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 March 31, 2004
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 1-5112
ETHYL CORPORATION
(Exact name of registrant as specified in its charter)
| VIRGINIA | 54-0118820 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 330 SOUTH FOURTH STREET | ||
| RICHMOND, VIRGINIA | 23218-2189 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code - (804) 788-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Number of shares of common stock, $1 par value, outstanding as of April 30, 2004: 16,883,009.
I N D E X
2
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
| Three Months Ended March 31 |
|||||||
| 2004 |
2003 |
||||||
| Net sales |
$ | 216,770 | $ | 173,466 | |||
| Cost of goods sold |
170,909 | 137,406 | |||||
| Gross profit |
45,861 | 36,060 | |||||
| TEL marketing agreements services |
7,312 | 3,001 | |||||
| Selling, general, and administrative expenses |
23,518 | 20,588 | |||||
| Research, development, and testing expenses |
15,749 | 13,682 | |||||
| Operating profit |
13,906 | 4,791 | |||||
| Interest and financing expenses |
5,156 | 4,802 | |||||
| Other income (expense), net |
166 | (198 | ) | ||||
| Income (loss) from continuing operations before income taxes |
8,916 | (209 | ) | ||||
| Income tax expense (benefit) |
3,098 | (72 | ) | ||||
| Income (loss) from continuing operations |
5,818 | (137 | ) | ||||
| Discontinued operations |
|||||||
| Gain on disposal of business (net of tax) |
— | 14,805 | |||||
| Income before cumulative effect of accounting change |
5,818 | 14,668 | |||||
| Cumulative effect of accounting change (net of tax) |
— | 1,624 | |||||
| Net income |
$ | 5,818 | $ | 16,292 | |||
| Basic earnings per share: |
|||||||
| Earnings (loss) from continuing operations |
$ | 0.35 | $ | (0.01 | ) | ||
| Discontinued operations (net of tax) |
— | 0.89 | |||||
| Cumulative effect of accounting change (net of tax) |
— | 0.10 | |||||
| Basic earnings per share |
$ | 0.35 | $ | 0.98 | |||
| Diluted earnings per share: |
|||||||
| Earnings (loss) from continuing operations |
$ | 0.34 | $ | (0.01 | ) | ||
| Discontinued operations (net of tax) |
— | 0.89 | |||||
| Cumulative effect of accounting change (net of tax) |
— | 0.10 | |||||
| Diluted earnings per share |
$ | 0.34 | $ | 0.98 | |||
| Shares used to compute basic earnings per share |
16,813 | 16,689 | |||||
| Shares used to compute diluted earnings per share |
17,121 | 16,689 | |||||
See accompanying notes to financial statements.
3
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
| March 31 2004 |
December 31 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 22,290 | $ | 29,052 | ||||
| Restricted cash |
1,805 | 1,903 | ||||||
| Trade and other accounts receivable, less allowance for doubtful accounts ($2,691 - 2004; $2,382 - 2003) |
135,948 | 132,542 | ||||||
| Receivable - TEL marketing agreements services |
2,228 | 2,456 | ||||||
| Inventories: |
||||||||
| Finished goods and work-in-process |
101,207 | 103,734 | ||||||
| Raw materials |
12,757 | 12,630 | ||||||
| Stores, supplies and other |
8,340 | 8,064 | ||||||
| 122,304 | 124,428 | |||||||
| Prepaid expenses |
9,061 | 3,810 | ||||||
| Deferred income taxes |
11,001 | 11,296 | ||||||
| Total current assets |
304,637 | 305,487 | ||||||
| Property, plant and equipment, at cost |
753,420 | 751,919 | ||||||
| Less accumulated depreciation and amortization |
583,481 | 577,686 | ||||||
| Net property, plant and equipment |
169,939 | 174,233 | ||||||
| Prepaid pension cost |
22,754 | 21,829 | ||||||
| Deferred income taxes |
8,527 | 5,471 | ||||||
| Other assets and deferred charges |
67,069 | 75,564 | ||||||
| Intangibles, net of amortization |
61,272 | 62,849 | ||||||
| Total assets |
$ | 634,198 | $ | 645,433 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 59,300 | $ | 53,589 | ||||
| Accrued expenses |
42,345 | 50,691 | ||||||
| Long-term debt, current portion |
5,871 | 6,978 | ||||||
| Income taxes payable |
15,657 | 10,055 | ||||||
| Total current liabilities |
123,173 | 121,313 | ||||||
| Long-term debt |
188,205 | 201,839 | ||||||
| Other noncurrent liabilities |
117,607 | 122,598 | ||||||
| Commitments and contingencies (Note 10) |
||||||||
| Shareholders’ equity |
||||||||
| Common stock ($1 par value) Issued - 16,831,509 in 2004 and 16,786,009 in 2003 |
16,832 | 16,786 | ||||||
| Additional paid-in capital |
67,242 | 67,091 | ||||||
| Accumulated other comprehensive loss |
(20,649 | ) | (20,164 | ) | ||||
| Retained earnings |
141,788 | 135,970 | ||||||
| 205,213 | 199,683 | |||||||
| Total liabilities and shareholders’ equity |
$ | 634,198 | $ | 645,433 | ||||
See accompanying notes to financial statements.
4
ETHYL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Three Months Ended March 31 |
||||||||
| 2004 |
2003 |
|||||||
| Cash and cash equivalents at beginning of year |
$ | 29,052 | $ | 15,478 | ||||
| Cash flows from operating activities: |
||||||||
| Net income |
5,818 | 16,292 | ||||||
| Adjustments to reconcile net income to cash flows from operating activities: |
||||||||
| Depreciation and other amortization |
10,874 | 11,271 | ||||||
| Amortization of deferred financing costs |
1,086 | 1,318 | ||||||
| Noncash pension expense |
2,583 | 2,316 | ||||||
| Gain on sale of phenolic antioxidant business |
— | (23,196 | ) | |||||
| Cumulative effect of accounting change |
— | (2,549 | ) | |||||
| Deferred income tax expense |
(2,356 | ) | 2,029 | |||||
| Working capital changes |
2,789 | 3,366 | ||||||
| TEL working capital advance |
113 | 779 | ||||||
| Cash pension contributions |
(5,940 | ) | (687 | ) | ||||
| Proceeds from legal settlement |
— | 4,825 | ||||||
| Other, net |
(1,860 | ) | 1,856 | |||||
| Cash provided from operating activities |
13,107 | 17,620 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(3,295 | ) | (1,818 | ) | ||||
| Proceeds from sale of phenolic antioxidant business |
— | 27,020 | ||||||
| Other, net |
11 | 3 | ||||||
| Cash (used in) provided from investing activities |
(3,284 | ) | 25,205 | |||||
| Cash flows from financing activities: |
||||||||
| Repayment of term loan |
(14,602 | ) | — | |||||
| Repayment of debt - previous agreements |
— | (41,890 | ) | |||||
| Debt issuance costs |
— | (1,756 | ) | |||||
| Other, net |
58 | (131 | ) | |||||
| Cash used in financing activities |
(14,544 | ) | (43,777 | ) | ||||
| Effect of foreign exchange on cash and cash equivalents |
(2,041 | ) | 1,077 | |||||
| Increase (decrease) in cash and cash equivalents |
(6,762 | ) | 125 | |||||
| Cash and cash equivalents at end of period |
$ | 22,290 | $ | 15,603 | ||||
See accompanying notes to financial statements.
5
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
| 1. | In the opinion of management, the accompanying consolidated financial statements of Ethyl Corporation and Subsidiaries contain all necessary adjustments for the fair presentation of, in all material respects, our consolidated financial position as of March 31, 2004, as well as the consolidated results of operations and the consolidated cash flows for the three-months ended March 31, 2004 and 2003. The financial statements are subject to normal year-end adjustments and do not include the comprehensive footnotes. All adjustments are of a normal, recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report and Form 10-K for the fiscal year ended December 31, 2003 (2003 Annual Report). The results of operations for the three-month period ended March 31, 2004 are not necessarily indicative of the results to be expected for the full year. |
Unless the context otherwise requires, all references to “we,” “us,” “our,” the “Company,” and “Ethyl” are to Ethyl Corporation and its subsidiaries.
| 2. | After approval by the Board of Directors in December 2002, on January 21, 2003, we completed the sale of our phenolic antioxidant business to Albemarle Corporation. Following an extensive assessment, we concluded this business was not part of our future core business or growth goals. |
As part of the transaction, we sold accounts receivable and inventory, as well as fixed assets at our Orangeburg, South Carolina facility. The net book value of the fixed assets was zero.
We recognized a gain of $23.2 million ($14.8 million after tax) in first quarter 2003 related to this transaction.
| 3. | The cumulative effect of accounting change in the first quarter 2003 reflects the gain of $2.5 million ($1.6 million after tax or $.10 per share) recognized upon the January 1, 2003 adoption of Statement of Financial Accounting Standard (SFAS) No. 143, “Accounting for Asset Retirement Obligations.” This statement addresses the obligations and asset retirement costs associated with the retirement of tangible long-lived assets. It requires that the fair value of the liability for an asset retirement obligation be recorded when incurred instead of over the life of the asset. The asset retirement costs must be capitalized as part of the carrying value of the long-lived asset. If the liability is settled for an amount other than the recorded balance, either a gain or loss will be recognized at settlement. |
Our asset retirement obligations are related primarily to TEL operations. These obligations had been previously fully reserved. Upon the implementation of SFAS No. 143 on January 1, 2003, these accruals were discounted to their net present value to comply with the requirements of SFAS No. 143, which resulted in the recognition of a gain. Current accretion of the asset retirement obligations is being expensed in operations. The following table illustrates the activity associated with SFAS No. 143.
6
| March 31 2004 |
December 31 2003 |
|||||||
| (in thousands) | ||||||||
| Asset retirement obligation, beginning of period |
$ | 13,238 | $ | 14,828 | ||||
| Gain upon implementation of SFAS No. 143 |
— | (2,549 | ) | |||||
| Accretion expense |
239 | 575 | ||||||
| Liabilities settled |
(178 | ) | (884 | ) | ||||
| Foreign currency impact |
— | 1,268 | ||||||
| Asset retirement obligation, end of period |
$ | 13,299 | $ | |||||