-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, nJeFBKFFJbKBi2goTtiQHUqAZ8lJqFewkf4S36LqJnkuU3oiFS229gfD7YRFvOJe ijAtoxXEGbgEObUlzr0oMA== 0000060751-94-000021.txt : 19941116 0000060751-94-000021.hdr.sgml : 19941116 ACCESSION NUMBER: 0000060751-94-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUBRIZOL CORP CENTRAL INDEX KEY: 0000060751 STANDARD INDUSTRIAL CLASSIFICATION: 2890 IRS NUMBER: 340367600 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05263 FILM NUMBER: 94559057 BUSINESS ADDRESS: STREET 1: 29400 LAKELAND BLVD CITY: WICKLIFFE STATE: OH ZIP: 44092 BUSINESS PHONE: 2169434200 MAIL ADDRESS: STREET 1: 29400 LAKELAND BLVD CITY: WICKLIFFE STATE: OH ZIP: 44092 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of October 31, 1994: 65,035,630 PART I. FINANCIAL INFORMATION THE LUBRIZOL CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars)
September 30 December 31 1994 1993 ------------ ----------- ASSETS Cash and short-term investments....................... $ 45,720 $ 24,220 Receivables........................................... 253,389 225,603 Inventories: Finished products................................... 84,603 89,817 Products in process................................. 94,969 92,067 Raw materials and supplies.......................... 102,401 102,653 ---------- ---------- 281,973 284,537 ---------- ---------- Other current assets.................................. 36,124 34,553 ---------- ---------- Total current assets............... 617,206 568,913 Property and equipment - net.......................... 520,620 437,635 Investments in nonconsolidated companies.............. 164,969 103,246 Intangible and other assets........................... 75,719 72,786 ---------- ---------- TOTAL.......................... $1,378,514 $1,182,580 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt....................................... $ 75,775 $ 14,590 Accounts payable...................................... 105,009 116,775 Income taxes and other current liabilities............ 102,857 92,883 ---------- ---------- Total current liabilities........... 283,641 224,248 Long-term debt........................................ 57,887 55,298 Accumulated postretirement benefit obligation......... 95,834 89,423 Noncurrent liabilities................................ 71,290 70,022 Deferred income taxes................................. 29,278 11,353 ---------- ---------- Total liabilities................... 537,930 450,344 ---------- ---------- Amounts shown are unaudited.
PART I. FINANCIAL INFORMATION THE LUBRIZOL CORPORATION CONSOLIDATED BALANCE SHEETS (Continued) (In Thousands of Dollars)
September 30 December 31 1994 1993 ------------ ----------- LIABILITIES AND SHAREHOLDERS' EQUITY (Continued) Commitments and contingencies Shareholders' equity: Preferred stock without par value - unissued Common Shares without par value: Authorized 120,000,000 shares Outstanding - 65,222,403 shares as of September 30, 1994 after deducting 20,973,491 treasury shares, 66,590,028 shares as of December 31, 1993 after deducting 19,605,866 treasury shares........ 84,189 80,830 Retained earnings................................... 726,978 683,269 Unrealized gain on marketable securities............ 37,984 Accumulated translation adjustment.................. (8,567) (31,863) ---------- ---------- Total shareholders' equity......... 840,584 732,236 ---------- ---------- TOTAL.......................... $1,378,514 $1,182,580 ========== ========== Amounts shown are unaudited.
THE LUBRIZOL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per Share Data)
Third Quarter Nine Months Ended September 30 Ended September 30 --------------------- ------------------------ 1994 1993 1994 1993 -------- -------- ---------- ---------- Net sales............................ $396,478 $390,819 $1,201,457 $1,148,635 Royalties and other revenues......... 1,377 1,946 4,595 5,788 -------- -------- ---------- ---------- Total revenues............. 397,855 392,765 1,206,052 1,154,423 Cost of sales........................ 261,877 261,594 806,925 779,617 Selling and administrative expenses.. 38,626 40,088 117,657 117,980 Research, testing and development expenses........................... 41,893 45,394 120,683 126,158 -------- -------- ---------- ---------- Total cost and expenses.... 342,396 347,076 1,045,265 1,023,755 Special charge....................... (86,303) (86,303) Gain on sale of investments.......... 12,019 20,108 35,406 20,108 Other income (expense) - net......... 1,904 (7,263) 8,385 5,723 Interest income...................... 952 1,389 2,862 3,005 Interest expense..................... (494) (1,069) (1,988) (3,869) -------- -------- ---------- ---------- Income (loss) before income taxes.... 69,840 (27,449) 205,452 69,332 Provision (benefit) for income taxes. 21,907 (11,544) 65,106 18,464 -------- -------- ---------- ---------- Income (loss) before accounting changes............................ 47,933 (15,905) 140,346 50,868 Cumulative effect of accounting changes............................ (39,375) -------- -------- ---------- ---------- Net income (loss).................... $ 47,933 $(15,905) $ 140,346 $ 11,493 ======== ======== ========== ========== Per Common Share: Income (loss) before accounting changes.......................... $ .73 $(.24) $2.13 $ .75 Cumulative effect of accounting changes.......................... (.58) ----- ----- ----- ----- Net income (loss) per share.......... $ .73 $(.24) $2.13 $ .17 ===== ===== ===== ===== Dividends declared per share......... $ .22 $ .21 $ .66 $ .63 ===== ===== ===== ===== Average number of shares outstanding. 65,486 67,464 65,982 67,961 Amounts shown are unaudited.
THE LUBRIZOL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars)
Nine Months Ended September 30 ---------------------------- 1994 1993 ---------- ---------- Cash provided from (used for): Operating activities: Received from customers............................... $1,186,248 $1,122,210 Paid to suppliers and employees....................... (1,010,730) (960,023) Income taxes paid..................................... (50,266) (35,430) Interest and dividends received....................... 4,582 4,200 Interest paid......................................... (1,887) (3,441) Other - net........................................... 2,510 3,031 ---------- ---------- Total operating activities.................. 130,457 130,547 Investing activities: Capital expenditures.................................. (111,479) (83,516) Acquisition........................................... (1,502) (25,581) Proceeds from sale of investments..................... 37,713 21,132 Other - net........................................... (366) 426 ---------- ---------- Total investing activities (75,634) (87,539) Financing activities: Short-term borrowings................................. 60,487 18,291 Long-term borrowings.................................. 102 21,471 Long-term debt repayment.............................. (2,007) (22,796) Dividends paid........................................ (43,660) (42,865) Common shares purchased, net of options exercised..... (51,495) (41,931) ---------- ---------- Total financing activities.................. (36,573) (67,830) Effect of exchange rate changes on cash............... 3,250 1,250 ---------- ---------- Net increase (decrease) in cash and short-term investments........................................ 21,500 (23,572) Cash and short-term investments at the beginning of period................................ 24,220 76,593 ---------- ---------- Cash and short-term investments at the end of period...................................... $ 45,720 $ 53,021 Amounts shown are unaudited.
THE LUBRIZOL CORPORATION Notes to Consolidated Financial Statements September 30, 1994 1. The accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position as of September 30, 1994 and December 31, 1993, and the results of operations and the cash flows for the quarters and nine months ended September 30, 1994 and 1993. 2. The company adopted SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities" as of January 1, 1994. SFAS 115 requires that certain investments in debt and equity securities be reported at fair value, rather than historical cost. Certain of the company's marketable equity securities, included in investments in nonconsolidated companies, are classified as available-for-sale. The effect of adopting SFAS 115 at January 1, 1994 was to increase investments in nonconsolidated companies by $99.2 million, increase shareholders' equity by $64.5 million and increase deferred tax liabilities by $34.7 million. At September 30, 1994, investments classified as available-for-sale had a cost basis of $4.6 million and an aggregate fair value of $63.0 million resulting in unrealized gains of $58.4 million or $38.0 million after tax. There were no unrealized losses. Investments in nonconsolidated companies also includes investments in certain marketable securities not affected by SFAS 115. The market value of these investments exceed the book carrying value by $25.5 million at September 30, 1994. 3. The following is a reconciliation of net income to net cash provided by operating activities: Nine Months Ended September 30 --------------------- 1994 1993 -------- -------- (in thousands of dollars) Net income $140,346 $ 11,493 Depreciation and amortization 48,122 45,766 Deferred income taxes 902 (32,647) Undistributed earnings of nonconsolidated companies (4,078) (2,483) Special charge 86,303 Gain on sale of investments (35,406) (20,108) Change in current assets and liabilities: Accounts receivable (19,804) (33,715) Inventory 13,435 (1,800) Accounts payable and accrued expenses (2,212) 30,196 Other current assets (6,891) 6,339 Cumulative effect of changes in accounting principles 39,375 Other items - net (3,957) 1,828 -------- -------- Net cash provided by operating activities $130,457 $130,547 ======== ======== THE LUBRIZOL CORPORATION Notes to Consolidated Financial Statements September 30, 1994 In the third quarter of 1994, the company donated to The Lubrizol Foundation Genentech stock having a market value at the date of contribution of $4.9 million. Included in "Other items-net" is the $4.9 million contribution expense and the related $4.7 million gain representing the excess of market value over the cost of shares contributed. 4. 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 relates 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, is $129 million. The company has obtained a bond to stay enforcement of the judgment pending the company's appeal discussed below. The original December 1992 finding of willful infringement, as well as the jury's determination that the patent is valid, remains on appeal to the United States Court of Appeals for the Federal Circuit Court in Washington, D.C., which has jurisdiction over all patent cases. Oral arguments on this appeal were held on December 6, 1993, and the company does not know when a decision will be announced. This decision could reverse or modify the judgment against the company. In addition, the company has appealed the February 1994 damages award to the same court in Washington, D.C. The company's management continues to believe that it has not infringed the Exxon patent and that the patent is invalid. Based on the advice of legal counsel, management believes that the December 1992 trial court judgment will not be upheld on appeal. Therefore, no amount related to the judgment has been recorded in the company's financial statements. 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. THE LUBRIZOL CORPORATION Notes to Consolidated Financial Statements September 30, 1994 5. Effective January 1, 1993, the company changed its method of accounting for postretirement benefits to conform with SFAS 106 and its method of accounting for income taxes to conform with SFAS 109. The cumulative effect at January 1, 1993 of these accounting changes was to decrease net income by $51.5 million for the change in accounting for postretirement benefits and to increase net income by $12.1 million for the change in accounting for income taxes. 6. Special Charge The company recorded a special charge of $86.3 million ($.83 per share after tax) in the third quarter of 1993 in connection with manufacturing rationalization and organizational realignment initiatives. The manufacturing rationalization plan is resulting in cost savings from a reduction in the number of employees, lower operating costs and fewer manufacturing units used to produce intermediate products. The organizational realignment relates to the consolidation of the company's nonmanufacturing activities and has reduced expenses through operating efficiencies and fewer employees. From initiation through completion, the special charge will involve outlays of cash of approximately $36 million, primarily for early retirements. Approximately $4 million was expended during the fourth quarter of 1993, and approximately $17 million has been expended in the first nine months of 1994. THE LUBRIZOL CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Revenues increased compared to the previous year's periods by $5.1 million or 1% for the third quarter and $51.6 million or 5% for the nine months ended September 30, 1994. These revenue increases were a result of higher average selling prices (including the impact of product mix and currency) of 5% for the quarter and 3% for the nine months ended September 30, 1994, compared to the prior year periods. Increased price levels for higher performing products introduced late in 1993 to meet new passenger car motor oil standards in the U.S. markets, combined with price increases in the first quarter of 1994, resulted in higher average selling prices in the North American market for the quarter and nine months ended September 30, 1994. Additionally, favorable product mix and currency in international markets contributed to the third quarter increase in average selling prices. Volume decreased 4% in the third quarter of 1994 compared to the third quarter of 1993. This decrease is primarily a result of the continued economic weakness in Europe and order patterns in the Asia-Pacific region. Volume increased 2% for the nine months ended September 30, 1994, primarily due to spot business in the Middle East during the first half of 1994. Gross profit (sales less cost of sales) increased 4% to $134.6 million for the third quarter and 7% to $394.5 million for the first nine months of 1994. Gross profit as a percentage of sales increased from 33.1% to 33.9% for the third quarter and from 32.1% to 32.8% for the nine months ended September 30, 1994. These improvements in the gross profit percentages were primarily a result of higher average selling prices. Raw material costs (including the impact of product mix and currency) increased 3% in the third quarter compared to the second quarter and are expected to increase further during the fourth quarter of 1994. The higher material costs may result in a decrease in the gross profit percentage for the fourth quarter compared to the second and third quarters of 1994. Selling and administrative expenses for the third quarter decreased $1.5 million or 4% compared to the previous year's period and decreased slightly for the comparable nine month period. The decreases were caused by a decline in the number of employees as a result of early retirements related to the company's realignment initiative, a focus on reduced spending and lower legal expenses. Research, testing and development expenses (technology expenses) decreased $3.5 million or 8% for the quarter and $5.5 million or 4% for the nine month period. These decreases were primarily attributable to completion of testing required for passenger car motor oil specification upgrades, the decline in the number of employees and increased efficiencies in the product development process. THE LUBRIZOL CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS (Continued) The company sold approximately 250,000 shares of Genentech, Inc. common stock in each of the first three quarters of 1994 resulting in pretax gains of $12.0 million (12 cents per share after tax) for the third quarter and $35.0 million (35 cents per share after tax) for the first nine months. During 1993, the company had pretax gains on the sale of Genentech shares of $20.1 million for both the quarter and nine months ended September 30. The company owned 1.15 million Genentech shares at September 30, 1994, and management anticipates continuing to sell Genentech common stock. The change in other income for the quarter and year-to-date periods was primarily a result of equity earnings and related dividend income from the company's investment in Mycogen Corporation. Compared to 1993, such equity earnings and related dividend income in 1994 were favorable by $7.8 million for the third quarter and $3.1 million for the nine months as a result of a lower ownership percentage in the agribusiness joint venture. Mycogen's income is seasonal, with the majority of income recorded during the first half of the year, and losses expected to be recorded during the second half of the year. The equity losses for 1994 are expected to be lower than the losses recorded in 1993 because of improved Mycogen results and the company's lower agribusiness joint venture ownership percentage. The company's results are affected by the strengthening or weakening of the U.S. dollar against other currencies in which the company transacts business. For the quarter and nine months ended September 30, 1994, the effect of currency fluctuations on earnings was not significant. Primarily as a result of the above factors, income before tax (excluding the gain on sale of investments in each period and the impact of the special charge and accounting changes in 1993) increased $19.1 million or 49% in the third quarter and $34.5 or 25% for the nine month period. WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations was $130.5 million in each of the nine month periods ended September 30, 1994 and 1993. Short-term debt increased $60.5 million during the nine months ended September 30, 1994, and proceeds from the sale of investments were $37.7 million. Cash received from customers and short-term borrowings were used for working capital needs, capital expenditures, share repurchases and dividends. Proceeds from the sale of investments were used to support the company's share repurchase program. Construction of new technical and administrative facilities at the company headquarters and increased capital investment in plant and equipment equally contributed to the 34% increase in capital expenditures for the nine months ended September 30, 1994, compared to the same period in 1993. The company has approximately 1.46 million shares remaining on its share repurchase authorization, and management expects to continue its share repurchases. As a result of the above and the other items set forth in the consolidated statements of cash flows, cash and short-term investments increased $21.5 million to $45.7 million at September 30, 1994. THE LUBRIZOL CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations The company recorded a special charge of $86.3 million in the third quarter of 1993 in connection with manufacturing rationalization and organizational realignment initiatives. Overall, these initiatives are expected to be implemented over the next several years with completion expected in 1997. The special charge initiatives were projected to involve outlays of cash of approximately $36 million through full implementation with the remainder of the charge consisting of asset write-downs. Partially offsetting the cash outlays will be cash savings which are expected to grow to approximately $40 million annually when the plans are fully implemented. Through September 30, 1994, cash expenditures have totaled approximately $21 million, of which $17 million was spent in 1994. The company's financial position continues to be strong with a ratio of current assets to current liabilities of 2.2 to 1 at September 30, 1994, and 2.5 to 1 at December 31, 1993. Under a currently effective shelf registration statement, the company has the ability to offer to the public up to $100 million of debt securities. Management believes the company's internally generated funds as well as its credit facilities and proceeds available from debt issuable under the shelf registration will be sufficient to meet its cash requirements. As discussed in Note 4 to the financial statements, the company is involved in patent litigation with Exxon Corporation in various countries. Determinations of liability against the company in the U.S., which is subject to appeal, and against Exxon in Canada have been made by the courts. Management is unable to predict the eventual outcomes of this litigation and, therefore, their impact on future cash flows is not known. If Exxon prevails in the U.S., management believes the company has sufficient financial resources to meet any resulting obligation and, other than a potential one- time charge against income, the litigation would not have a material adverse effect on future results of operations. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (11) Computation of Per Share Earnings (b) There were no reports on Form 8-K filed for the quarter ended September 30, 1994. 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 14, 1994 EX-11 2 EXHIBIT 11 THE LUBRIZOL CORPORATION Computation of Per Share Earnings Third Quarter, 1994 The computation of primary earnings per share and fully diluted earnings per share is as follows: (In Thousands of Shares Except Per Share Data) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1994 1993 1994 1993 ------ ------ ------ ------ Average shares outstanding for computation of primary earnings per share 65,486 67,464 65,982 67,961 Add adjustment to treat shares for options exercised as if such shares were outstanding during the entire period 5 69 90 141 Add equivalent shares for unexercised options at end of period* 397 580 496 580 ------ ------ ------ ------ Average shares outstanding for computation of fully diluted earnings per share 65,888 68,113 66,568 68,682 ====== ====== ====== ====== Primary earnings per share $ .73 $(.24) $2.13 $.17 ===== ===== ===== ==== Fully diluted earnings per share $ .73 $(.23) $2.11 $.17 ===== ===== ===== ==== *Computed under the "Treasury Stock Method" using the higher of quoted ending or average market price. EX-27 3
5 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. 0000060751 THE LUBRIZOL CORPORATION 1,000 U.S. DOLLARS 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 1.0 45,720 0 255,074 1,685 281,973 617,206 1,232,938 712,318 1,378,514 283,641 57,887 84,189 0 0 756,395 1,378,514 1,201,457 1,206,052 806,925 806,925 0 511 105 205,452 65,106 140,346 0 0 0 140,346 2.13 2.13
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