot business from 1994, volume would
have increased 2% internationally and 1% overall for the first nine months of
1995.
Sales volumes in the future will be affected by a new North American
passenger car motor oil specification. The company has developed additive
packages that meet this new specification, which will require approximately
10% less additive levels than the existing specification. The new
specification, absent changes in market share, is expected to negatively
affect annual volume in North America by 4% (1.5% on worldwide volume) due to
the lower additive treat rate. The majority of the company's customers are
expected to convert to this new specification by the middle of 1996.
<PAGE>
THE LUBRIZOL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS (Continued)
Gross Profit (sales less cost of sales) decreased 3% to $130 million for the
third quarter and increased by 6% to $416.2 million for the first nine months
of 1995 as compared to the respective periods of the previous year. Gross
profit as a percent of sales declined to 31.5% for the third quarter of 1995
from 33.9% for the third quarter of 1994 as raw material costs increased
almost twice as fast as selling prices, including the affects of currency and
mix. Sequentially, lower volume and unfavorable mix caused the gross profit
percentage to decline from the 34.1% rate achieved in the second quarter of
1995. Gross profit increased in the first nine months of 1995 as compared to
1994, as higher average selling prices, aided by favorable currency and mix,
more than offset a 10% increase in average material cost, including currency
and mix. Gross profit as a percent of sales improved slightly to 32.9% for
the first nine months of 1995 compared to 32.8% for the same period of 1994.
Selling and administrative expenses increased 3% for the third quarter and 5%
for the nine month period ended September 30, 1995 as compared to the prior
year. Research, testing and development expenses (technology expenses)
increased 11% for the third quarter and 10% for the nine month period ended
September 30, 1995. Technology expenses have increased, as anticipated, over
the respective 1994 periods and sequentially quarter to quarter during 1995
as a result of the timing of various testing programs related to product
development worldwide and a greater emphasis on longer-term strategic
research.
The company's manufacturing and organizational realignment initiatives, which
began in 1993, have slowed the rate of increase in the company's cost and
expenses. When complete, these initiatives will have reduced the number of
the company's production units by one-third, and the number of employees will
have been reduced by approximately 5% through early retirement programs or
attrition. Through September 30, 1995, the company has completed
approximately three-fourths of the production unit reductions and employee
reductions under these initiatives. The company has also progressed in its
efforts to create a more simplified and rationalized line of products. The
company's manufacturing expenses increased 4% and selling and administrative
expenses increased 5% for the nine month period ended September 30, 1995 as
compared to the prior year. However, after excluding the negative impact of
currency and an acquisition made in 1995, manufacturing costs declined by 1%
and selling and administrative expenses increased 2%. On a year-to-date
basis, management is on target with its goal of holding selling,
administrative and technology expenses at or below 20%
The company sold all of its remaining shares of Genentech, Inc. common stock
during the first half of 1995 realizing a pretax gain of $38.5 million (39
cents per share after tax). During 1994, the company had pretax gains on the
sale of Genentech common stock of $12.0 million (12 cents per share) for the
third quarter and $35.4 million (35 cents per share) for the nine months
ended September 30.
<PAGE>
THE LUBRIZOL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS (Continued)
Other income - net, declined $4.8 million for the third quarter and $2.8
million for the nine months ended September 30, 1995 as compared to the
respective 1994 periods. Other income includes the results of the company's
investment in Mycogen Corporation and its agribusiness joint venture.
Mycogen's earnings are seasonal with the majority of its income recorded in
the first half of the calendar year and losses recorded in the second half.
Compared to 1994, equity losses from Mycogen were $2.8 million greater in the
third quarter and $5.2 million greater in the first nine months of 1995 as a
result of higher consolidated losses of Mycogen. In addition, fluctuations
in exchange gains (losses) and improved equity earnings from the company's
specialty chemical joint ventures contributed to the change in Other income -
net between the periods.
Interest expense increased $1.8 million for the quarter and $4.4 million for
the nine months ended September 30, 1995 as a result of higher average debt
outstanding to meet the requirements of the capital expenditure and share
repurchase programs. The average daily balance of debt outstanding was $205
million for the nine month period ended September 30, 1995, as compared to
$108 million for the same period in 1994.
The company transacts business in over 100 countries around the world. As
the U.S. dollar strengthens or weakens against other international
currencies, the financial results of the company will be affected. During
1995, the U.S. dollar has weakened, primarily against the French franc,
German deutsche mark and Japanese yen, as compared to the respective 1994
periods. This resulted in favorable currency effects on operations of 6
cents per share in the third quarter and 19 cents per share for the nine
months ended September 30, 1995. However, sequentially, the U.S. dollar
strengthened during the third quarter when compared with exchange rates in
effect during the second quarter of 1995 which had a slightly negative affect
on earnings per share.
As a result of the factors discussed above and a higher effective tax rate,
net income decreased 42% or $20.0 million for the third quarter, and
decreased 1% or $2.1 million for the nine month period ended September 30,
1995, as compared to the respective 1994 periods.
Excluding from earnings per share the gains realized from sale of Genentech
common stock, third quarter earnings per share declined 28% to 44 cents in
1995 from 61 cents in 1994 and year-to-date earnings per share were $1.77 in
1995 compared with $1.78 in 1994.
<PAGE>
THE LUBRIZOL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS (Continued)
While management has been successful in controlling operating expenses this
year, the lower volume and higher material costs have offset the benefits of
the company's cost control efforts. In addition, higher agribusiness equity
losses and higher interest expense further reduced earnings. The negative
factors impacting the company's business in the third quarter will continue
to pressure earnings in the fourth quarter. As a result, despite a strong
first half of 1995, management's objective of a 10% earnings per share growth
in 1995 will not be achieved. Despite disappointing results in the third
quarter, the company remains in a strong commercial and financial position.
The company believes it has gained market share in a consolidating additive
industry at a time when the demand for finished lubricants has been
weakening.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operating activities was $153.2 million for the nine
months ended September 30, 1995, compared to $130.5 million for the same
period of 1994. This increase is attributable to changes in working capital
requirements.
In June 1995, the company publicly issued $100 million of 7.25% debentures
due at the end of 30 years. The net proceeds from this debt issuance were
used to repay a portion of the commercial paper borrowings outstanding. The
total short and long-term debt at September 30, 1995 was $210.1 million
compared to $260.1 at June 30, 1995 and $167.9 million at December 31, 1994.
The decrease in total debt outstanding from June 30, 1995 was due to the
utilization of $26 million of the debt proceeds received in June 1995 to
repay commercial paper borrowings maturing after June 30, 1995 and repayment
of borrowings from cash flow generated during the third quarter. The percent
of debt to total capital was 20% at September 30, 1995, compared to 17% at
December 31, 1994.
Capital expenditures were $143.8 million during the first nine months of
1995, an increase of 29% over the comparable period of 1994. Capital
expenditures in 1995 were $37.8 million in the third quarter, $50.7 million
in the second quarter and $55.3 million in the first quarter. This decline
in quarterly spending is reflective of the completion of several major
projects. Capital expenditures were primarily in the United States and
France, of which 70% pertained to capital additions at manufacturing plants
to enhance or maintain production capabilities, including maintaining
facilities in compliance with environmental and safety regulations, and the
remaining 30% was principally for construction of new technical and
administrative facilities at the company's headquarters. Capital spending
for the year will be approximately $10 million below the company's previously
estimated range of $190-$200 million. As a result of the completion of
several major projects, management estimates capital spending in 1996 will be
below $150 million.
<PAGE>
THE LUBRIZOL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES (Continued)
The company maintains an active share repurchase program and at September 30,
1995, had 3.4 million shares remaining under its current share repurchase
authorizations. The company repurchased 298,000 shares of its common stock
during the third quarter of 1995, bringing the total number of shares
acquired to 1,635,000 for the nine month period. The aggregate cost of the
shares acquired during 1995 has been $56.5 million.
Primarily as a result of these activities, and the payment of dividends, cash
and short-term investments decreased $7.6 million from December 31, 1994 to
$28.8 million at September 30, 1995.
The company's ratio of current assets to current liabilities was 2.7 to 1 at
September 30, 1995 as compared to 2.5 to 1 at December 31, 1995. This
improvement in ratio reflects the replacement of short-term debt with the
issuance of $100 million in long-term debentures in June 1995. Management
believes the company's credit facilities and internally generated funds will
be sufficient to meet its future capital needs.
As discussed in Note 5 to the financial statements, the company is involved
in patent litigation with Exxon Corporation, in various countries. On
September 5, 1995, the United States Court of Appeals for the Federal Circuit
in Washington, D.C., overturned a Houston, Texas jury verdict that the
company had infringed an Exxon patent pertaining to an oil soluble copper
additive component and found that the company had not infringed the Exxon
patent. This ruling also overturns a $129 million judgment entered against
the company on February 18, 1994. Exxon is seeking a rehearing with the same
court in Washington, D.C. In a separate patent case in Canada, liability
against Exxon and in favor of the company has been made by the Canadian
court. Pending the outcome of the appeals process for the award to the
company of $15 million in penalty damages and the determination of the
compensation damages by the Canadian courts, a reasonable estimation of the
company's potential recovery for damages can not be made at this time.
<PAGE>
PART II. OTHER INFORMATION
Item 1. 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. In November 1993, a jury awarded Exxon $48 million in
damages, and in February 1994, the trial court judge doubled the damages
amount and awarded prejudgment interest, court costs and additional
attorney's fees. The total amount of the judgment, including attorneys'
fees, was $129 million. On September 5, 1995, the United States Court of
Appeals for the Federal Circuit in Washington, D.C., which has jurisdiction
over all patent cases, overturned the jury verdict that the company had
infringed the Exxon patent, and entered judgment in favor of Lubrizol as a
matter of law, holding that no reasonable jury could find any of Lubrizol's
products to be infringing on the evidence presented. The ruling also vacated
the injunction against the company and the $129 million judgment. Exxon is
seeking rehearing with the same court in Washington, D.C.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Deferred Compensation Plan for Officers
(As Amended September 25, 1995)
(11) Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K. There were no reports on
Form 8-K filed during the quarter ended
September 30, 1995.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LUBRIZOL CORPORATION
/s/Gregory P. Lieb
--------------------------------
Gregory P. Lieb
Chief Accounting Officer and
Duly Authorized Signatory of
The Lubrizol Corporation
Date: November 9, 1995
EXHIBIT 10
THE LUBRIZOL CORPORATION
Deferred Compensation Plan For Officers
(As Amended September 25, 1995)
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 Exchange 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;
(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 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. To the extent that, at the time amounts are
credited to a Participant's Account, any federal, state or local payroll
withholding tax applies (e.g., Medicare withholding tax), the Participant
shall be responsible for the payment of such amount to the Company and the
Company shall promptly remit such amount to the proper taxing authority.
(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. All amounts payable in accordance with this
Section 5(a) shall be subject to applicable federal, state and/or local
payroll withholding taxes then in effect.
(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.
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.
(a) 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.
(b) Upon application by a Participant to the Committee, made no
later than thirty (30) days prior to the Participant's retirement or
other termination of employment (other than as a result of death), nor
earlier than ninety (90) days prior thereto, the Participant may request
that the Committee accelerate the Participant's distribution schedule
under Section 5(a) as previously selected by the Participant, including
accelerating to a lump sum payment. The Committee shall have sole and
exclusive discretionary authority to grant or deny a Participant's
request.
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.
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 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 as amended on June 17, 1995, effective January 1,
1995, and as further amended on September 25, 1995.
-END-
EXHIBIT 11
THE LUBRIZOL CORPORATION
Computation of Per Share Earnings
Third Quarter 1995
The computation of primary earnings per share and fully diluted earnings per
share is as follows:
(In Thousands of Shares Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Average shares outstanding for
computation of primary
earnings per share 63,460 65,486 64,083 65,982
Add adjustment to treat shares
for options exercised as if
such shares were outstanding
during the entire period 5 5 47 90
Add equivalent shares for
unexercised options at end
of period* 355 397 404 496
------ ------ ------ ------
Average shares outstanding for
computation of fully diluted
earnings per share 63,820 65,888 64,534 66,568
====== ====== ====== ======
Primary earnings per share $ .44 $ .73 $2.16 $2.13
===== ===== ===== =====
Fully diluted earnings per share $ .44 $ .73 $2.14 $2.11
===== ===== ===== =====
</TABLE>
*Computed under the "Treasury Stock Method" using the higher of quoted
ending or average market price.
<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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 28,818
<SECURITIES> 0
<RECEIVABLES> 238,172
<ALLOWANCES> 2,209
<INVENTORY> 305,565
<CURRENT-ASSETS> 649,564
<PP&E> 1,426,813
<DEPRECIATION> 765,788
<TOTAL-ASSETS> 1,488,835
<CURRENT-LIABILITIES> 241,481
<BONDS> 196,366
<COMMON> 83,657
0
0
<OTHER-SE> 780,811
<TOTAL-LIABILITY-AND-EQUITY> 1,488,835
<SALES> 1,264,133
<TOTAL-REVENUES> 1,268,909
<CGS> 847,908
<TOTAL-COSTS> 847,908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (592)
<INTEREST-EXPENSE> 6,386
<INCOME-PRETAX> 206,704
<INCOME-TAX> 68,409
<INCOME-CONTINUING> 138,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,295
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.14
</TABLE>
