Ethyl Corp. Reports Second Quarter and Six Month 2002 Results
RICHMOND, Va.--Aug. 2, 2002--Ethyl Corp. :| -- | Petroleum additives earnings improve significantly |
| -- | Debt reduced $12.6 million in second quarter |
| -- | Shareholders approve one-for-five reverse stock split |
| -- | TEL earnings decline |
Ethyl Corporation President and Chief Executive Officer, Thomas E. (Teddy) Gottwald today released the following earnings report for the second quarter and first half of 2002 and update on the company's operations. All per share information reflects the impact of the one-for-five reverse stock split.
To Our Shareholders:
Earnings excluding nonrecurring items for the second quarter 2002 were income of $1.4 million or 9 cents per share while earnings for six months on this basis were $2.3 million or 14 cents per share. On this same basis, earnings for the second quarter last year were $5.1 million or 30 cents per share while six months results amounted to income of $8.6 million or 52 cents per share. Net income for this year's and last year's periods include significant nonrecurring items. These nonrecurring items are included in the summary of earnings chart at the end of this press release.
The petroleum additives segment operating profit excluding nonrecurring items improved significantly over the same period last year. Second quarter 2002 petroleum additives operating profit improved 26 percent while the improvement in operating profit for the first half of the year was 27 percent compared to the same period last year. Petroleum additives operating profit in the second quarter was the best quarterly result this segment has had in over two years. The actions we have taken to more fully leverage our technology and product portfolio and strengthen our product marketing and regional teams are improving our results. The improved petroleum additives profit also reflects the combined impact of improved asset utilization resulting in lower manufacturing cost following our restructuring initiatives as well as somewhat lower raw material cost.
Earnings also benefited from lower corporate and interest expense due to our cost reduction and debt reduction initiatives. This strong improvement in petroleum additives earnings was more than offset by the combined impact of lower TEL earnings, lower non-cash pension income and a negative impact related to foreign currency. The lower non-cash pension income reduced earnings 16 cents per share for the quarter and 33 cents for the six months versus the same periods last year.
The second quarter and six months 2002 TEL segment operating profits were lower than the same periods last year largely reflecting the significant quarterly swings in shipments and profits which are characteristics of this business. While the first half of 2001 included 64 percent of TEL earnings for the year, we expect the second half of 2002 to be the stronger TEL earnings period for this year. TEL earnings in 2001 also benefited from the sale of the remaining TEL inventory to be sold to Octel, which they purchased under our TEL agreement with them. While this product continues to supply strong cash flows, TEL earnings for the year will be lower than last year as the product continues to be phased out around the world
We made excellent progress on debt reduction during the second quarter. We reduced debt $12.6 million and also made payments of $9.6 million related to the required funding associated with the amendment of our TEL marketing agreements. The remaining funding requirements related to these agreements are now expected to be completed in the second half of this year. We also expect to make further progress on debt reduction in the second half of the year.
We are extremely pleased with the progress on our goal of improving the profitability in our petroleum additives business. Our operating profits in this business have improved in essentially all of our regions and major product lines compared to the same periods last year. We made significant progress on debt reduction in the second quarter and are on target to meet our debt reduction objectives for the year. Instability in the world economy and increasing raw material costs add a degree of uncertainty to the future; however, the entire Ethyl team is making steady gains in generating profitable growth opportunities. The actions we have taken and the strategies in place position us to continue this progress.
Sincerely, Teddy Gottwald
Earnings for the second quarter and six months include significant nonrecurring items. A summary of earnings totaling net income under generally accepted accounting principles is included below as part of the earnings release.
Summary of earnings for the Second Quarter and Six Months:
Second Quarter Six Months
Ended Ended
June 30 June 30
------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
Net (loss) income:
Earnings excluding
nonrecurring items $ 1.4 $ 5.1 $ 2.3 $ 8.6
Nonrecurring items (1) (3.9) (99.9) (3.9) (114.7)
Cumulative effect of accounting
change for goodwill write-off -- -- (2.5) --
------- ------ ------- --------
Net (loss) $ (2.5) $(94.8) $ (4.1) $ (106.1)
======= ====== ======= ========
Basic and diluted (loss)
earnings per share:
Earnings excluding
nonrecurring items $ 0.09 $ 0.30 $ 0.14 $ 0.52
Nonrecurring items (1) (0.23) (5.98) (0.23) (6.87)
Cumulative effect of accounting
change for goodwill write-off -- -- (0.15) --
------- ------ ------ --------
Net (loss) $ (0.14) $(5.68) $(0.24) $ (6.35)
======= ====== ====== ========
(1) Details included in notes to accompanying financial
statements.
Some of the information contained in this press release
constitutes forward-looking comments within the meaning of the Private
Securities Litigation Reform Act of 1995. Although Ethyl's management
believes its expectations are based on reasonable assumptions within
the bounds of its knowledge of its business and operations, there can
be no assurance that actual results will not differ materially from
expectations. Factors that could cause actual results to differ from
expectations are included in Ethyl's latest annual report to
shareholders, which is available upon request.
Segment Results and Other Financial Information
Ethyl Corporation and Subsidiaries
(In millions except per share
amounts, unaudited)
Second Quarter Six Months
----------------- -----------------
2002 2001 2002 2001
------ ------ ------ ------
Net sales (a):
Petroleum additives $172.5 $175.5 $321.4 $381.4
Tetraethyl lead 3.0 2.1 4.7 13.5
------ ------ ------ -------
Total $175.5 $177.6 $326.1 $394.9
====== ====== ====== =======
Segment operating profit (loss):
Petroleum additives before
nonrecurring items $ 13.3 $ 10.6 $ 24.0 $ 18.9
Nonrecurring items (b) 0.3 (50.3) (1.2) (73.6)
------ ------ ------ ------
Total petroleum additives 13.6 (39.7) 22.8 (54.7)
Tetraethyl lead 3.4 10.0 7.8 20.6
Nonrecurring items (b) -- -- (1.6) --
------ ------ ------ ------
Total tetraethyl lead 3.4 10.0 6.2 20.6
Segment operating profit
(loss) 17.0 (29.7) 29.0 (34.1)
Add back current year
nonrecurring item to
reconcile Segment Reporting
to Consolidated Statements
of Income (c) -- -- 3.1 --
Corporate unallocated
expense (4.0) (5.1) (6.3) (11.0)
Interest expense (6.6) (9.8) (13.6) (18.0)
Pension settlement expense
including second quarter 2001
excise tax provision(b) -- (88.2) -- (88.2)
Pension (expense) income (1.5) 2.8 (3.0) 5.6
Other (expense) income,
net (b) (6.6) (1.0) (9.6) (3.1)
------- ----- ----- ------
Loss before income taxes $ (1.7) $(131.0) $(0.4) $(148.8)
======= ======= ====== ======
Net (loss) income:
Earnings excluding
nonrecurring items $ 1.4 $ 5.1 $ 2.3 $ 8.6
Nonrecurring items (b) (3.9) (99.9) (6.4) (114.7)
------- ------- ------ ------
Net (loss) income: $ (2.5) $ (94.8) $(4.1) $(106.1)
======= ======= ====== =======
Basic and diluted earnings
(loss) per share: (d)
Earnings excluding
nonrecurring items $ 0.09 $ 0.30 $ 0.14 $ 0.52
Nonrecurring items (b) (0.23) (5.98) (0.38) (6.87)
-------- ------- ------ ------
Net (loss) income $ (0.14) $ (5.68) $(0.24) $ (6.35)
======== ======= ====== =======
(a) Certain amounts have been reclassified to conform to the current
presentation.
(b) Nonrecurring items after income taxes are shown below. The engine
oil additives rationalization and write-off of goodwill are
included in segment operating profit. The (loss) gain on
impairments and sale of nonoperating assets are reported in other
(expense) income, net.
(Loss) gain on impairments and
sale of nonoperating assets (4.1) 0.6 (4.1) 0.6
Write-off of goodwill -- -- (2.5) --
Engine oil additives
rationalization:
Write-off assets -- (18.4) -- (25.8)
Severance, early retirement,
and other costs 0.2 (13.2) 0.2 (20.6)
Pension settlement expense
including second quarter 2001
excise tax provision -- (68.9) -- (68.9)
------- ------- ------ ------
$ (3.9) $ (99.9) $ (6.4) $(114.7)
======= ======== ======== =======
(c) For segment reporting, the write-off of goodwill is shown in
operating profit as a nonrecurring item in 2002. In the
Consolidated Statement of Income, the write-off is shown as a
cumulative effect of an accounting change.
(d) Basic and diluted earnings (loss) per share have been restated for
all periods presented to reflect the 1-for-5 reverse stock split.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts, unaudited)
ETHYL CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
-------- -------- -------- ---------
Net sales(a) $175,446 $177,643 $326,060 $ 394,903
Cost of goods sold(a,b,c) 138,621 173,364 257,227 360,449
------- ------- ------- -------
Gross profit 36,825 4,279 68,833 34,454
TEL marketing agreements
services 4,446 11,532 10,162 19,614
Selling, general, and
administrative expenses 19,342 16,717 35,811 35,187
Research, development, and
testing expenses (c) 13,356 14,288 25,588 32,279
Special items expense (c)(d) - (106,261) - (116,968)
------ ------- ------ -------
Operating profit (loss) 8,573 (121,455) 17,596 (130,366)
Interest and financing expenses 6,562 9,783 13,600 17,977
Other (expense) income, net(e) (3,734) 299 (4,420) (395)
------ ------- ------ -------
Loss before income taxes (1,723) (130,939) (424) (148,738)
Income tax expense (benefit) 739 (36,155) 1,155 (42,687)
------ ------- ------ -------
Loss before cumulative effect
of accounting change (2,462) (94,784) (1,579) (106,051)
Cumulative effect of accounting
change for goodwill write-off
(net of tax)(f) - - (2,505) -
------ ------ ------ -------
Net loss $(2,462) $(94,784) $(4,084) $(106,051)
====== ====== ====== =======
Basic and diluted loss per
share(g):
Loss before cumulative
effect of accounting
change $ (0.14) $ (5.68) $ (0.09) $ (6.35)
Cumulative effect of
accounting change for
goodwill write-off
(net of tax)(f) - - (0.15) -
----- ----- ----- -----
$ (0.14) $ (5.68) $ (0.24) $ (6.35)
===== ===== ===== =====
Shares used to compute basic
and diluted loss per share(g) 16,691 16,691 16,691 16,691
====== ====== ====== ======
Notes to Consolidated Statements of Income
(a) Certain amounts have been reclassified to conform to the current
presentation.
(b) During first quarter 2001, certain TEL inventories were
permanently reduced resulting in a liquidation of LIFO layers.
This LIFO liquidation decreased cost of goods sold by $1.5 million
and increased net income by $900 thousand or $.06 per share.
(c) Asset writedowns, severance, early retirement, and other costs
related to the rationalization of our engine oil additives product
lines were $50.3 million ($31.6 million after tax or $1.89 per
share) for second quarter 2001 and $73.6 million ($46.4 million
after tax or $2.78 per share) for six months 2001. These costs are
included in the Consolidated Statements of Income as follows:
Cost of goods sold $ (31.0) $ (41.8)
Research, development, and testing expenses (1.2) (3.0)
Special items expense (18.1) (28.8)
------- -------
$ (50.3) $ (73.6)
======= =======
(d) In addition to the 2001 special items expense shown in Note(c),
there was a recognition of a $62 million noncash loss ($42.7
million after tax or $2.56 per share) on the settlement of pension
liabilities related to the termination of our U.S. salaried
pension plan and a $26.2 million charge ($26.2 after tax or $1.57
per share) related to excise tax on the pension reversion.
(e) Other (expense) income, net includes a loss on the impairment of
nonoperating assets for second quarter 2002 and six months 2002 of
$4.1 million ($4.1 million after tax or $.24 per share), as well
as expenses related to debt refinancing activities of $1.0 million
for six months 2002. Other (expense) income, net in second quarter
2001 includes $1.0 million income ($600 thousand after tax or $.04
per share) related to the gain on the sale of a nonoperating
asset.
(f) In conformity with Statement of Financial Accounting Standards No.
142, during the first quarter 2002, we wrote-off goodwill of $3.1
million ($2.5 million after tax or $.15 per share.)
(g) The number of shares, as well as basic and diluted loss per share,
have been restated to reflect the 1-for-5 reverse stock split.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ETHYL CORPORATION AND SUBSIDIARIES
June 30
2002 December 31
(unaudited) 2001
ASSETS -------- --------
Current assets:
Cash and cash equivalents $ 15,145 $ 12,382
Restricted cash 771 996
Trade and other accounts receivable, less
allowance for doubtful accounts
($897 - 2002; $889 - 2001) 129,604 121,261
Receivable - TEL marketing agreements
services 7,545 16,935
Inventories 106,893 121,458
Deferred income taxes and prepaid expenses 15,838 11,742
------- -------
Total current assets 275,796 284,774
------- -------
Property, plant and equipment, at cost 760,675 760,649
Less accumulated depreciation and
amortization 553,445 544,892
------- -------
Net property, plant and equipment 207,230 215,757
------- -------
Prepaid pension cost 23,670 25,731
Deferred income taxes 12,175 12,440
Other assets and deferred charges 81,926 102,007
Goodwill and other intangibles, net of
amortization 72,693 78,916
------- -------
Total assets $673,490 $719,625
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,840 $ 54,376
Accrued expenses 43,419 59,907
Long-term debt, current portion(a) 298,478 30,504
Income taxes payable 10,809 14,648
------- -------
Total current liabilities 398,546 159,435
------- -------
Long-term debt 23,931 305,453
Other noncurrent liabilities 105,192 109,444
Shareholders' equity
Common stock ($1 par value)
Issued - 16,690,930 in 2002 and
83,454,650 in 2001(b) 16,691 83,455
Additional paid in capital(b) 66,764 -
Accumulated other comprehensive loss (22,558) (27,170)
Retained earnings 84,924 89,008
------- -------
145,821 145,293
------- -------
Total liabilities and shareholders' equity $673,490 $719,625
======= =======
(a) The current maturity date of our bank loans is March 31, 2003.
While it is our intent to extend these loans, the amounts
outstanding are classified as current in accordance with generally
accepted accounting principles.
(b) Common stock and additional paid in capital have been restated for
the June 30, 2002 balance sheet to reflect the 1-for-5 reverse
stock split.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
ETHYL CORPORATION AND SUBSIDIARIES
Six Months Ended
June 30
---------------------
2002 2001
-------- -------
Cash and cash equivalents at beginning of year $12,382 $ 4,470
Cash flows from operating activities:
Net loss (4,084) (106,051)
Adjustments to reconcile net loss to cash
flows from operating activities:
Depreciation and amortization (a) 27,141 71,750
Write-off of goodwill 3,120 -
Accrued severance, early retirement and other
engine oil additives rationalization charges - 27,428
Deferred income taxes (4,361) (91,775)
Prepaid pension cost 2,957 (5,628)
Net loss (gain) on impairments and sale of
assets 4,033 (956)
Pension reversion - 26,154
Loss on pension contract settlements - 62,000
TEL working capital advance 479 -
Working capital changes 4,653 49,331
Other, net 4,396 (619)
------- -------
Cash provided from operating activities 38,334 31,634
-------- -------
Cash flows from investing activities:
Capital expenditures (7,248) (4,864)
Prepayment for TEL marketing agreements
services (12,800) -
Equity investments - (1,250)
Proceeds from sale of certain assets - 2,873
Other, net 7 (16)
-------- -------
Cash used in investing activities (20,041) (3,257)
-------- -------
Cash flows from financing activities:
Repayment of term loans (43,640) (60,000)
Net borrowings 30,340 44,059
Debt issuance costs (1,982) (9,792)
Other, net (248) 1,074
-------- --------
Cash used in financing activities (15,530) (24,659)
-------- --------
Increase in cash and cash equivalents 2,763 3,718
-------- --------
Cash and cash equivalents at end of period $15,145 $ 8,188
======== ========
Notes to the Condensed Consolidated Statements of Cash Flows
(a) Six months 2001 includes $41.2 million of accelerated depreciation
for the engine oil additives facilities indefinitely idled in
2001.