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 1-5263
THE LUBRIZOL CORPORATION
(Exact name of registrant as specified in its charter)
| Ohio | 34-0367600 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
29400 Lakeland Boulevard
Wickliffe, Ohio 44092-2298
(Address of principal executive offices)
(Zip Code)
(440) 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 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 the registrant’s common shares, without par value, outstanding, as of March 31, 2004: 51,618,086.
THE LUBRIZOLA CORPORATION
Quarterly Report on Form 10-Q
Quarter Ended March 31, 2004
| Page Number | ||||
| PART I. |
FINANCIAL INFORMATION |
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| Item 1 |
Financial Statements |
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| 2 | ||||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 | ||
| Item 3 |
21 | |||
| Item 4 |
21 | |||
| PART II. |
OTHER INFORMATION |
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| Item 2 |
22 | |||
| Item 6 |
22 | |||
| 23 | ||||
1
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
| Three Month Period Ended March 31 |
||||||||
| (In Thousands Except Per Share Data) |
2004 |
2003 |
||||||
| Net sales |
$ | 577,920 | $ | 507,000 | ||||
| Royalties and other revenues |
784 | 1,213 | ||||||
| Total revenues |
578,704 | 508,213 | ||||||
| Cost of sales |
426,316 | 368,263 | ||||||
| Selling and administrative expenses |
51,880 | 50,815 | ||||||
| Research, testing and development expenses |
40,724 | 41,633 | ||||||
| Restructuring charge |
— | 3,506 | ||||||
| Total cost and expenses |
518,920 | 464,217 | ||||||
| Other income (expense) - net |
2,399 | (309 | ) | |||||
| Interest income |
851 | 1,041 | ||||||
| Interest expense |
(6,178 | ) | (5,888 | ) | ||||
| Income before income taxes |
56,856 | 38,840 | ||||||
| Provision for income taxes |
19,331 | 12,817 | ||||||
| Net income |
$ | 37,525 | $ | 26,023 | ||||
| Net income per share |
$ | 0.72 | $ | 0.50 | ||||
| Net income per share, diluted |
$ | 0.72 | $ | 0.50 | ||||
| Dividends per share |
$ | 0.26 | $ | 0.26 | ||||
| Weighted average common shares outstanding |
51,799 | 51,643 | ||||||
Amounts shown are unaudited.
See accompanying notes to the financial statements.
2
THE LUBRIZOL CORPORATION
| (In Thousands of Dollars) |
March 31 2004 |
December 31 2003 |
||||||
| ASSETS |
||||||||
| Cash and short-term investments |
$ | 178,015 | $ | 258,699 | ||||
| Receivables |
386,039 | 324,567 | ||||||
| Inventories: |
||||||||
| Finished products |
158,022 | 150,711 | ||||||
| Products in process |
71,863 | 62,306 | ||||||
| Raw materials |
74,039 | 78,856 | ||||||
| Supplies and engine test parts |
20,436 | 20,046 | ||||||
| 324,360 | 311,919 | |||||||
| Other current assets |
44,343 | 42,663 | ||||||
| Total current assets |
932,757 | 937,848 | ||||||
| Property and equipment - net |
689,332 | 689,994 | ||||||
| Goodwill |
281,054 | 208,726 | ||||||
| Intangible assets - net |
102,948 | 62,402 | ||||||
| Investments in non-consolidated companies |
6,067 | 6,296 | ||||||
| Other assets |
33,025 | 37,050 | ||||||
| TOTAL |
$ | 2,045,183 | $ | 1,942,316 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Short-term debt and current portion of long-term debt |
$ | 59,934 | $ | 2,899 | ||||
| Accounts payable |
156,040 | 143,120 | ||||||
| Accrued expenses and other current liabilities |
147,552 | 153,458 | ||||||
| Total current liabilities |
363,526 | 299,477 | ||||||
| Long-term debt |
386,105 | 386,726 | ||||||
| Postretirement health care obligations |
98,814 | 98,387 | ||||||
| Noncurrent liabilities |
101,695 | 100,330 | ||||||
| Deferred income taxes |
52,202 | 52,810 | ||||||
| Total liabilities |
1,002,342 | 937,730 | ||||||
| Minority interest in consolidated companies |
52,513 | 51,281 | ||||||
| Contingencies and commitments |
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| Shareholders’ equity: |
||||||||
| Preferred stock without par value - authorized and unissued: |
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| Serial Preferred Stock - 2,000,000 shares |
||||||||
| Serial Preference Shares - 25,000,000 shares |
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| Common shares without par value: |
||||||||
| Authorized 120,000,000 shares |
||||||||
| Outstanding - 51,618,086 shares as of March 31, 2004 after deducting 34,577,808 treasury shares, 51,588,190 shares as of December 31, 2003 after deducting 34,607,704 treasury shares |
125,198 | 123,770 | ||||||
| Retained earnings |
903,009 | 865,488 | ||||||
| Accumulated other comprehensive loss |
(37,879 | ) | (35,953 | ) | ||||
| Total shareholders’ equity |
990,328 | 953,305 | ||||||
| TOTAL |
$ | 2,045,183 | $ | 1,942,316 | ||||
Amounts shown are unaudited.
See accompanying notes to the financial statements.
3
THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Month Period Ended March 31 |
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| (In Thousands of Dollars) |
2004 |
2003 |
||||||
| Cash provided from (used for): |
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| Operating activities: |
||||||||
| Net income |
$ | 37,525 | $ | 26,023 | ||||
| Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
26,465 | 24,452 | ||||||
| Deferred income taxes |
(3,702 | ) | 1,535 | |||||
| Restructuring charge |
3,506 | |||||||
| Change in current assets and liabilities: |
||||||||
| Receivables |
(58,231 | ) | (34,228 | ) | ||||
| Inventories |
(4,186 | ) | (10,566 | ) | ||||
| Accounts payable, accrued expenses and other current liabilities |
21,310 | (13,558 | ) | |||||
| Other current assets |
178 | (1,002 | ) | |||||
| Other items - net |
525 | (1,947 | ) | |||||
| Total operating activities |
19,884 | (5,785 | ) | |||||
| Investing activities: |
||||||||
| Capital expenditures |
(19,948 | ) | (15,331 | ) | ||||
| Acquisitions |
(133,041 | ) | ||||||
| Other - net |
147 | (235 | ) | |||||
| Total investing activities |
(152,842 | ) | (15,566 | ) | ||||
| Financing activities: |
||||||||
| Short-term borrowings(repayments) - net |
58,663 | (4,225 | ) | |||||
| Long-term repayments |
(21 | ) | (103 | ) | ||||
| Long-term borrowings |
11 | |||||||
| Dividends paid |
(13,415 | ) | (13,379 | ) | ||||
| Stock options exercised |
1,428 | 1,190 | ||||||
| Total financing activities |
46,655 | (16,506 | ) | |||||
| Effect of exchange rate changes on cash |
5,619 | (1,425 | ) | |||||
| Net decrease in cash and short-term investments |
(80,684 | ) | (39,282 | ) | ||||
| Cash and short-term investments at beginning of period |
258,699 | 266,428 | ||||||
| Cash and short-term investments at end of period |
$ | 178,015 | $ | 227,146 | ||||
Amounts shown are unaudited.
See accompanying notes to the financial statements.
4
THE LUBRIZOL CORPORATION
Notes to Consolidated Financial Statements
Amounts in thousands (except per share data)
March 31, 2004
| 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 March 31, 2004 and December 31, 2003, and the results of operations and cash flows for the applicable periods ended March 31, 2004 and 2003. |
| 2. | Net income per share is computed by dividing net income by average common shares outstanding during the period, including contingently issuable shares. Net income per diluted share includes the dilutive effect resulting from outstanding stock options and stock awards. |
Per share amounts are computed as follows:
| Three Month Period Ended March 31 | ||||||
| 2004 |
2003 | |||||
| Numerator: |
||||||
| Net income |
$ | 37,525 | $ | 26,023 | ||
| Denominator: |
||||||
| Weighted average common shares outstanding |
51,799 | 51,643 | ||||
| Dilutive effect of stock options and awards |
188 | 89 | ||||
| Denominator for net income per share, diluted |
51,987 | 51,732 | ||||
| Net income per share |
$ | 0.72 | $ | 0.50 | ||
| Net income per share, diluted |
$ | 0.72 | $ | 0.50 | ||
Weighted average shares issuable upon the exercise of stock options which were excluded from the diluted earnings per share calculations because they were antidilutive were 1.9 million in 2004 and 4.0 million in 2003.
| 3. | The company has elected the intrinsic value method to account for employee stock options. The following table shows the pro forma effect on net income per share if the company had applied the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation. |
| Three Month Period Ended March 31 |
||||||||
| 2004 |
2003 |
|||||||
| Reported net income |
$ | 37,525 | $ | 26,023 | ||||
| Plus: Stock-based employee compensation (net of tax) included in net income |
181 | 181 | ||||||
| Less: Stock-based employee compensation (net of tax) using the fair value method |
(943 | ) | (1,400 | ) | ||||
| Pro forma net income |
$ | 36,763 | $ | 24,804 | ||||
| Reported net income per share |
$ | 0.72 | $ | 0.50 | ||||
| Pro forma net income per share |
$ | 0.70 | $ | 0.47 | ||||