Octel Corp. Reports Fourth Quarter and Full Year 2002 Results.Business Editors NEWARK Newark, cities, United States Newark. 1 City (1990 pop. 37,861), Alameda co., W Calif., on the east side of San Francisco Bay; inc. 1955. , Del.--(BUSINESS WIRE)--Feb. 10, 2003 Octel Corp. (NYSE NYSE See: New York Stock Exchange : OTL OTL Office of Technology Licensing OTL Out To Lunch OTL Overtime Loss (hockey) OTL Over The Line (tournament in San Diego, CA, USA) OTL Output Transformer-Less (audio systems) ) today announced financial results for the fourth quarter and year ended December December: see month. 31, 2002. - Highlights - - Strong cash generation continues with $100.0million in the full year - TEL gross profit year to date further improves to 53.1% - Restructuring and impairment charge finalized at $19.5million for 2002, $13.0million non-cash - Earnings for the full year are $4.15 per share after $1.55 per share for restructuring The Company has completed the transitional goodwill impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. tests as required under FAS 142 and the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of goodwill is no longer amortized but instead evaluated for impairment annually. Amortization of goodwill reduced 2001 fourth quarter net income by $12.0million after tax, or $0.96 per share and $46.6million after tax, or $3.73 per share, for the full year 2001. All comparisons of operating and net income in this press release are made on a post FAS 142 and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. per share basis. Net income for the fourth quarter of 2002 was a loss of $2.3million or $0.19 per share compared with a profit of $15.9million or $1.27 per share in the comparable period last year (after adjusting for FAS 142 and before extraordinary items). The fourth quarter loss in 2002 is after taking a charge of $16.4million or $1.38 per share for restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). . Net income for the full year 2002 was $52.1million or $4.15 per share compared with $63.5million or $5.08 per share in the comparable period last year (after adjusting for FAS 142 and before extraordinary items). The full year result for 2002 is after taking a charge of $19.5million or $1.55 per share for restructuring. TEL TEL Telephone TEL Telegram TEL Telugu (langauge) TEL Terrorist Exclusion List TEL Technology-Enhanced Learning TEL Transporter-Erector-Launcher TEL Tetra-Ethyl Lead TEL Team Deutsche Telekom (tetraethyl lead tetraethyl lead (tĕt'rəĕth`əl), (C2H5)4Pb, viscous, colorless, poisonous liquid. It is an organometallic compound prepared by reacting ethyl chloride with a sodium-lead alloy. ) sales for the fourth quarter were $67.9million, an 8.3% increase over the same period last year on volumes 15.7% down. Selling prices were well managed and largely offset the global market volume decline resulting in full year sales being 3.1% lower than last year. Price increases and a continued focus on cost control in the UK plant enabled gross profit for the full year of $136.3million or 53.1% of sales, 2.3% points better than last year. This, together with comparable operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , resulted in a 4.5% increase in operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the full year (after adjusting for FAS 142). Sales in Specialty Chemicals A Specialty chemical is a chemical produced for a specialized use. They are produced in lower volume than bulk chemicals, of which petrochemicals, made from oil feedstocks, are the most common. However, both are produced in a chemical plant. were $50.2million, a 3.1% increase over the fourth quarter of 2001. Full year sales of $180.8million also showed growth over last year with a 16.0% improvement. Gross profits for the quarter were down on last year by $1.8million or 10.5% due to softness in the market and investment in new businesses. Full year gross profits were up 9.7% over last year, principally due to the full year effect of the acquisitions made in 2001. As outlined in the pre announcement to this release, the Company has been undertaking a broad and comprehensive review of its cost base. This resulted in the need to provide for higher restructuring costs in 2002 of $19.5million the majority of which related to the Specialty Chemicals business. $13.0million of the charge is non-cash. It is expected that up to a further $20million will be incurred during 2003 and 2004 and will be accounted for in line with FAS 146 "Accounting for Costs Associated with Exit or Disposal Activities". Collectively these charges support the Company's stated objectives of being proactive in managing the continuing decline in demand for TEL, rationalization rationalization, in psychology: see defense mechanism. of sites and assets to capture synergies and global investment in support infrastructure to grow the business. Cash flow from operating activities remained strong with $100.0million being generated for the full year 2002. Senior loan repayments of $88.0million were made during the year. Commenting on the results, Dennis Dennis is a male first name derived from the Greco-Roman name Dionysius meaning "servant of Dionysus", the Thracian god of wine, which is ultimately derived from the Greek Dios (Διος, "of Zeus") combined with Nysos or Nysa (Νυσα), where the Kerrison, President and Chief Executive Officer of Octel Corp., said, "The full year results reflect the trend we have seen throughout the year. TEL performed exceptionally well with a 5% growth in operating income despite a 12% decline in volume. Fourth quarter volumes were hit by the political situation in Venezuela Venezuela (vĕnəzwā`lə, Span. vānāswā`lä), officially the Bolivarian Republic of Venezuela, republic (2005 est. pop. 25,375,000), 352,143 sq mi (912,050 sq km), N South America. but it is encouraging to see that this position is improving and deliveries will resume in quarter 1 or early quarter 2." "Specialty Chemicals results were below expectations and disappointing. The market softness identified earlier this year continued into the fourth quarter. As stated last quarter, we have injected in·ject·ed adj. 1. Of or relating to a substance introduced into the body. 2. Of or relating to a blood vessel that is visibly distended with blood. injected 1. introduced by injection. 2. congested. pace into the acquisition integration process and have undertaken a comprehensive review of the synergies and costs associated with this business. In addition, we have strengthened the management teams and invested in infrastructure. These proactive steps will enable us to obtain more significant benefits, partly in 2003, and more fully in 2004." "The restructuring charge restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. mentioned earlier is an integral part of our overall business improvement process. We believe that this programme will provide a sustainable base in Specialty Chemicals from which we can grow and deliver long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. shareholder value." Octel Corp., a Delaware corporation A Delaware corporation is a corporation chartered in the U.S. state of Delaware. Delaware is well known as a corporate haven, and thus, over 50% of US publicly-traded corporations and 58% of the Fortune 500 companies are incorporated in the state. , is a global chemical company specializing in high performance fuel additives and special and effect chemicals. The company's strategy is to manage profitably and responsibly the decline in world demand for its major product - tetraethyl lead (TEL) in gasoline gasoline or petrol, light, volatile mixture of hydrocarbons for use in the internal-combustion engine and as an organic solvent, obtained primarily by fractional distillation and "cracking" of petroleum, but also obtained from natural gas, by - through competitive differentiation differentiation, in biology, series of changes that occur in cells and tissues during development, resulting in their specialization. This, in turn, permits a greater variety of organisms. and stringent product stewardship Product stewardship is a concept whereby environmental protection centers around the product itself, and everyone involved in the lifespan of the product is called upon to take up responsibility to reduce its environmental impact. , to expand its Petroleum Specialties and Performance Chemicals businesses organically through product innovation and focus on customer needs, and to seek synergistic synergistic /syn·er·gis·tic/ (sin?er-jis´tik) 1. acting together. 2. enhancing the effect of another force or agent. syn·er·gis·tic adj. 1. growth opportunities through joint venture, alliances, collaborative col·lab·o·rate intr.v. col·lab·o·rat·ed, col·lab·o·rat·ing, col·lab·o·rates 1. To work together, especially in a joint intellectual effort. 2. arrangements and acquisitions. Certain of the statements made herein constitute forward looking statements that involve risks and uncertainties, including the risks associated with business plans, the effects of changing economic and competitive conditions and government regulations. Additional information may be obtained by reviewing the Company's reports filed from time to time with the SEC.
Schedule 1
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Year
Ended Ended
December 31 December 31
----------------- -----------------
2002 2001 2002 2001
-------- -------- -------- --------
(millions of dollars except per
share data)
Net sales $ 121.2 $ 111.4 $ 451.5 $ 420.9
Cost of goods sold 72.7 58.9 257.3 231.9
-------- -------- -------- --------
Gross profit 48.5 52.5 194.2 189.0
Operating expenses
Selling, general and admin. 22.2 17.4 70.0 57.7
Research and development 1.7 1.6 6.0 5.1
Restructuring charge 16.4 7.8 19.5 9.4
Amortization of goodwill - 12.0 - 46.6
Amortization of intangible assets 2.8 2.8 9.5 12.1
-------- -------- -------- --------
43.1 41.6 105.0 130.9
-------- -------- -------- --------
Operating income 5.4 10.9 89.2 58.1
Interest expense (net) 2.0 3.7 12.4 17.5
Other expenses/(income) (0.9) (1.6) (0.2) (0.3)
-------- -------- -------- --------
Income before income taxes and
minority interest 4.3 8.8 77.0 40.9
Minority interest 0.9 1.5 3.0 4.2
-------- -------- -------- --------
Income before income taxes 3.4 7.3 74.0 36.7
Income taxes 6.8 3.4 23.0 19.8
-------- -------- -------- --------
Income after income taxes (3.4) 3.9 51.0 16.9
Share of affiliated company
earnings 1.1 - 1.1 -
Extraordinary item, net of tax
(Note1) - 11.3 - 11.3
-------- -------- -------- --------
Net (loss)/income $ (2.3)$ (7.4)$ 52.1 $ 5.6
======== ======== ======== ========
Diluted earnings per share $ (0.19)$ 0.31 $ 4.15 $ 1.35
-------- -------- -------- --------
Diluted weighted average shares
outstanding (in thousands) 11,843 12,540 12,557 12,501
-------- -------- -------- --------
ANALYSIS OF BUSINESS UNIT RESULTS
2002 2001 2002 2001
-------- -------- -------- --------
(millions of dollars)
Net sales
TEL - Ongoing $ 67.9 $ 62.7 $ 256.7 $ 265.0
TEL - Chlorine 3.1 - 14.0 -
-------- -------- -------- --------
71.0 62.7 270.7 265.0
Specialty Chemicals 50.2 48.7 180.8 155.9
-------- -------- -------- --------
Total 121.2 111.4 451.5 420.9
-------- -------- -------- --------
Gross profit
TEL - Ongoing 34.1 35.3 136.3 134.6
TEL - Chlorine (1.0) - (1.8) -
-------- -------- -------- --------
33.1 35.3 134.5 134.6
Specialty Chemicals 15.4 17.2 59.7 54.4
-------- -------- -------- --------
Total 48.5 52.5 194.2 189.0
-------- -------- -------- --------
Operating income
TEL - Ongoing 28.4 17.5 117.9 68.9
TEL - Chlorine (1.0) - (1.8) -
-------- -------- -------- --------
27.4 17.5 116.1 68.9
Specialty Chemicals 1.1 5.0 9.7 13.1
Corporate (6.7) (3.8) (17.1) (14.5)
Restructuring charge (16.4) (7.8) (19.5) (9.4)
-------- -------- -------- --------
Total $ 5.4 $ 10.9 $ 89.2 $ 58.1
-------- -------- -------- --------
The Chlorine operation closed at the end of 2002. To December 2001,
Chlorine was toll manufactured for Ineos Chlor Limited and therefore
no sales were recorded.
Schedule 2
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December December
31 31
2002 2001
---------------------
Assets (millions of dollars)
Current assets
Cash and cash equivalents $ 26.7 $ 43.0
Accounts receivable, less allowance 80.7 114.9
of $3.1 (2001 - $3.2)
Other receivable - Veritel 3.2 22.4
Inventories
Finished products 25.3 32.2
Raw materials and work in progress 30.4 22.8
--------- ---------
Total inventories 55.7 55.0
Prepaid expenses 5.5 3.0
--------- ---------
Total current assets 171.8 238.3
Property, plant and equipment 88.9 76.5
Less accumulated depreciation 32.1 9.6
--------- ---------
Net property, plant and equipment 56.8 66.9
Goodwill 352.8 341.7
Intangible asset 50.9 50.5
Prepaid pension cost 105.2 82.4
Deferred financing costs 4.4 5.9
Other assets 5.9 3.0
--------- ---------
$ 747.8 $ 788.7
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Bank overdraft $ 4.0 $ -
Accounts payable 55.2 61.9
Other payable - Veritel 10.0 60.0
Accrued expenses 45.9 38.8
Accrued income taxes 9.0 7.5
Current portion of deferred income 2.0 2.0
Current portion of long-term debt 56.8 65.1
--------- ---------
Total current liabilities 182.9 235.3
Plant closure provisions 36.4 39.5
Deferred income taxes 40.5 40.3
Deferred income 8.4 11.4
Long-term debt 102.4 165.9
Other liabilities 4.2 -
Minority interest 4.6 5.9
Stockholders' equity
Common stock, $0.01 par value 0.1 0.1
Additional paid-in capital 276.7 276.5
Treasury stock (34.5) (35.5)
Retained earnings 157.9 106.4
Accumulated other comprehensive income (31.8) (57.1)
--------- ---------
Total stockholders' equity 368.4 290.4
--------- ---------
$ 747.8 $ 788.7
========= =========
Schedule 3
OCTEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 31
2002 2001
--------- ---------
(millions of dollars)
Cash Flows from Operating Activities
Net income $ 52.1 $ 5.6
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 32.4 87.2
Deferred income taxes 1.6 (0.8)
Other (1.1) -
Extraordinary item (Note 1) - 17.1
Loss on disposal of equipment 5.7 1.1
Changes in operating assets and liabilities:
Accounts receivable and prepaid expenses 39.7 (33.3)
Inventories 3.5 4.3
Accounts payable and accrued expenses (13.0) 15.3
Income taxes and other current liabilities 0.6 0.4
Other non-current assets and liabilities (21.5) (6.9)
--------- --------
Net cash provided by operating activities 100.0 90.0
Cash Flows from Investing Activities
Capital expenditures (11.4) (8.4)
Veritel (30.8) (9.5)
Business combinations, net of cash acquired (5.8) (59.1)
Other (3.8) (1.0)
--------- --------
Net cash used in investing activities (51.8) (78.0)
Cash Flows from Financing Activities
Refinancing costs - (16.7)
Net repayment of long-term borrowings (73.7) (1.7)
Net increase in short-term borrowings 1.7 20.0
Repurchase of common stock (0.2) (3.0)
Dividends paid (0.6) -
Proceeds on exercise of stock options 0.2 -
Minority interest (1.4) 0.3
Other - 0.5
--------- --------
Net cash used in financing activities (74.0) (0.6)
Effect of exchange rate changes on cash 5.5 (6.1)
--------- --------
Net change in cash and cash equivalents (20.3) 5.3
Cash and cash equivalents at beginning of period 43.0 37.7
--------- --------
Cash and cash equivalents at end of period $ 22.7 $ 43.0
--------- --------
Cash at bank 26.7 43.0
Bank overdraft (4.0) -
--------- --------
$ 22.7 $ 43.0
========= ========
Note 1 Extraordinary Item 2001
High yield bonds make-whole premium $ 10.6
Balance of deferred finance costs from 1998 spin 6.5
--------
Total before tax relief 17.1
Tax relief (5.8)
--------
Total after tax relief $ 11.3
========
Note 2 Adjusted net income
(millions of dollars) Three Months Year
Ended Ended
December 31 December 31
----------------- -----------------
2002 2001 2002 2001
-------- -------- -------- --------
Net (loss)/income $ (2.3) $ (7.4) $ 52.1 $ 5.6
Extraordinary item - 11.3 - 11.3
Goodwill amortization - 12.0 - 46.6
-------- -------- -------- --------
$ (2.3) $ 15.9 $ 52.1 $ 63.5
======== ======== ======== ========
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