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, 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 October 31, 2004: 66,720,225.
THE LUBRIZOL CORPORATION
Quarterly Report on Form 10-Q
Quarter Ended September 30, 2004
| Page Number | ||||
| PART I. FINANCIAL INFORMATION |
||||
| Item 1 |
Financial Statements (unaudited) |
3 | ||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 | ||
| Item 3 |
54 | |||
| Item 4 |
55 | |||
| PART II. OTHER INFORMATION |
||||
| Item 2 |
56 | |||
| Item 6 |
57 | |||
| 57 | ||||
-2-
PART I. FINANCIAL INF ORMATION
| Item 1. | Financial Statements |
THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
| Three-Month Periods Ended September 30, |
Nine-Month Periods Ended September 30, |
|||||||||||||||
| (In Millions Except Per Share Data) |
2004 |
2003 |
2004 |
2003 |
||||||||||||
| Net sales |
$ | 921.3 | $ | 509.1 | $ | 2,219.4 | $ | 1,530.4 | ||||||||
| Royalties and other revenues |
1.3 | 0.8 | 3.4 | 2.4 | ||||||||||||
| Total revenues |
922.6 | 509.9 | 2,222.8 | 1,532.8 | ||||||||||||
| Cost of sales |
692.1 | 377.5 | 1,648.0 | 1,118.4 | ||||||||||||
| Selling and administrative expenses |
87.5 | 48.7 | 209.5 | 149.6 | ||||||||||||
| Research, testing and development expenses |
51.1 | 41.0 | 137.4 | 123.3 | ||||||||||||
| Amortization of intangible assets |
5.0 | 1.2 | 11.4 | 3.5 | ||||||||||||
| Write-off of (credit for) acquired in-process research and development |
(1.5 | ) | — | 33.5 | — | |||||||||||
| Restructuring charges |
10.5 | 0.4 | 18.5 | 7.4 | ||||||||||||
| Total costs and expenses |
844.7 | 468.8 | 2,058.3 | 1,402.2 | ||||||||||||
| Other income (expense) - net |
0.1 | (1.4 | ) | 2.5 | 0.6 | |||||||||||
| Interest income |
1.2 | 0.9 | 3.0 | 3.0 | ||||||||||||
| Interest expense |
(27.3 | ) | (6.6 | ) | (51.5 | ) | (18.7 | ) | ||||||||
| Income before income taxes |
51.9 | 34.0 | 118.5 | 115.5 | ||||||||||||
| Provision for income taxes |
19.7 | 9.7 | 44.9 | 35.8 | ||||||||||||
| Net income |
$ | 32.2 | $ | 24.3 | $ | 73.6 | $ | 79.7 | ||||||||
| Net income per share, basic |
$ | 0.61 | $ | 0.47 | $ | 1.42 | $ | 1.54 | ||||||||
| Net income per share, diluted |
$ | 0.61 | $ | 0.47 | $ | 1.41 | $ | 1.54 | ||||||||
| Dividends per share |
$ | 0.26 | $ | 0.26 | $ | 0.78 | $ | 0.78 | ||||||||
| Weighted average common shares outstanding |
52.5 | 51.7 | 52.0 | 51.7 | ||||||||||||
Amounts shown are unaudited.
See accompanying notes to the financial statements.
-3-
THE LUBRIZOL CORPORATION
| (In Millions of Dollars) |
September 30, 2004 |
December 31, 2003 |
||||||
| ASSETS |
||||||||
| Cash and short-term investments |
$ | 284.1 | $ | 258.7 | ||||
| Receivables |
595.0 | 324.6 | ||||||
| Inventories: |
||||||||
| Finished products |
280.5 | 150.7 | ||||||
| Products in process |
77.9 | 62.3 | ||||||
| Raw materials |
133.8 | 78.9 | ||||||
| Supplies and engine test parts |
27.4 | 20.0 | ||||||
| 519.6 | 311.9 | |||||||
| Other current assets |
70.4 | 42.7 | ||||||
| Total current assets |
1,469.1 | 937.9 | ||||||
| Property and equipment - net |
1,346.1 | 690.0 | ||||||
| Goodwill |
1,119.5 | 208.7 | ||||||
| Intangible assets - net |
437.4 | 62.4 | ||||||
| Investments in non-consolidated companies |
6.9 | 6.3 | ||||||
| Other assets |
59.6 | 37.0 | ||||||
| TOTAL |
$ | 4,438.6 | $ | 1,942.3 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Short-term debt and current portion of long-term debt |
$ | 53.4 | $ | 2.9 | ||||
| Accounts payable |
258.6 | 143.1 | ||||||
| Accrued expenses and other current liabilities |
343.6 | 153.5 | ||||||
| Total current liabilities |
655.6 | 299.5 | ||||||
| Long-term debt |
1,997.6 | 386.7 | ||||||
| Postretirement health care obligations |
103.4 | 98.4 | ||||||
| Noncurrent liabilities |
162.4 | 100.3 | ||||||
| Deferred income taxes |
87.7 | 52.8 | ||||||
| Total liabilities |
3,006.7 | 937.7 | ||||||
| Minority interest in consolidated companies |
52.5 | 51.3 | ||||||
| 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 - 65,370,580 shares as of September 30, 2004 after deducting 20,825,103 treasury shares, 51,588,190 shares as of December 31, 2003 after deducting 34,607,704 treasury shares |
564.9 | 123.8 | ||||||
| Retained earnings |
895.2 | 865.5 | ||||||
| Accumulated other comprehensive loss |
(80.7 | ) | (36.0 | ) | ||||
| Total shareholders’ equity |
1,379.4 | 953.3 | ||||||
| TOTAL |
$ | 4,438.6 | $ | 1,942.3 | ||||
Amounts shown are unaudited.
See accompanying notes to the financial statements.
-4-
THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine-Month Periods Ended September 30, |
||||||||
| (In Millions of Dollars) |
2004 |
2003 |
||||||
| Cash provided by (used for): |
||||||||
| Operating activities: |
||||||||
| Net income |
$ | 73.6 | $ | 79.7 | ||||
| Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
108.8 | 74.1 | ||||||
| Write-off of acquired in-process research and development |
33.5 | — | ||||||
| Deferred income taxes |
(6.6 | ) | 4.2 | |||||
| Restructuring charges |
2.8 | 3.3 | ||||||
| Change in current assets and liabilities: |
||||||||
| Receivables |
(79.5 | ) | (18.8 | ) | ||||
| Inventories |
(17.8 | ) | (13.3 | ) | ||||
| Accounts payable, accrued expenses and other current liabilities |
55.1 | (24.3 | ) | |||||
| Other current assets |
9.4 | 2.9 | ||||||
| Other items - net |
13.3 | 5.9 | ||||||
| Total operating activities |
192.6 | 113.7 | ||||||
| Investing activities: |
||||||||
| Capital expenditures |
(82.4 | ) | (59.5 | ) | ||||
| Acquisitions - net of cash received and liabilities assumed |
(958.2 | ) | (67.5 | ) | ||||
| Other items - net |
1.5 | 0.5 | ||||||
| Total investing activities |
(1,039.1 | ) | (126.5 | ) | ||||
| Financing activities: |
||||||||
| Changes in short term debt - net |
(69.7 | ) | (6.4 | ) | ||||
| Repayments of long-term debt |
(1,118.0 | ) | (0.2 | ) | ||||
| Proceeds from issuance of long-term debt |
1,743.2 | — | ||||||
| Dividends paid |
(40.3 | ) | (40.2 | ) | ||||
| Proceeds from sale of common shares, net of underwriting commissions and offering expenses of $18.4 million |
427.2 | — | ||||||
| Payment of debt issuance costs |
(16.8 | ) | — | |||||
| Payment of treasury rate lock settlement |
(73.9 | ) | — | |||||
| Proceeds from the exercise of stock options |
12.8 | 3.7 | ||||||
| Total financing activities |
864.5 | (43.1 | ) | |||||
| Effect of exchange rate changes on cash |
7.4 | 4.7 | ||||||
| Net increase (decrease) in cash and short-term investments |
25.4 | (51.2 | ) | |||||
| Cash and short-term investments at beginning of period |
258.7 | 266.4 | ||||||
| Cash and short-term investments at end of period |
$ | 284.1 | $ | 215.2 | ||||
Amounts shown are unaudited.
See accompanying notes to the financial statements.
-5-
THE LUBRIZOL CORPORATION
Notes to Consolidate d Financial Statements
September 30, 2004