-----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, D1v60OWpVsRY4iKDAloqDIisDszLb1Ts8Tn7F6RAogD3hDO5EpE3ZQEAXlxJW+i7 y9hKXZpNCmxnc9jAGgEThA== 0000950152-95-000969.txt : 19950517 0000950152-95-000969.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950152-95-000969 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUBRIZOL CORP CENTRAL INDEX KEY: 0000060751 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [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: 95537614 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 THE LUBRIZOL CORP. FORM 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 March 31, 1995 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 (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 [ ] Number of the registrant's common shares, without par value, outstanding, as of April 30, 1995: 64,372,991 2 PART I. FINANCIAL INFORMATION Item 1 Financial Statements THE LUBRIZOL CORPORATION CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
March 31 December 31 (In Thousands of Dollars) 1995 1994 - ------------------------- ----------- ----------- ASSETS Cash and short-term investments....................... $ 40,921 $ 36,379 Receivables........................................... 285,089 250,392 Inventories: Finished products................................... 98,118 102,605 Products in process................................. 98,333 98,105 Raw materials and supplies.......................... 106,177 97,621 ---------- ---------- 302,628 298,331 ---------- ---------- Other current assets.................................. 41,603 39,286 ---------- ---------- Total current assets............... 670,241 624,388 Property and equipment - net.......................... 613,998 558,744 Investments in nonconsolidated companies.............. 130,735 138,013 Intangible and other assets........................... 75,891 73,219 ---------- ---------- TOTAL.......................... $1,490,865 $1,394,364 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt....................................... $ 75,486 $ 53,700 Accounts payable...................................... 118,064 114,244 Income taxes and other current liabilities............ 118,485 85,589 ---------- ---------- Total current liabilities........... 312,035 253,533 Long-term debt........................................ 117,908 114,161 Postretirement health care obligation................. 99,293 98,453 Noncurrent liabilities................................ 69,323 68,799 Deferred income taxes................................. 24,822 27,379 ---------- ---------- Total liabilities................... 623,381 562,325 ---------- ---------- Contingencies and commitments 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 - 64,422,060 shares as of March 31, 1995 after deducting 21,773,834 treasury shares, 64,844,560 shares as of December 31, 1994 after deducting 21,351,334 treasury shares........ 83,921 84,059 Retained earnings................................... 753,597 734,533 Unrealized gain on marketable securities............ 16,406 23,169 Accumulated translation adjustment.................. 13,560 (9,722) ---------- ---------- Total shareholders' equity......... 867,484 832,039 ---------- ---------- TOTAL.......................... $1,490,865 $1,394,364 ========== ==========
Amounts shown are unaudited. -2- 3 THE LUBRIZOL CORPORATION CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
Three Months Ended March 31 ----------------------- (In Thousands Except Per Share Data) 1995 1994 - ----------------------------------------------------------------------------------------- Net sales..................................................... $414,931 $397,816 Royalties and other revenues.................................. 1,790 1,877 -------- -------- Total revenues...................................... 416,721 399,693 Cost of sales................................................. 277,556 272,606 Selling and administrative expenses........................... 40,924 39,037 Research, testing and development expenses.................... 41,256 40,125 -------- -------- Total cost and expenses............................. 359,736 351,768 Gain on sale of Genentech..................................... 13,106 11,512 Other income - net............................................ 4,285 4,605 Interest income............................................... 1,320 639 Interest expense.............................................. (2,028) (833) -------- -------- Income before income taxes.................................... 73,668 63,848 Provision for income taxes.................................... 24,566 20,567 -------- -------- Net income.................................................... $ 49,102 $ 43,281 ======== ======== Net income per share.......................................... $ .76 $ .65 ======== ======== Dividends per share........................................... $ .23 $ .22 ======== ======== Average number of shares outstanding.......................... 64,722 66,506
Amounts shown are unaudited. -3- 4 THE LUBRIZOL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Three Months Ended March 31, --------------------- (In Thousands of Dollars) 1995 1994 - ------------------------- -------- -------- Cash provided from (used for): Operating activities: Net income................................................... $ 49,102 $ 43,281 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization............................ 17,217 15,045 Deferred income taxes.................................... 2,199 (1,736) Equity earnings, net of distributions.................... (3,166) (3,861) Gain on sale of investments.............................. (13,106) (11,512) Change in current assets and liabilities: Accounts receivable.................................... (25,504) (22,259) Inventories............................................ 5,477 14,399 Accounts payable and accrued expenses.................. 29,767 9,819 Other current assets................................... (3,839) (4,691) (Decrease) in noncurrent liabilities..................... (2,302) (8,926) Other items - net........................................ 1,806 (2,137) -------- -------- Total operating activities......................... 57,651 27,422 Investing activities: Proceeds from sale of investments............................ 13,676 12,023 Capital expenditures......................................... (55,287) (33,652) Acquisition of subsidiary.................................... (3,521) Other - net.................................................. 65 (10) -------- -------- Total investing activities (45,067) (21,639) Financing activities: Short-term borrowing......................................... 20,932 31,243 Long-term borrowing.......................................... 64 102 Long-term debt repayment..................................... (903) (778) Dividends paid............................................... (14,904) (14,687) Common shares purchased, net of options exercised............ (15,272) (18,411) -------- -------- Total financing activities......................... (10,083) (2,531) Effect of exchange rate changes on cash...................... 2,041 444 -------- -------- Net increase in cash and short-term investments.............. 4,542 3,696 Cash and short-term investments at the beginning of period... 36,379 24,220 -------- -------- Cash and short-term investments at the end of period......... $ 40,921 $ 27,916 ======== ========
Amounts shown are unaudited. -4- 5 THE LUBRIZOL CORPORATION Notes to Consolidated Financial Statements March 31, 1995 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, 1995 and December 31, 1994, and the results of operations and the changes in financial position for the three months ended March 31, 1995 and 1994. 2. Certain of the company's marketable equity securities, included in investments in nonconsolidated companies, are classified as available-for-sale. At March 31, 1995, investments classified as available-for-sale had a cost basis of $3.4 million and an aggregate fair value of $28.6 million resulting in unrealized gains of $25.2 million or $16.4 million after tax. There were no unrealized losses. Subsequent to March 31, 1995, the company sold its remaining shares of Genentech common stock realizing proceeds of $26.5 million and a gain of $25.4 million. The amount of unrealized gain shown as a component of shareholders' equity decreased $6.8 million during the first quarter of 1995 as a result of sales of these securities and the change in the fair value of investments classified as available-for- sale. The company also holds other investments in nonconsolidated companies, including certain investments in marketable securities that are either accounted for on the equity basis or the cost basis due to restrictions placed on the securities. These marketable investments have quoted market values which exceed the book carrying values by $26.7 million at March 31, 1995. 3. The company uses derivative financial instruments only to manage well-defined foreign currency, interest rate and commodity price risk. The company does not use derivative financial instruments for trading purposes. At March 31, 1995, the company had forward contracts to sell currencies at various dates during 1995 for $9.7 million. The maximum amount of foreign currency forward contracts outstanding at any one time was $15.2 million during the first quarter of 1995. The company has an interest rate swap agreement that effectively converts floating rate debt on $18.4 million of Marine Terminal Refunding Revenue Bonds due July 1, 2000 to a fixed rate of 6.5%. In addition during the first quarter of 1995, the company entered into an interest rate swap agreement that converts $50 million of short-term borrowing to a fixed rate of 7.6% for up to 10 years. -5- 6 THE LUBRIZOL CORPORATION Notes to Consolidated Financial Statements March 31, 1995 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, oral arguments on the February 1994 damages award were heard by the same court in Washington, D.C., on March 8, 1995, and the company does not know when a decision will be announced. 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 judgement 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. -6- 7 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Revenue increased 4% in the first quarter of 1995 compared to the first quarter of 1994. Price increases implemented in the first quarter of 1995 and a more favorable product mix accounted for a 5% increase in revenues, and the impact of translating various international currencies into a weakened U.S. dollar accounted for a 2% increase in revenues. Overall volume in the first quarter of 1995 declined 3% as compared to the first quarter of 1994. Volume declined 8% internationally due to unusually high 1994 spot business in the Middle East that did not recur in 1995, but volume increased 5% in North America. Management expects volumes to increase during the remainder of 1995 and, for the year, to exceed 1994 levels. Gross profit (sales less cost of sales) increased $12.2 million to $137.4 million in the first quarter of 1995 compared to the same period in 1994. Gross profit as a percentage of sales, increased from 31.5% in the first quarter of 1994 to 33.1% in 1995. This improvement was a result of higher revenues more than offsetting an 8% increase in average material costs per metric ton and reflects the absence of the 1994 spot business to the Middle East which had a relatively low gross profit. The company's organizational realignment initiatives, which began in 1993, have slowed the rate of increase in its cost and expenses. Selling and administrative expenses increased $1.9 million or 5% compared to the first quarter of 1994. Research, testing and development expenses (technology expenses) increased $1.1 million or 3% compared to the first quarter of 1994. The company's manufacturing, technology and selling and administrative expenses increased a total of 4% over the first quarter of 1994. However, excluding the affects of currency, such expenses increased less than 2%. During the first quarter of 1995, the company sold 278,200 shares of Genentech, Inc. common stock resulting in a pretax gain of $13.1 million which contributed 13 cents to earnings per share. This compares to a gain of $11.5 million pretax or 11 cents per share in the first quarter of 1994. Interest expense increased $1.2 million as a result of the higher average borrowings outstanding. The company's financial position and results of operation are affected by the strengthening or weakening of the U.S. dollar against other currencies in which the company transacts business. In the quarter ended March 31, 1995, the U.S. dollar weakened as compared to the exchange rates in effect at December 31, 1994 and during the first quarter of 1994. The weaker U.S. dollar resulted in the change in the accumulated translation adjustment amount, a component of shareholders' equity, and favorably impacted earnings per share in the first quarter of 1995 by 4 cents. -7- 8 THE LUBRIZOL CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS (Continued) Excluding gains on sale of Genentech common stock, net income was $40.6 million in the first quarter of 1995 compared to $35.8 million in the first quarter of 1994 and the related earnings per share amounts improved by 17% to 63 cents from 54 cents, respectively. Primarily as a result of selling price increases, a weaker U.S. dollar and a lower rate of spending, consolidated net income increased over the first quarter of 1994 by $5.8 million, or 13%, to $49.1 million resulting in earnings per share of 76 cents in the first quarter of 1995. WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES Cash provided from operating activities during the first quarter of 1995 was $57.7 million, an increase of $30.2 million over the comparable prior year quarter. This increase was attributable to higher earnings, and changing working capital requirements, including an $11.8 million refund of 1994 estimated income tax payments. Total debt increased $25.5 million from the prior year end and, as a percent of capitalization (shareholders' equity plus short-term and long-term debt), was 18% at March 31, 1995 versus 17% at December 31, 1994. Borrowings, net of debt repayments, were $20.1 million during the first quarter of 1995 and were used to help finance capital expenditures and an acquisition. In addition, translating debt denominated in foreign currencies into U.S. dollars at March 31, 1995 contributed $5.4 million to the increase in debt. Capital expenditures were $55.3 million in the first quarter of 1995, up 13% over the fourth quarter of 1994 and 64% higher than the first quarter of 1994. These expenditures were primarily in the United States and France, of which 70% pertained to capital additions at manufacturing plants to enhance or maintain production capabilities, including maintaining facilities in compliance with environmental and safety regulations, and the remaining 30% was principally for construction of new administrative and technical facilities at the company's headquarters. Capital expenditures for the 1995 year may exceed the amount spent in 1994 of $160.5 million as the company continues with its capital spending program. At March 31, 1995, the company acquired Engine Control Systems, Ltd., a Canadian company for $3.5 million. During the first quarter, the company repurchased 462,000 of its common shares for $15.7 million. At March 31, 1995, there was authorization remaining to repurchase .5 million common shares. On April 24, 1995, the company's board of directors authorized an additional 4.0 million shares to be repurchased. The company intends to continue its share repurchase program during 1995. -8- 9 THE LUBRIZOL CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES (Continued) As a result of these activities, cash and short-term investments increased $4.5 million to $40.9 million at March 31, 1995. The company's financial position continues to be strong with a ratio of current assets to current liabilities of 2.1 to 1 at March 31, 1995, and 2.5 to 1 at December 31, 1994. 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 capital needs. Subsequent to March 31, 1995, the company sold its remaining shares of Genentech common stock and realized proceeds of $26.5 million. The company used the after-tax proceeds to repurchase its shares. 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, the 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. -9- 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (11) Computation of Per Share Earnings (27) Financial Data Schedule (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended March 31, 1995. 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: May 12, 1995 -10- EX-11 2 THE LUBRIZOL CORP. EXHIBIT 11 1 EXHIBIT 11 THE LUBRIZOL CORPORATION Computation of Per Share Earnings First Quarter, 1995 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 March 31, ------------------- 1995 1994 ------ ------- Average shares outstanding for computation of primary earnings per share 64,722 66,506 Add adjustment to treat shares for options exercised as if such shares were outstanding during the entire period 49 72 Add equivalent shares for unexercised options at end of period* 432 586 ------- ------- Average shares outstanding for computation of fully diluted earnings per share 65,203 67,164 ======= ======= Primary earnings per share $ .76 $ .65 ======= ======= Fully diluted earnings per share $ .75 $ .64 ======= =======
*Computed under the "Treasury Stock Method" using the higher of quoted ending or average market price. EX-27 3 THE LUBRIZOL CORP. EXHIBIT 27
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 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 40,921 0 244,610 2,764 302,628 670,241 1,356,410 742,412 1,490,865 312,035 117,908 83,921 0 0 783,563 1,490,865 414,931 416,721 277,556 277,556 0 19 2,028 73,668 24,566 49,102 0 0 0 49,102 .76 .75
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