Document LKrzbJxBoMxd9kko1ERqzO3m5

5 ETC 16988 FINANCIAL HIGHLIGHTS Years Ended December 31 1 1967 1966 Net Sales.................... ........................................................................... Net Income........................................................................................... Net Income per Share of Common Stock01...................................... Taxes on Income....................................................................... ........... Cash Flow.............................................................................................. Cash Flow per Share of Common Stock"'...................................... Cash Dividends..................................................................................... Earnings Retained in Business.......................................................... Depreciation, Depletion & Amortization.......................................... Capital Expenditures .......................................................................... Total Assets'"?....................................................................................... Working Capital................................................................................... Book Value per Share of Common Stock........................................ Both years include the results of Oxford Paper Company on a pooling-of-interests basis. <l> Based on average number of shares outstanding in each year. $468,937,810 29,661,837 $2.51 21,305,000 62,875,858 $6.45 10,509,245 19,152,592 30,749,246 26,943,000 512,734,618 129,757,176 $20.00 $465,823,480 37,305,645 $3.40 24,609,000 68,106,874 $7.15 8,280,791 29,024,854 28-410,919 59,116,493 304,888,114 107,244,238 $17.93 Pictured on the cover of this annual report is the new tri- and perchlorethy lene plant which was completed at Baton Rouge, La., in 1967. This report illustrates two of our products in use. The text of the report is lithographed on Star Sapphire Enamel Dull (basis 100 pounds), produced by Oxford Paper Company. The cover is lithographed on Albemarle cast coat (.008), produced by Albemarle Paper Company. ii i Ethyl Corporation 1967 Annual Report Message to Shareholders 2 Financial Review 7 Operations Review 11 Financial Statements 20 Notes to Financial Statements 23 Auditors' Report 25 Ten-Year Summary 26 Officers and Directors 28 Annual Meeting The annual meeting of Ethyl Corporation shareholders will be held at the Company's executive offices in Richmond, Va. on Thursday, April 25, 1968 Stock Transfer Agents First and Merchants National Bank, Richmond, Va. Chase Manhattan Bank, New York, N.Y. ' Registrars of Stock The Bank of Virginia, Richmond, Va. Morgan Guaranty Trust Co., New York, N.Y. Genera] Counsel Hunton, Williams, Gay, Powell & Gibson Richmond, Va. Executive Offices 330 South Fourth Street, Richmond, Va. 23219 100 Park Avenue, New York, N.Y. 10017 Louisiana National Bank Building Baton Rouge, La. 70821 ETC 16990 oiaers TO THE SHAREHOLDERS OF ETHYL CORPORATION he past year was a strenuous and challenging one for several of the Tindustries of which Ethyl Corporation is a part. After a long period of rapid growth and expanding markets, the paper, plastics and chemical industries were faced with new competitive conditions in 1967. The addition of new productive capacity, pressure on selling prices, dis appointing demand and higher costs affected these industries in varying degrees, although some of their products continued to enjoy good growth. This was the business climate in which Ethyl operated last year. Reflecting the merger of Oxford Paper Company last August, Ethyl Corporation achieved sales of nearly $469 million and earnings of ap proximately $29.7 million for 1967. For accounting purposes, the merged Ethyl and Oxford are being treated on a "pooling of interests" basis. This means that results for prior periods are stated as though the two com panies had been joined together during these earlier periods. Using this accounting concept, our 1967 sales of $468,938,000 compare with sales of $465,823,000 for 1966; our 1967 earnings of $29,662,000 compare with earnings of $37,306,000 for 1966; and our per share earnings of $2.51 for 1967 compare with per share earnings of $3.40 in 1966. Prior to the merger, the previous highs for Ethyl alone were reached in 1966, when it attained sales of $368,473,000 and earnings of $29,168,000 or $3 a share. With the completion of the Oxford merger last year, we now have a broader operating base in the paper industry, embracing both the kraft paper and white paper fields, and we have gained an organization with an excellent reputation. As of the close of 1967, we had increased our total assets to above the $500 million mark (as compared with about $380 million for Ethyl alone at the end of 1966), increased our working capital, and reduced our long-term debt ratio to about 47% of our total capitalization. We are a larger, stronger and better organized company than ever before. Expenditures for new plants and equipment last year totalled nearly $27 million. Over the past five years. Ethyl and Oxford together have invested well over $200 million in expansion, modernization, and di versification of their various operations. We believe your company will see increasing benefits from these substantial investments. Among the new construction projects completed last year were our new antiknock compounds plant in Greece, an expansion of our poly vinyl chloride resins capacity at Baton Rouge, a new chlorinated solvents plant at Baton Rouge, and increases in other specialized chemical The board of directors of Ethyl Corporation at a recent meeting. (Top row) Andrew M. McBurney and Floyd D. Gottwald, chairman of the board William H. Chisholm, W. Thomas Rice, and Joseph A. Costello (Second row) Bruce C. Gottwald and Dr. George F. Kirby Robert T. Marsh, Jr. and E. Claiborne Robins Sidney Buford Scott and Lewis F. Powell, Jr. (Third row) Lawrence E. Blanchard, Jr. and Floyd D. Gottwald, Jr., vice chairman of the board Erwin H. Will, Malcolm P. Murdock and Dr. Thomas W. McKnew (Bottom rowy Floyd D. Gottwald, Joseph M. Lowry and S. Douglas Fleet. facilities. More recently, our subsidiary, Vypak Corporation, opened a second plant for the manufacture of PVC plastic bottles; Albemarle Paper Company continued the expansion of its corrugated container plants; and our subsidiary, the William L. Bonnell Company, announced plans for a new aluminum extrusion plant in Tennessee. Besides our continuing expansion in the United States, we are actively interested in several overseas projects, including a venture with other companies to explore for natural gas in the North Sea. While the past year brought temporary setbacks to the paper, chemi cals and plastics industries, we continue to believe in the excellent growth 3 potentials of these industries--and have backed our judgment with sub stantial investments in new facilities. The field of polyvinyl chloride plastics is a good example. The year, 1967, marked our full-fledged entry into the PVC resins and compounds field. We believe PVC is one of the most versatile of all plastics and that its growth rate will continue to be spectacular. Its use in such areas as plastic bottles and plastic pipe is typical, and your company is now firmly established in both of these new areas. Vypak's recent development of a PVC bottle that can be used for food and drug products illustrates the tremendous growth po tential in this area. Likewise we continue to be enthusiastic about the future of our new synthetic alcohols plant. It opens to your company the possibility of a whole new chemical area, with entries into such fields as soaps, plasti cizers, synthetic lubricants, and a variety of other interesting new prod ucts. Our very substantial research effort is increasing our technical competence in many fields and broadening our horizons. During 1967, Ethyl continued its extensive research on automobile exhaust and air pollution. It reported its recent findings before technical societies, carried out several research projects for the Department of Health. Education and Welfare, and continued its cooperative efforts with public and private agencies. Last October, a report by a Commerce Department advisory commit tee created considerable attention when it recommended, among other things, that the use of lead antiknocks in gasoline should not be increased in the future. The report did not present any new evidence; in fact, its recommendation was contrary to the great weight of scientific evidence that lead antiknock compounds do not contribute to photochemical smog (the most widespread air pollution problem), and do not constitute a health hazard. While publication of this report affected the market price of our stock, it did not, in our opinion, in any way affect the fundamental soundness of your company or the basic need for antiknocks. We are continuing our work on experimental devices, already existing, that reduce exhaust gas emissions from motor vehicles and remove par ticulate matter from the exhaust gases. This research has resulted in major contributions to the oil and automotive industries in their con tinuing program to reduce automotive exhaust emissions, and continues to demonstrate that emissions can be effectively controlled by continued refinement of the present automobile engine and exhaust system. To intensify this research, we are now completing a new automotive emis sions research laboratory in Detroit. As of December 31. 1967, we had a total of 13,709 employees in the United States and abroad, and we want to acknowledge their contribu tions to our performance in 1967. We are also deeply appreciative of the loyalty and support of our stockholders and of our customers and suppliers. We look forward to continued progress in 1968. President Chairman of the Board The Oxfore and paper t Rumford, A the largest 4 three Oxford NET SALES Years ended December 31 Millions of Dollars NET INCOME AND TAXES Years ended December 31 500 Millions of Dollars 60 400 48 300 200 - 100 Total Income Taxes Income After Taxes -\ 59 60 61 62 63 Fiscal Year Ended March 31 - WORKING CAPITAL Years ended December 31 - 0 63 6-1 65 66 67 59 60 61 62 63 63 64 65 66 67 Fiscal Year Ended March 31 - Millions ! TOTAL ASSETS of Dollars Years ended December 31 Millions of Dollars CAPITALIZATION RATIOS 1963-1967 Percent 1 125 1 ----- 500 Common Equity -- 100 100 ; 400 ; Preferred Stock ^ 80 '' 75 '300 :.: . .. - : . -- ' -------------------------------------------------------.----------- --------------------------------------------------------------------------------------------- 50 200 25 ' ' :. 1 | 100 S r* 60 1,Debt -- ^ '< r i y q H , 1 ! k i H !; B 20 r J 1 I1t1 ) i1 3 59 60 61 62 63 63 64 65 66 67 1 EnFdiesdcaMl aYrecahr 31 ---I* 0 59 60 61 62 63 63 64 65 66 67 1-- Fiscal Year Ended March 31----1` in i ! .1 0 63 64 65 66 ^7 Note: 1959 to W62. Albemarle Paper Co only. period ended March 31. 1963. includes Eth\l Corp. I Del.) trejled ax an acquisition: 1963-1967. Ethvl Corn I \ a ) and Ooord Paper Co treated on a poolmg-oi Ai' he merger of Oxford Paper Company into Ethyl Corporation on August T1, 1967 was treated as a pooling of interests for accounting purposes and, accordingly, the accounts of both companies have been combined in re porting the results of operations for 1967 and for prior years except that, in the table below, net sales by product lines for 1965 and 1966 are without pooling of interests in order to show more clearly the progress of our diversification program. Sides and Set Income Consolidated net sales in 1967 reached a new high of S468.937.810. The aluminum products sales cover the full year, 1967, but only the last nine months of 1966, inasmuch as the William L. Bonnell Company was acquired on April 1, 1966. A breakdown of sales by major products lines for the past three years is shown in the following table: NET SALES BY PRODUCT LINES -- 1965-1967 (In Thousands of Dollars) 1967 1966 1965 Petroleum Chemicals ......... Industrial Chemicals ........ Plastics................. Paper &. Paper Products............. Aluminum Products............. Oxford Paper Co. Net Percentage Sales of Total 5199,310 42% 45.030 10 40,111 9 151,845 32 32.643 S468.938 (included above) S468.938 7 100% Net Percentage Sales of Total 5205,998 56% 39.074 10 35,734 10 62,636 17 25,031 7 5368,473 100% 97.350 5465,823 Net Percentage Sales of Total 5182,755 62% 29,226 10 28,517 10 51,526 18 -- ___ 5292,024 100% 83.814 5375,838 Net income for 1967 amounted to $29,661,837. as compared with net in come of S37,305,645 for 1966. The 1967 net income was equal to $2.51 per share, based on the average 9,744,091 shares of common stock outstanding during 1967. It compares with net income of $3.40 per share for 1966, on the basis of the average 9,522,805 shares of common stock outstanding during that year. The decline in net income from 1966 to 1967 is attributable primarily to higher costs and to adverse conditions which generally prevailed in the chemical 7 ^ | ! i I; , ' ! 1 < : j and paper industries. These factors included overcapacity in some lines, weakness in kraft paper prices and in the demand for quality paper, and weakness in the prices of certain chemicals and plastics. Earnings were also adversely affected by the start-up of Ethyl's new antiknock plant in Greece and by a lower investment credit for the year. The investment credit in 1967 amounted to $1,636,000 as compared with a credit of $3,768,000 in 1966. Interest costs in 1967 amounted to $12,346,000 as compared with interest costs of S12,630,000 in 1966. Capital Stock and Dividends During 1967, 238,325 shares of common stock were issued as the result of the exercise of employee stock options. 151,200 shares as the result of exercise of warrants and 120 shares from the conversion of $2.40 preferred stock. This brought the total number of common shares outstanding to 9,927,793 on December 31, 1967. Common stock dividends paid during 1967 were at the quarterly rate of 15 cents a share, or 60 cents for the year. In August. 1967, in consummation of the merger of Oxford Paper Com pany into Ethyl, 1,914,201 shares of $2.40 Cumulative Second Preferred Stock were issued in exchange for the outstanding shares of the common stock of Oxford Paper Company. The new Cumulative Second Preferred Stock is entitled to a fixed S2.40 annual dividend, has general voting rights equal with the common stock, and is convertible into common stock at the rate of 1.3 shares . of common stock for each share of Cumulative Second Preferred. Source and Disposition of Funds The accompanying table shows the source of funds and the disposition of funds for the year, 1967: ! SOURCE OF FUNDS: 1 1 Net Income ............................ S29.661.837 Depreciation. Depletion &. Amortization .................. 30,749,246 Deferred Income Tax............ 2.464,775 Proceeds from the Exercise 1 of Warrants and Employees* Stock Options . 3,625.856 S66.501.714 i_________________________ DISPOSITION OF FUNDS: Cash Dividends ....................... S 10.509,245 Capital Expenditures ............. 26.943.000 Sinking Fund Payments ......... 2.045,438 Net Decrease in Long-Term Debt ............... S13.045.051 Less Debt Converted into com mon stock . ... 8.937,352 4,107.699 Increase in Working Capital .. 22.512.938 Net Change in Other Accounts ........................... 383,394 S66.501.714 Cash Flow, which consists of Net Income plus Depreciation, Depletion and Amortization and Deferred Income Taxes, amounted to $62,875,858 in 1967, as compared with a cash flow of $68,106,874 in 1966. The 1967 cash flow was sufficient to provide for all fixed charges, for dividends, for capital expenditures. and provided $19,270,476 of the increase in working capital. At December 31, 1967, working capital was $129,757,176, and the ratio of current assets to current liabilities was 3.52 to 1. This compared with working capital of $107,244,238 and a ratio of 2.83 to 1 at December 31, 1966. Capital Expenditures During 1967. $26,943,000 was spent on capital projects for new plants, for expansion and modernization of existing facilities, and for timberlands. This brought the five-year total of capital expenditures for Ethyl and Oxford to $213,000,000. Long Term Debt Debt repayments during 1967 amounted to $5,989,199. These consisted of payments of $750,000 on the 5Vi % Bank Loan, due 1970; $685,211 on the 33/a% Guaranteed Notes, due 1970; $2,500,000 on the 53A% Subordinated Notes, due 1972; $1,250,000 on the 4%% Promissory Notes, due 1983; and $803,988 on Miscellaneous Debt. As of December 31, 1967, the long-term portion of Ethyl's debt was equal to 47% of the Company's total capitalization. The long-term debt was $206,418,949 of which $27,750,000 was indebtedness of Oxford Paper Company which was assumed in the merger. SUMMARY OF LONG-TERM DEBT 5>/2% Bank Loan--Due 1968-70 .............................................................................................. S 5,500,000 The Chase Manhattan Bank 5a% Senior Notes--Due 1971-78 .......................................................................................... The Prudential Insurance Company of America The Equitable Life Assurance Society of the United States The Northwestern Mutual Life Insurance Company New York Life Insurance Company 106,000,000 3H% Guaranteed Notes--Due 1968-70 .................................................................................. Three Canadian Banks (Debt of Canadian Subsidiary Guaranteed by Parent Company) 2,059,110 53A% Subordinated Notes--Due 1968-72 .............................................................................. The Prudential Insurance Company of America The Equitable Life Assurance Society of the United States New York Life Insurance Company 12,485,000 5a% Subordinated Notes--Due 1979-82 .............................................................................. 50,000,000 Various Institutional Investors 47/a<7c Promissory Notes--Due1968-83 ................................................................................... 29,000,000 Miscellaneous .............................................................................................................................. 9,105,985 Total Debt at December 31, 1967 ..................................................................................... $214,150,095 Current Portion of Debt.................................................................................................... 7,731,146 Long-Term Debt ........................................................................................................ $206,418,949 SUMMARY OF DEBT MATURITIES Bank Loan Due 1970 5V4% Senior Notes Due 1978 3Wo Guaranteed Notes Due 1970 S*A% Subordinated Notes Due 1972 4H % Promissory Notes Due 1983 Miscellaneous Debt Maturities to 1992 Total Annual Amount 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 $1,250,000 1,250,000 3,000,000 $12,000,000 12,000,000 12,000,000 12,000,000 12,000,000 12,000,000 12,000,000 22,000,000 $685,211 685,211 688,688 $2,500,000 2,500,000 2,500,000 2,500,000 2,485,000 $1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 $2,045,935 456,650 366,000 366,000 366,000 366,000 366,000 366,000 276,000 276,000 276,000 $ 7,731,146 6,141,861 7,804,688 16,116,000 16,101,000 13,616,000 13,616,000 13,616,000 13,526,000 13,526,000 23,526,000 5a % Subordinated Notes Due 1982 are payable in years 1979-1982 ighlights of Ethyl's 1967 operations in its varied fields of business H are outlined on this and the following pages. For convenience, these operations reviews are grouped according to our major product lines, with the activities of each division or subsidiary reported under its corresponding product line. This, it is hoped, will give our shareholders a clear and concise picture. | PETROLEUM CHEMICALS Petroleum Chemicals Division The Petroleum Chemicals Division, with responsibility for the sale of all Ethyl petroleum additives in the United States, achieved another excellent year in 1967. Increased gasoline con sumption, together with a slightly higher demand for premium gasoline, contributed to its results. Also responsible for the Division's good per formance was the wide range of antiknocks which Ethyl makes available to the oil industry to produce the most efficient gasoline for the motoring public. A key factor in the Division's sales effort is its unequalled program of services to refiners. To heighten their usefulness, the Division realigned some of these service functions during 1967. To assist refiners in their gasoline blending operations, the Division in recent years has devoted much attention to automatic systems for moni toring and controlling the octane quality of gasoline as it is produced. Recent developments in this area are the "Ethyl" Octane Analyzer and, more recently, portable Octane Analyzer units, which have been made available to the oil industry. Further automation of gasoline analysis and control is now offered in the form of a new computer-operated system, which offers refiners substantial cost savings in their operations. Sales of other special-purpose additives continued to increase in 1967. Among them, "Ethyl" Multi-Purpose Additive for diesel fuel found greater acceptance as the need for improved operating efficiency became evident. "Ethyl" CI-2, a combustion improver for distillate fuels, has been accepted by the gas turbine manufacturers as a means of controlling exhaust smoke, and it is being used in many gas turbine electric power stations. In addition, an increasing number of heavy oil-burning power plants are using CI-2 to increase efficiency, reduce the formation of cor rosive sulfur compounds in stack gases, and to control "fireside" deposits. Ethyl International Division The continued growth in the overseas gasoline market resulted in increased sales of antiknock compounds by the Ethyl International Division during 1967. At the same time, the Division strengthened its competitive position in its major marketing areas by completing an Ethyl manufacturing plant in Greece and by the formation of a jointly-owned company to manufacture antiknocks in Japan. The new Greek plant of Ethyl Hellas Chemical Co. S.A. went on stream early in 1967, and began supplying antiknock compounds to refiners throughout Europe, the Middle East and Africa. While the plant experienced start-up problems in its first year, full operations are antici pated for 1968. Ethyl S.A., our European-based marketing organization, established new sales records in antiknocks and other additives. Higher sales were also achieved in the Far East, another major gasoline market. To serve that growing market, Ethyl in 1967 formed a jointly-owned Japanese company, Toyo Ethyl, to build and operate an antiknock plant in Japan. Plans are still being developed for commence ment of the plant's construction. Increased marketing efforts in Latin America resulted in an improved sales position on a broader product basis. An antiknock distribution terminal was completed at Talara, Peru in 1967, the seventh Ethyl terminal in Latin America and the Caribbean. Ethyl of Canada The influx of tourists to Canada in 1967, to visit Expo 67, spurred the consumption of gasoline in that country, and was partly responsible for Ethyl of Canada's record sales of antiknock com pounds in the Dominion. The Canadian subsidiary also maintained its position in other marketing areas. Ethyl of Canada's manufacturing plant, located in Sarnia, Ontario, operated at a high level of capacity throughout the year. Facilities for the manufacture of chlorinated hydrocarbons were increased approxi mately 30% to accommodate growing demands. As the largest supplier of antiknock compounds in Canada, Ethyl of Canada provides a full program of technical and marketing services to Canadian refiners. Extending that program, Ethyl technical representa tives cooperated with a refiner to install Canada's first "Ethyl" Octane Analyzer for monitoring the octane number of gasoline production, thus helping to control refining costs. INDUSTRIAL CHEMICALS Sales of the Industrial Chemicals Division reached a new high in 1967, but were adversely affected by conditions in the chemical industry. Over capacity, increased competition, and a disappointing growth in demand contributed to lower selling prices and reduced profit margins in most lines, although some firming of prices was evident in the second half of the year. On the other hand, certain products continued to enjoy a good rate of growth. One of the Division's principal products is vinyl chloride monomer, the chemical intermediate for polyvinyl chloride plastics. Because of a virtual lack of growth in PVC consumption in 1967, sales of vinyl chloride monomer were disappointing, with the addition of new industry capacity compounding the problem. A more normal growth is anticipated for 1968. Chlorinated solvents, which are used in metal degreasing and dry cleaning, are another major product area of the Division. A highly effi cient plant for the production of tri- and perchlorethylene was completed at Baton Rouge in 1967. Added to Ethyl's 1,1,1-trichloroethane plant, the new facility gives the company full productive capacity for all three solvents, which it has marketed since 1964. Continued market growth is expected in 1968. Aluminum alkyl compounds, which are widely used as catalysts for plastics and synthetic rubber, constitute another important area of the Division. Sales of these compounds continued to increase in 1967, al though the lengthy strike in the rubber industry curtailed demand for them to some extent. Currently, Ethyl is planning additional aluminum alkyls facilities at its plant in Houston, which will double the company's merchant capacity for these compounds. Sales increases were also achieved in ortho-alkylated chemicals, which are finding growing uses as antioxidants and chemical intermediates. Market development is also proceeding on orthoalkylated anilines for use as intermediates in agricultural chemicals and dyes. Improved operations were obtained in the company's synthetic primary alcohols plant at Houston. Besides its basic production of alcohols for use in biodegradable detergents, the plant also produces other synthetic alcohols and olefins, which are used for plasticizers and surfactants. A growing market development effort is planned for 1968 on these co products. Abroad, sales of Ethyl's industrial chemicals are handled by Ethyl of Canada and the International Division. The Canadian company is the 13 Dominion's leading producer of detergents and antioxidants for petro leum products and the sole Canadian manufacturer of aluminum alkyls. Ethyl S.A. has broadened its marketing efforts on industrial chemicals throughout Europe. And the new antiknock plant in Greece is also a new Ethyl source of vinyl chloride monomer in the eastern hemisphere. PAPER The highlight of the year was the merger of the Oxford Paper Company into Ethyl. With this addition, the Oxford Albemarle Paper Division now accounts for approximately one-third of Ethyl's sales and is an important factor in both the bleached and unbleached segments of the paper industry. Oxford Paper Company In August, the market for bleached papers softened materially, with resulting price weakness in certain grades and lower shipments for Oxford in 1967 than in 1966. All manufacturers of printing papers felt the effects of the general slowdown in economic ac tivity. and the operating rate of this segment of the paper industry de clined from 96% in 1966 to 92% in 1967. Sales by end use of Oxford products in 1967 were as follows: Magazines and Periodicals.................. Book Publishing................................... Commercial Printing........................... Converting (Business Forms, Envelopes, Etc.)............................... Tons 140,498 76,874 66,259 68,966 % of Total 39.8 21.8 18.8 19.6 While operations at Oxford's three mills were somewhat reduced dur ing the year, improvements in efficiency were noted by year-end. Several products were improved, and one completely new high gloss printing grade, "Luxcote," was introduced. 14 Many replacements and additions were introduced in process and machine areas at all three locations. The major addition was a new, highly efficient wood receiving and preparation facility at Rumford, Me., which permitted two older wood rooms to be shut down. A proposed new mill in the upper peninsula of Michigan continues under active investigation. Albemarle Paper Company The year, 1967, was a most difficult one for Albemarle. Although production in the unbleached field was main tained at approximately 1966 levels, both sales and earnings were ad versely affected by an intensely competitive price situation in kraft paper and linerboard, as a result of new industry capacity that came on stream in 1967. This new extruder at the VisQueen plant in LaGrange, Ga., produces polyethylene films for building and agricultural uses. Ethyl's EDP Center, established in Baton Rouge in 1967, ties in with terminal computers in other company locations, and provides a wealth of information for technical and management needs. Capital work continued at a normal pace, major installations being a new tree length handling and processing system and a new automatic roll handling system, both at Roanoke Rapids. For the third consecutive year, the Albemarle Container Division sub stantially increased its output of corrugated containers at its Odenton, Md., and Richmond, Va., plants. New equipment was added to both plants during the year, and an expansion at Odenton was started late in the year. A corrugated container plant was put into operation at Lexing ton, N. C. in the first quarter, and in November, a major expansion was begun to house an 87" corrugator and additional box making equipment. The demand for shipping sacks, static for several years, was down somewhat in 1967, affecting the Raymond Bag Division. The Division, however, continued to make progress in the market development of its patented "Multibag," a plastic-paper combination. The Consumer Bag Division, manufacturers of grocery bags, achieved record sales and production in 1967. A plant addition to house addi tional bag-making and warehouse capacity, and to effect operating econ omies. was completed during the year. Continuing a recent trend, the use of shopping bags as an advertising and promotion medium increased in 1967. Interstate Bag Company added new machines and rebuilt several existing units at its Walden, N. Y. plant to maintain its leadership in the field. PLASTICS Sales of the Plastics Division in 1967 increased approximately 10% over 1966, despite depressed market conditions and continued unfavorable prices. The Division maintained its marketing leadership in polyethylene films, and. in the polyvinyl chloride area, made progress in its market development efforts on resins and compounds and on PVC bottles, film and pipe. Polyethylene film sales were maintained at essentially their 1966 level. in the face of an over-all industry decline in sales. Prices remained under pressure during most of the year. The VisQueen Division started up a large new production line at its LaGrange, Ga., plant for heavy-duty building and agricultural films. An expansion of the PVC resins and compounds plant, which doubles the plant's rated capacity for resins, was completed early in 1967. Mean while, the Polymer Division substantially increased its sales of PVC resins and compounds over 1966, although in this plant start-up period it still had excess capacity. Vypak Corporation, Ethyl's PVC bottle-producing subsidiary, made excellent progress in 1967, culminating with the opening of a new plant in Louisville, Ky., at year-end. The new plant will supply markets not feasible for the Vypak plant in Rockaway, N.J. More recently, Vypak completed the development of a clear, impact-resistant bottle for packag ing foods and drugs, whose materials meet the requirements of the U.S. Food and Drug Administration. This new bottle opens up a vast new market for PVC containers. Sales of polyvinyl chloride films for packaging red meat and produce, initiated a few years ago,continued to make progress in this new area of packaging. The VisQueen Division reached the commercial stage on two new film products. One, PVC shrink film, is directed at the toy, novelty, and record packaging market; the other, a fiber reinforced, laminated poly ethylene film, is used in the construction industry. Sales of PVC pipe, which is used in potable water, irrigation, and sewage systems, were nearly double their previous year's rate in 1967. VisQueen's Bell;Ring PVC pipe continued to be well received in the water and irrigation fields, and the VisQueen Division is planning a new PVC pipe plant to meet the growing demand. ALUMINUM Our subsidiary, the William L. Bonnell Company, produces a wide variety of aluminum shapes, molding and trim, which are used primarily in residential and commercial construction. Bonnell. acquired by Ethyl in April, 1966, had a good year in 1967, although its potential was affected by reduced housing starts in the first half of the year and by similar declines in apartment house construction. These conditions were brought on by the tight money market and high interest rates. On the other hand, Bonnell benefited to some extent by increased remodelling and repair work in the construction trades. Continuing the expansion and modernization program begun in 1966, the company last year installed a new 50 million pounds-a-year casting unit at its Newnan, Ga., plant. The new unit increases Bonnell's casting capacity by approximately 30%, and will help to make it self-sufficient for nearly all of its billet requirements. Additions and improvements in the anodizing areas of the plant will also increase their capacities by 30% and 65%, and improve efficiency. Most recently, Bonnell announced plans to build a new aluminum extrusion plant, its second, near Carthage, Tenn. The $4 million plant is scheduled for completion in 1969. RESEARCH Ethyl's Research and Development department engaged in a wide range of research in 1967 to support the Company's present and future busi ness. Expenditures for research and development and technical support of sales and manufacturing were about 4% of annual sales. Ethyl continued broad research on gasoline engine induction systems and other engine and exhaust system modifications for reducing emis sions in automobile exhaust. Major emphasis has been placed on the de\elopment of experimental devices to remove particulate matter (in cluding lead) from exhaust gases. In addition, work continued on meth ods of improving the mixing of fuel and air in the carburetor and intake manifolds to reduce emissions of unburned products from the engine cylinders. The improved mixtures permit operation of the engine at leaner air-fuel ratios. We began the study of means to conserve the heat in the exhaust of these leaner engines to bring about further reduction in the exhaust manifold of the hydrocarbons leaving the cylinders. Considerable success was achieved in this direction, and the results were discussed with auto motive companies here and abroad. This work is regarded as a major contribution to the reduction of exhaust emissions from automobiles. Ethyl also has extensive programs studying other factors that affect emissions. Chemical research in 1967 included work on aluminum and other light metal technology and fabrication. Also, substantial work was done on the synthesis of edible fats. Significant progress was made on soap and detergent intermediates. In this connection, many of our commercial alcohols are finding new uses. Ethyl's chemical research laboratories in 1967 carried out research for the Department of Defense, and the R & D department continued to supply chemicals for rocket and other special fuels. Ethyl also conducted research projects for the L.S. Public Health Service. In the Oxford Paper Company, the research effort was directed to four main areas: basic problems in the pulp, paper and coated paper fields: applied and process engineering assistance to the three Oxford mills: research and development assistance to the Coated Specialties depart ment: and overseas licensing and patent sales. Albemarle's research program continued to emphasize product and process developments. Research on unique mechanisms to separate fiber from wood has been particularly encouraging, and more complete forest utilization and new fiber source studies exhibit increasing potential. The use of computer process control systems was extended to a second paper machine: this has resulted in substantial improvement in quality and uniformity of products. Product developments include new linerboard specialties and new corrugated container designs extending the use of corrugated board. During 1967. Ethyl received over SO L.S. patents and 150 foreign ones. Ethyl now holds about 1.100 unexpired L'.S. patents, and main tains about 850 foreign patents. :Wu7v extn. aluminum comes off on the production t at the Bor. plat ASSETS Balance cheers December 31 Current assets: Cash................................................... '............................................. Short-term securities (approximates market)............................. Accounts receivable ....................................................................... Inventories ....................................................................................... Prepaid expenses.............................................................................. Total current assets................................................................. 1967 $ 17,856,996 22,848,855 64,994,163 73,376,479 2,081,295 181,157,788 1966 $ 14,195,206 24,494,229 65,920,257 ; "..259,675 1,863.107 165,732,474 Property, plant and equipment Less. Accumulated depreciation and depletion........................... Net propertv, plant and equipment...................................... 480,497,643 179,152,811 301,344,832 457,783,163 151.710.302 306,072.861 Investment in 50%-owned companv................................................. Deferred charges and other assets..................................................... 5,071,505 16,849,490 5,831,460 17,578,392 Patents, contracts and other intangibles.......................................... The accompanying notes are an integral part of these statements. 8,311,003 $512,734,618 9,672,927 $504,888,114 2C liabilities ETHYL CORPORATION AND SUBSIDIARIES December 31 Current liabilities: Accounts payable and accrued expenses...................................... Dividends payable............................................................................ Notes payable................................................................................... Lona-term debt, current portion................................................... United States and foreign income taxes........................................ Total current liabilities.......................................................... Long-term debt..................................................................................... Estimated income taxes payable in future years............................... Provision for employee benefits.......................................................... Minority interest in consolidated subsidiary.................................... 1967 $ 34,423,650 2,818,084 3,000,000 7,731,146 3,427,732 51,400,612 206,418,949 19,957,163 5,729,588 280,000 SHAREHOLDERS' EQUITY Capital stock: Cumulative First Preferred Stock, par $ 100 per share Series A ....................................................................................... Series B ....................................................................................... Cumulative Second Preferred Stock $2.40 Convertible Series A, par $10 per share (aggregate liquidation price, $80,861,340) ................................................................... Common, par $ 1 per share............................................................ Capital surplus..................................................................................... Retained earnings................................................................................ Less. Treasury stock at cost.............................................................. Total shareholders' equity...................................................... The accompanying notes are an integral part of these statements. Ti ' ' -------------------------------- --------- --------- 3,578,200 8,000,000 19,252,700 9,928,300 44,639,421 143,991,030 229,389,651 441,345 228,948,306 $512,734,618 1966 $ 36,828,607 2,247,914 2,250,000 5,862,646 11,299,069 58,488,236 219,464,000 19,652,803 6,246,190 350,000 3,691,200 10,000,000 16,034,030 9,538,655 36,651,132 124,838,438 200,753,455 66,570 200,686,885 $504,888,114 - * ' ifaaied Statemems of Income and 5tir?ius STATEMENTS OF INCOME AND RETAINED EARNINGS December 31 1967 Income: Net sales .................................................................................................... Miscellaneous income, net....................................................................... Costs and expenses: Cost of goods sold.................................................................................... Selling and general expenses................................................................... Interest and financing costs, long-term debt.......................................... United States and foreign income taxes................................................. Net income....................................................................................... Retained eaminas at beginning of year........................................................ Deduct. Cash dividends: 6% First Preferred stock, $6.00 per share...................................... 59c First Preferred stock, S5.00 per share in 1967 and S3.61 per share in 1966 ................................................................... S2.40 Second Preferred stock, $1.17 per share............................... Common stock, per share. S.60 in 1967 and S.58 in 1966 ............. Oxford Paper Company, prior to merger.......................................... Retained earainas at end of year................................................................. $468,937,810 4,965.815 473,903,625 348,392,738 61,445,084 13,098,966 21,305,000 444.241,788 29,661,837 124,838,438 154,500,275 214,953 445,500 2,245,293 5,866,611 1,736,888 10,509,245 $143,991,030 Earnings per share of common stock.......................................................... Pro forma earninas per share of common stock, assuming conversion of preferred stock and exercise of stock options and warrants. (If the preferred stock were converted, the dividend would become $.78 a share, at the present common dividend rate, as against the present S2.40 preferred dividend)....................................................................... $2.51 $2.30 1966 $465,823,480 3,044.915 468.868,395 337,385,715 56,179,702 13,388,333 24.609.000 431.562.750 37,305,645 95.813,584 133.119,229 224,386 361,110 -- 5,476,933 2.218,362 8.280,791 $124,838,438 $3.40 S2.89 STATEMENTS OF CAPITAL SURPLUS Balance at beainnina of vear....................................................................... Excess of cash received over par value of 151,200 and 12,000 shares of Common Stock issued upon exercise of warrants................................. Excess of cash received over par value of shares of stock issued under stock option plans: 238.325 and 39.275 shares of Common Stock.................................. 11.069 shares of $2.40 Second Preferred Stock............................... 3,748 and 43,065 shares of Oxford Paper Company common stock Excess of face amount of Oxford Paper Company debentures over par value of 630.967 and 56.158 shares of common stock issued in exchange therefor, less related costs.......................................................... Excess of par value over cost (cost over par value) of 1,130 shares and' 1.124 shares of 6% First Preferred Stock cancelled............................. Excess of par value of 93 shares of S2.40 Second Preferred Stock over 120 shares of Common Stock issued upon conversion, less cost of fractional shares of Common Stock purchased...................................... Expenses incurred in connection with the merger of Oxford Paper Companv into Ethvl Corporation................................................................... Excess of cost over par value of 13.119 shares of Oxford Paper Company Stock held in that company's treasury and retired in connection with the meraer.................................................................................................. Balance at end of year..................................................................... | | j i ! | ! $ 36,651,132 541,800 2,303,066 237,835 24,200 5,666,913 992 775 (584,421) (202,871) $ 44,639,421 | 1 1 i i| j The accompanying notes are an integral part of these statements. $ 35,544,482 43,000 349,581 200,405 514,788 (1,124) -- -- -- S 36.651.132 |\>|4^ t-^ |0 |0 w IO |Cr|L/i ! 0 5 D 5 ) Nores to financial Statements 1. CONSOLIDATION PRINCIPLES: The ac companying financial statements include the accounts and operations of all wholly-owned sub sidiaries. Vypak rorporation, a 50%-owned affili ate in 1966, became wholly-owned in January. 1967 and, accordingly, its accounts and operations are included only for 1967. In August, 1967, Oxford Paper Company was merged into Ethyl Corporation and 1,914,201 shares of the Corporation's S2.40 Second Pre ferred Stock were exchanged for all the 3,828.402 shares of common stock of Oxford Paper Com pany then outstanding. For accounting purposes, this exchange was treated as a "pooling of inter ests" and. accordingly, the accompanying financial statements include the accounts and operations of Oxford for 1967 and 1966. Retained earnings and capital surplus at January 1, 1966 have been ad justed to include Oxford Paper Company retained earnings of S33.416.835 and other capital of S10,469.954 as of that date. 2. INVENTORIES: Inventories include: 1967 Finished goods . . . Raw materials and work in process. Stores, supplies, etc. S29.085.537 29.966.720 14.324.222 $73,376,479 1966 $20,800,339 26.161.483 12.297.853 $59,259,675 Inventories are stated at the lower of cost or mar ket with cost being determined on the last-in. firstout basis with respect to approximately S36.9I4.000 at December 31. 1967 and S26.908.000 at December 31, 1966, and generally on either an average cost or first-in, first-out basis with respect to the balance. 3. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated substan tially at cost, as follows: 1967 Land ............... Timberlands and standing timber ......... Buildings ......... Machinery and equipment . . S 17.663.996 24.329.635 72.873.865 365.630.147 S480.497.643 1966 S 17.559.316 23.364.192 67.579.962 349.279.693 $457,783,163 4. INVESTMENT IN 50%-OWNED COM PANY: This investment is stated at cost and rep resents the Corporation's investment in EthylDow Chemical Company, a 50%-owned com pany. The Corporation's investment exceeded its equity in the net assets of this company at De cember 31, 1967 by approximately $3,323,000. representing the excess of investment over equity in net assets of Ethyl-Dow at date of acquisition (November 30, 1962), less undistributed earnings of $129,000 since that date. Dividends received from Ethyl-Dow were $1,450,000 in 1967 and $1,825,000 in 1966. Such amounts were not signi ficantly different from the Corporation's equity in Ethyl-Dow earnings. 5. DEFERRED CHARGES AND OTHER AS SETS: Deferred charges at December 31, 1967 consisted principally of unamortized discount on long-term debt and other deferred financing ex penses. The Province of New Brunswick has expropriated certain timberlands held by a subsidiary. The Cor poration expects that negotiations regarding com pensation, which are still in progress, will result in recovery substantially greater than the amount at which the receivable is stated in the subsidiary's accounts. 6. PATENTS, CONTRACTS AND OTHER IN TANGIBLES: Patents and contracts with an un amortized cost basis of S2,148,818 at December 31, 1967 are being amortized over their respective lives; other intangibles are stated at cost. 7. LONG-TERM DEBT: Reference is made to "Long-Term Debt" on page 9 of this report for information concerning the Corporation's borrow ings. 8. CAPITAL STOCK: As of December 31,1967, there were 25,000,000 shares of Common Stock authorized, of which 9,928,300 shares were issued. As of December 31, 1967, there were 1.000.000 shares of First Preferred Stock authorized, of which 35,782 shares of 6% Series A and 80.000 shares of 5% Series B were issued. The 6% Series A stock is callable at S101 and is entitled to an nual sinking fund contributions of approximately $114,000; the 5% Series B stock is entitled to annual sinking fund contributions of $2,000,000. As of December 31, 1967, there were 10,000.000 shares of Second Preferred Stock authorized, of which 1,925.270 shares of $2.40 Convertible I I Series A were issued. Each share of Series A is convertible into 1.3 shares of Common Stock. The voluntary or involuntary liquidation value of the Second Preferred Stock is the greater of (1) $42 per share, or (2) an amount equivalent to the book value of that number of shares of Com mon Stock into which such Preferred Stock is con vertible (a minimum aggregate excess of liquida tion price over par value of approximately $61,600.000 as of December 31. 1967). These shares are callable after August 1. 1972. at $75 per share, plus accrued dividends. Treasury stock at December 31, 1967 included 668 shares of First Preferred Stock Series A, 3.600 shares of First Preferred Stock Series B. 93 shares of Second Preferred Stock and 507 shares of Common Stock. In addition, on February 2, 1968. the Corporation purchased 91.000 shares of Second Preferred Stock at the closing market price on that date. 9. WARRANTS: At December 31. 1967, there were outstanding warrants exercisable on or be fore November 1, 1982. which entitle the holders thereof to purchase 45.600 shares of unissued Common Stock at S4.58 per share. During 1967, warrants for 151.200 shares were exercised. 10. STOCK OPTION PLANS: Under the Corpo ration's restricted stock option plan. 900,000 shares of unissued Common Stock were reserved for issuance to officers and other key employees. At December 31. 1966. there were outstanding options to purchase 497.900 shares at prices ranging from S9.42 to S24.00. During 1967. an option to purchase 29.500 shares at S33.12 per share was granted, options for 238.325 shares were exercised, and options for 3.120 shares were cancelled, leasing outstanding at December 31. 1967 options covering 2S5.955 shares at prices ranging from S9.42 to S33.12. (of which options for 82.605 shares were exercisable at that date). There were 164.437 shares available for grant under the plan at the end of the year. Under stock option plans for officers, key employ ees and eligible salaried employees of Oxford Paper Company, there were outstanding at De cember 31. 1966. options to purchase 121,211 shares of Oxford common stock at prices ranging from S9.S7 to S20.62. During the seven months ended July 31. 1967. options to purchase 9,600 shares at prices ranging from SI8.75 to S29.87 were granted, options for 3.748 shares were exer cised. and options for I .S83 shares were cancelled, leaving outstanding at July 31. 1967. options cov ering 125,180 shares at prices ranging from $9.87 to $29.87. In connection with the merger, the Corporation assumed Oxford Paper Company's obligations wfith respect to the outstanding options and reserved 62,590 shares of S2.40 Second Pre ferred Stock for issuance at prices ranging from $19.74 to S59.75. During the five months ended December 31, 1967, options for 11,069 shares were exercised and options for 393 shares were cancelled, leaving outstanding at December 31, 1967, options covering 51.128 shares (of which options for 12.664 shares were exercisable at that date). No further shares are available for grant under these plans. 11. RETAINED EARNINGS RESTRICTION: The Corporation's articles of incorporation and note agreements contain restrictions, among others, against the payment of cash dividends. At December 31. 1967. S33.140.000 of retained earnings is free of such restriction under the agree ment presently most restrictive. 12. DEPRECIATION, DEPLETION AND AMORTIZATION: Depreciation and depletion charged to income amounted to S28,606,655 and $26,161,184 in 1967 and 1966, respectively. Amortization of intangibles and of deferred dis count and financing expenses charged to income amounted to S2.142,591 and $2,249,735 in the respective years. 13. RETIREMENT INCOME PLANS: The Corporation and its subsidiaries have a number of retirement income plans covering substantially all of their employees, including certain employees in foreign countries. The total pension expense for the year was approximately $7,100,000. which in cludes amortization of prior service costs gener ally over periods ranging up to 40 years. The pol icy of the Corporation and its subsidiaries is to fund pension costs accrued. Under one of the plans, the actuarially computed value of vested benefits as of December 31, 1967 exceeded the total of the pension fund by $9,250,000. 14. INVESTMENT CREDIT: The Corporation's provision for United States and foreign income taxes was reduced (and net income increased) by investment credits of $1,636,000 and S3,768,000 in 1967 and 1966, respectively. 15. RECLASSIFICATION: For purposes of comparison, freight and related shipping expenses previously included in cost of goods sold have been reclassified as a reduction of net sales to conform to the treatment accorded such costs by the Corporation in 1967. ETHYL CORPORATION AND SUBSIDIARIES TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ETHYL CORPORATION: We have examined the consolidated balance sheet of ETHYL CORPO RATION and SUBSIDIARIES as of December 31, 1967, and the related statements of income and retained earnings and of capital surplus for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the Corporation's consolidated financial statements for the year ended December 31,1966. In our opinion, the aforementioned statements present fairly the consoli dated financial position of Ethyl Corporation and Subsidiaries at December 31, 1967 and 1966, and the results of their operations for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. New York, February 22,1968. LYBRAND, ROSS BROS. & MONTGOMERY - r ir Summary k Years Ended f December 31 SALES AND INCOME I Net Sales1'1....................................................................................... | Income before non-cash items and income taxes........................ i | Depreciation, depletion and amortization.................................... i Income taxes, including deferred................................................. ! Net income . ................................................................................ ! Cash flow......................................................................................... i FEN.ANCLAL CONDITION Working Capital.............................................................................. Ratio of current assets to current liabilities................................. Property, plant and equipment (Net)........................................... Expenditures for property, plant and equipment......................... Lone-term debt................................................................................ 1967 " 1966 $468,937,810 $465,823,480 81,716,083 90,325,564 30,749,246 28,410,919 21,305,000 29,661,837 24,609,000 37,305,645 62,875,858 68,106,874 1965 S375,837,477 72.860,212 25.233.463 19,638,000 27,988,749 55.918.345 129,757,176 $3.52 to $1.00 301,344,832 26,943,000 206,418,949 107,244,238 S2.83 to SI.00 306.072,861 59,116,493 219.464.000 92,840,348 $3.07 to $1.00 280.112,427 57,653,546 223,639,131 COMMON STOCK Number of shares outstanding........................................................ Net income per share1*'................................................................... Pro forma net income per share assuming conversion of the S2.-10 Convertible Series A Preferred Stock and exercise of warrants and stock options. (If the preferred stock were con verted. the dividend would become S.78 a share, at the pres ent common dividend rate, as against the present $2.40 preferred dividend). Income taxes per share........................................... ... Book value per share'51................................................................. 9,927,793 $ 2.51 9.538.655 $ 3.40 9,487,380 S 2.56 $ 2.30 $ 2.19 $20.00 S 2.89 S 2.58 S17.93 S 2.26 S 2.15 S14.85 (1) Includes Oxford operations for entire year. All prior years ended December 31 have been restated to include Oxford operations. I2> Includes 4 months of combined Albemarle paper and Ethyl chemical operations. All prior years ended March 31 represent Albemarle paper operations only. (3) Net sales are stated after deducting freight cost. 26 I i ETHYL CORPORATION AND SUBSIDIARIES k Years Ended Y March 31 Ml j ] M2 i 163 )00 '49 145 1964 $335,663,260 62.711.854 22.160.614 19,492,000 21,059,240 46.172.275 1963 $292,878,235 52,107,959 19.886,083 15,795,100 16,426,774 39,051,615 1963'2 ' $ 94,293,820 15,391,623 6,555,892 4,455,000 4,380,731 12,117,007 1962 $ 44,284,254 5,776,220 2,294,903 1,719,051 1,762,266 4,211,875 1961 $ 46,117,036 7,252,998 2,077,980 2,740,399 2,434,619 4,680,496 1960 $ 40,758,994 6,138,973 2,041,843 1,958,081 2,139.049 4,344,420 1959 $ 32,982,454 6,007,198 1,607,425 2,266,473 2,133,300 3,785,924 48 00 27 46 i 31 !I 103.193,741 S3.19 to S1.00 240.216.457 35,876,018 225.992,032 86,267.324 $3.43 to $1.00 227.583.134 33,370.393 226,427,243 63,000,811 $2.75 to $1.00 150,959,130 4,838,805 196,375,319 10,313,111 $3.29 to $1.00 29,221,972 4,820,189 15,522,300 8,586,720 $2.73 to $1.00 28,336,492 2,644,359 13,092,000 7,950,568 $3.22 to $1.00 27,742,696 5,291,737 13,178,500 9,143,917 j $3.91 to $1.00 !| 24,512,702 6,099,122 j 13,793,100 i 30 8,438.658 2,375,807 1,187,362 1,029,674 976,956 ij 971,803 760,992 56 S 2.20 $ 1.65 $ .63 $ .24 $ .35 Ii $ .31 $ .32 '.6 S 1.78 $ 1.27 15 $ 2.61 $ 2.22 $ .69 $ .28 $ .45 $ .32 $ .39 15 S13.40 $12.45 $5.31 $3.35 $3.19 $2.92 $2.71 X ) " Based on the average number of shares outstanding in each year, adjusted for stock splits and stock dividends. Years ended December 31 1963-1967 include a pro forma provision for dividends on 1,914,201 shares of the cumulative Second Preferred Stock, S2.40 Convertible Series A issued in the merger. ` Adjusted for stock splits and stock dividends. 21 DIRECTORS FLOYD D. GOTTWALD* Chairman FLOYD D. GOTTWALD. JR.* Vice Chairman LAWRENCE E. BLANCHARD. JR.' WILLIAM H. CHISHOLM* JOSEPH A. COSTELLO Retired Vice President Ethyl Corporation S. DOUGLAS FLEET Retired Vice President Ethyl Corporation ROBERT T. MARSH. JR. Retired Chairman of the Board First jl Merchants Sationai Bank Ricnmond, la. OFFICERS AND STAFF FLOYD D. GOTTWALD Chairman of the Board FLOYD D. GOTTWALD. JR. Vice Chairman of the Board CEOROF. F. KIRBY President LAWRENCE E. BLANCHARD. JR. Executive Vice President BRUCE C. GOTTWALD Executive Vice President A Secretary WILLIAM H. CHISHOLM Executive Vice President j JOSEPH Nl. LOWRY Senior Vice President Malcolm p. murdock Senior Vice President JAMES M. GILL Vice President Chemicals Group Wallace f. .Armstrong I ice President Manufacturing ROBERT HERZOG L;_e President Planning LEONARD L HUXTABLE l ... e President Puonc Relations & Advertising THOMAS M. S.MYLIE l 'ice President KENNETH SWARTWOOD I 'ice President Research Development FRANK J. MCNALLY Treasurer J AMES H. KIRBY Controller FREDERICK P. WARNE General Counsel CHARLES E COLVIN Director or Purchasing i Traffic James b. lonergan Director or Advertising i Sales Promotion g Samuel Roberts Chief Engineer STEPHEN B. RODI Director oi Employee Relations 28 DIVISIONS Oxford Albemarle Paper Division FLOYD D. GOTTWALD. JR. Chairman WILLIAM H. CHISHOLM President Oxford Paper Company ANDREW M. MCfiURNEY Executive Vice President GORHAM H. SCOTT Senior Vice President JOSEPH R. CARNEY Senior Vice President E. V. AHARA I ice President FRED R. BATES Vice President-Sales ( RICKERT LEWIS Vice President Sationai Accounts LINTON E. S1MERL Vice President Research Development B. FREDERICK AYER Treasurer WILLIAM T. WOOD Controller Albemarle Paper Compam C. RAYMOND HAILEY Executive Vice President KIRKWOOD F. ADAMS Executive Vice President Pulp & Paper Manufacturing M. LEBBY BOINEST. JR. Vice President JOHN T. WALTON Vice President LAWRENCE K. NORTON Vice President--Sales KENNETH D. RUNNING Vice President--Manufacturing R. C. WILLIAMS Vice President--Planning HUGH H. BAIRD. JR. Treasurer and Controller W. DOUGLAS GOTTWALD Secretary ALBEMARLE CONTAINER DIVISION JOHN A. COMLY President CONSUMER BAG DIVISION R. W. HANNAH President INTERSTATE BAG COMPANY BRENTON S. HALSEY President Raymond bag division DONALD R. RUSSELL President Petroleum Chemicals ROBERT A. DOUGLASS Divisional Vice President A-General Manager JOHN F. KOEHNLE General Sales Manager R. J. OSTRANDER Technical Director Ethyl International ALBERT B. HORN. JR. Divisional Vice President it G eneral Manager CHESTER D. CARTER Divisional Vice President Business Development JULIAN J. FREY Assistant Vice President--Staff K. F. CAST General Manager--Operations H. ROBERT LINDH Director of Finance JOHN D. SAUNIER Manager--Marketing ETHYL S A. WILLIAM J. RUSHER Managing Director ETHYL HELLAS CHEMICAL C UMPANY S.A. \\ ILLIAM J. RUSHER C hutnnun ELMO F\ DIEDKICH Managing Director Ethyl Corporation of Canada Limited ALAN C. TULLY President KENNETH A. FREBERG I'/t'f President A General Manager JAMES H. MAIN Manager--Petroleum Addinv es Department ROBERT H. SHANNON Manager--Chemical Products Department Industrial Chemicals MERLE L. GOULD General Manager STANLEY A. HARRIS Sales Manager Chlorinated Solvents HARRY KUHESales Manager- General Chemicals Plastics CLARENCE M- NEHER Divisional Vice President d. General Manager PAUL E. WEIMER Manager of Operations 1 ISQLELS DIVISION LLO\D B. ANDREW General Manager HARR'j C. BYRNE. JR. Gt'uerfli Sales Manager jack c. wright Operations Manager ROLAND MCKENZIE .45Jurmif Operations Manager POL) MER DIVISION HARRY M. ZIMMERMAN General Manager ARTHUR A. SMITH General Sales Manager I'YPAK CORPORATION RICHARD F. SANDS President WILLIAM A. BOLTON Vice President--Sales and Marketing The William L. Bonnell Company, Inc. E. MALCOLM HARVEY President <&. Treasurer LLOYD L. REYNOLDS Vice President General Manager W ARREN H. BROCKWAY Vice President Ji General Sales Manager DONALD A. WAGNER Vice President--Manufacturing FRANK A. DANIELS. JR. Controller design. RoDf'is. Remhj'a: J. Onj PETROLEUM CHEMICALS Gasoline antiknock compounds Gasoline ignition control compounds Antioxidants Gasoline detereentdeicer-corrosion inhibitors Diesel fuel detergentdiaper sant-corrosion inhibitor Diesel fuel ignition improver Fuel oil combustion improver Lubricating oil additives Metal denct!' ator Oil soluble dves INDUSTRIAL CHEMICALS S> nthetic primary alcohols Aluminum alkyl compounds Chlorinated solvents i perchlorethylene. trichlorethylene. 1.1.1trichloroethane t Vim 1 chloride Ethyl chloride F.thy lene dichloride Methy 1 chloride Caustic soda tsodium Orthoalkylated chemicals Orthoalkylated antioxidants Hy Jropolymer oil Aluminum sulfate PLASTICS PRODUCTS Polyethylene packaging films Polyethylene building and agricultural films Reinforced polyethylene films Polyethylene tape Polyvinyl chloride packaging films Polyvinyl chloride shrink films "Flocor" waste treatment filter media Polyvinyl chloride resins Polyvinyl chloride compounds Polyvinyl chloride containers PAPER PRODUCTS ! ALUMINUM PRODUCTS i; Coated enamel papers for lithographing and letterpresscommercial. premium and luxury Book publishing papers for lithographing and letterpress--uncoated, film coated and coated Coaled and uncoaled web offset papers Coated rotogravure papers Coated magazine papers Cover papers Dull coated papers Coated one side label paper Envelope paper Bond for business forms Mimeo bond Duplicator bond Paper plate masters for duplicator machines.. Encyclopedia paper Custom made specialty papers w indo"x and doorcurtain walls, boat and trailers, and tub enclosures Aluminum bttildir supply materials Aluminum produ^ for the tloor cover industrv Kraft linerboard Kraft wrapping paper Colored kraft Bag and sack kraft 1 Specialty kraft papers | Blotting paper ! Gasket paper 1 Filter papers ! Asphalt, wax. and j resin treated papers j Unbleached sulfate pulp Cast coated paper and board Multiwall shipping sacks 1 Handle shopping bags 1 Grocery bags Corrugated containers i i Financial Highlights Years Ended December 31 Net Sales........................................................................ Net Income .................................................................... Earnings per Share of Common Stock (2).............. Income Taxes (3)....................................................... Cash Flow ..................................................................... Cash Flow per Share of Common Stock (2)............ Cash Dividends............................................................. Depreciation, Depletion & Amortization................... Capitol Expenditures..................................................... Total Assets ................................................................... Working Capital ........................................................... Equity per Share of Common Stock (4).................... - 1968 1967 Increc $509,072,418 $468,937,810 8.6% 31,501,615 $ 2.59 29,661,837 $ 2.39 6.2% 8.4% 29,592,000 21,971,000 34.7% 65,026,730 62,875,858 3.4% $ 6.35 $ 6.16 3.1% 11,257,355 31,075,917 10,509,245 30,749,246 7.1% 1.1% 64,158,000 26,943,000 138.1 i 554,626,867 512,734,618 8.2, 176,302,349 129,757,176 35.9 $14.52 $12.64 14.9 /1) After providing in )968 hr the 10% Federal Income Tax Surcharge of approximately $2,600,000. On o comporable fax basis for both yeors, the increase in 1966 income and earnings per share would have been 15.0% and 18.8%, respectively. 12) Based on average number of shores outstanding, treating all warrants and stock options as residua/ securities. 1967 has been restated on this basis. (31 1967 has been restated to include stole income foxes, to reflect the treatment occorded such expenses in 1968. (4) Reflects a deduction for the liquidating value of the $2.40 convertible Series A preferred stock and is based on the number of shores outstanding at December 31. treating warrants and stock options os residua/ securities. 1967 has been restated on this bosis. CONTENTS 2 Message to Shareholders 4 Financial Review 8 Operations Review ' 3 Products and Facilities 20 Financial Statements 23 Notes to Financial Statements 25 Auditors' Report 25 Ten-Year Summary 23 Officers and Directors Ethyl Cafporcii^^^^l' Repo^^_ ANNUAL MEETING 3; s*Tr^fce^BCECUTIVt OFFICES The annual meeting of Ethyl 330 South Fourth Street, Corporation shareholders will be held Richmond, Va. 23219 at the Company's executive offices in Richmond, Va. on Thursday, April 24,1969. 451 Florida Street, Baton Rouge, La. 70801 STOCK TRANSFER AGENTS First & Merchants Nr'iorol Bank, Richmond, Va. Chase Manhattan Bank N.A., New York, N.Y. REGISTRARS OF STOCK The Bank of Virginia, Richmond, Va. Morgan Guaranty Trust Co., New York, N.Y. 100 Park Avenue, New York, N.Y. 10017 Cover Photo: a section of the synthetic primary alcohols plont at Houston. Photo Below: a pano ramic view of the hydrocarbon area at the Baton Rouge plant. GENERAL COUNSEL Hunton, Williams, Gay, Powell & Gibson, Richmond, Va. UL III l A m i P~ ,, -L' etc 17022 Message to Shareholders TO THE SHAREHOLDERS OF ETHYL CORPORATION-. The year 1968 was a good one for Ethyl, though it failed in some respects to meet our expectations. This was the first time our sales crossec the half billion dollar mark. Earnings increased to $31.5 million, second only to the record year of 1966. The earnings were equal to $2.59 a share on the common stock, after allowing for the exercise of all outstanding options and warrants, as compared with $2.39 a share in 1967 on the same basis. The increase in net income is particularly notable, we believe, because it was achieved despite the 10 % federal income tax surcharge, which amounted to $2.6 million or 25 cents a share. Without the tax surcharge, our net income would have been 15% higher than in 1967. The details of our operations for the year are set out in the sections that follow and we will not repeat them here, but we urge you to review these details. It has been said of Ethyl that it is "changing ... to serve a changing world." The year 1968 saw a continuation of those changes. You will see from a table in this report how our sales mix continues to change as we continue to diversify your company. That diversification was accelerated in 1968 with the acquisition of Imco Container Company for about $26 million. As was pointed out in our last annual report, n...f.iifiiiiMiiiniinnnniiinimnnSmS,B,, ................. iiiniin!;; ini 111111111111111 1111 llllllllllllli I III llllllllllllli 1 mi iiniiiiiniii i mi iiiiiiiniiiii i 1111 llllllllllllli I tin iiiiiiiniiiii i nil iiiiiiiniiiii i llll Illllllll...... mi iiiiiiiiiinit mi iiiiiiiinii" in...... . Hill 11111111111"! in" X..... sks* we continue to believe in the excellent growth potential of plastics, and the acquisition of Imco significantly increases our participation in that area. Imco is one of the leading producers of polyethylene bottles and containers, and the acquisition opens up an important new market for Ethyl, enabling it to serve those packaging fields not accessible to our polyvinyl chloride plastic bottles. Another significant change in the year 1968 was the sale by your company of Albemarle Paper Company and two other subsidiaries in our kraft paper division for approximately $56 million in cash. The sale was decided upon in the light of the changing directions of Ethyl's business and the opportunity to use capital in other areas. Capital expenditures for the year, including the Imco acquisition, amounted to about $64 million, bringing the total expenditures for the last six years to more than $275 million, and your company expects to continue a high level of capital investment in 1969. We would like to emphasize that it takes some time forthe full potential of sucha program to be realized. Some of the newer operating units have only begun to make a contribution to the progress of your company, and we believe they should make an increasing contribution in future years. As you will see from our financial statements, your company ended the year in an excellent cash position, even after the significant capital programs of the past several years, and we believe the company should be able to take advantage of the opportunities that e." - for' future diversification. We continued to follow closely developments related to automotive air pollution, and also carried forward our extensive research program in the field. A new automotive exhaust emissions laboratory was put into operation in our Detroit center during the year, and it will greatly facilitate our research effort. Steady and significant progress, in our opinion, is being made toward controlling and reducing the auto mobile's role in air pollution. While the sections that follow detail some of the accomplishments of the past year, they cannot portray the personal contributions of our 13,500 employees. We have a strong and capable organization. As one example, Ethyl puts great stress on the more than 800 employees engaged in its broad research and development programs. Through the efforts of such groups, we are confident that Ethyl will continue "changing ... to serve a changing world" in the years to come. We look forward to the years ahead with much confidence and optimism. Pres/denf Ethyl's management personnel in Baton Rouge are now headquartered in this new office building. 3 Chairman of the Board NET SALES EXCEED $500 MILLION Years ended Decerroer 31 Millions of Dollars 500 100 NET INCOME ADVANCES TO $31 MILLION Years ended December 31 Millions of Dolla it i| + ________ E ... - r.-S\ 100 Income After Taxes id 4o 1* 50 6i o2 53 63 64 65 66 67 68 60 61 62 63 63 64 65 66 67 68 7 Endeo Marcn 31 Ended Morch 31 Millions of Dollars WORKING CAPITAL ` INCREASES APPROXIMATELY 36 175 Veers endec Decerrber 31 140 TOTAL ASSETS UP OVER $40 MILLION Years ended December 31 Millions of Dollars 600 ___ --afeg 4gQ DEBT RATIO BELOW 50% Percent 100 Equity ' 80 105 : 70 360 --- - 240 . 35 ~1 120 " i= ' ' 0 :C o; c2 53 63 64 65 66 67 68 -- .=:sc3' Yea'--r "ceo Wot* 31 60 61 62 63 63 64 65 66 67 68 1-- Fiscal Yeor--* Ended Morcn 31 63 Nof: I960 to 1952. A/b*mor/ Popr Co. on/y; perid ended Merc/i 31. 1963, includes Ethyl Corp. (Oet.J treated es on acquisition; 1963-1957, ffliy/ Corp. fVo.J ond Oi/ord Poper Co. treared on o pooling-of-interests basis. 64 Debt - 65 66 1 60" ------- 1 40 i | 20 i1 !o 67 68 HOW ETHYl USED THE REVENUES IT RECEIVED DURING 1 968 (Millions of Dollars} $512.4 100.0% WAS RECEIVED BY ETHYL from sole of its products and other income I net) THESE RECEIPTS WENT: -- $257.5 50.3% To suppliers for materiols. services, etc.... 5139 2 / jj 5 38.1 27 2% 7 4% To emolovees for payrolls, employee benefits For mcome end other taxes ; j j S 12.5 /i j ; j $11.3 2.4% 2.2% For .merest expense To Ethyl shareholders For use m the business including expansion, modernization, working capital, debt repayments and sinking fund payments: $ 31.1 -7/ $ 20.2 / $ 2.5 $ 53.8 6.1% 3.9% 0.5% 10.5% From depreciation, depletion and amortization From earnings From deferred income tax ETC 17025 Sales Set a Record High Consolidated net sales in 1968 were over a half billion dollars for the first time. Sales of $509,072,000 repre sented an increase of over $40 million, equal to about a 9% gain. NET SALES BY PRODUCT LINES 1966-1968 fin Thousands ol Doilon) Chemicals Petroleum.................... Industrial ...................... Plastics............................... Paper & Paper Products Albemarle...................... Oxford........................... Aluminum Products . ... 1968 Net Soles Percent of Total $210,807 57,688 63,034 42% 11 12 48,573 94,447 34.523 $509,072 9 19 7 100% 1 967 Net Sales Percent of Total $199,310 45,030 40,111 42% 10 9 58,365 93,480 32,642 $468,938 12 20 7 100% 1966 Net Sales Percent of Totol $205,998 39,074 35734 44% 9 8 62,636 97,350 25,031 $465,823 13 '21 6 100% As seen in the above table, net sales in 1968 increased in all categories except Paper where the decrease reflects the sale on October 31,1968 of most of the assets of Albemarle Paper Company, all assets of Interstate Bag Company, and the capital stock of Halifax Timber Company. The largest sales increases were scored in Plastics and Industrial Chemicals. Net Earnings Advance Again Net earnings for 1968 amounted to $31,501,615, as compared with net earnings of $29,661,837 for 1967. The increase in 1968 net income over 1967 is particularly noteworthy when it is realized that in order to exceed 1967 results it was necessary in 1968 to overcome the burden of the Federal income tax surcharge, which amounted to approximately $2,600,000. The increase in income is accounted for mainly by improvements in Industrial Chemicals, Plastics (including the earnings of Imco Container Co. since August 11, and Petroleum Chemicals. The investment credit in 1968amounted to $1,172,000 compared with a credit of $ 1,636,000 in 1967. Earnings per Share Increase The 1968 net income was equal to $2.59 per share, based on the average 10,258,857 shares of common stock outstanding during 1968, assuming exercise of all warrants and stock options. It compares with net income of $2.39 per share for 1967, on the basis of the average 10,260,479 shares of common stock outstand ing during that year, assuming exercise of all warrants and stock options. All of our outstanding stock options and warrants are now treated as residual securities in computing earnings per share. Accordingly, the average number of shares outstanding assumes the exercise of these options and warrants in determining earnings per share of common stock. 1967 earnings per share have been restated on this basis. Capital Stock During 1968,99,210 shares of common stock and 21,240 shares of $2.40 second convertible preferred stock were issued as the result of exercise of employee stock options and 2,264 shares of $2.40 second convertible preferred stock were issued under the Oxford Incentive Compensation Plan. This brought the total number of common shares actually outstanding to 10,027,510 and of the $2.40 second convertible preferred shares outstanding to 1,857,681 on December 31,1968. Dividend Increased At its November meeting, the Board of Directors increased the regular quarterly dividend on the common stock to 5 18 cents per share from 15 cents per share. On an annual basis, this is equivalent to a dividend of 72 cents per share, compared with the former annual dividend of 60 cents per share. Cash and Short Term Investments Increase During 1968, there was an increase in cash and shortterm securities of $64.4 million, from $40.7 million at December 31,1967 to $105.1 million at December 31, 1968. The following table shows the source and disposition of funds: Source of Funds Disposition of Funds Depreciation, Depletion and Amortization ................ Proceeds from Sale of Albemarle .................. Deferred Income Tax . ... Proceeds from Exercise of Stock Options................ Net Increase in Long-Term Debt........................ Increase in Notes Payable Other Items.................... $ 31,501,615 31,075,917 56,000,000 2,449,198 1,663,441 6704,253 12,936,261 4,314,790 $146,645,475 Capital Expenditures: Property, Plantand Equipment . . $38,158,000 Acquisition of Imco Container Co. (in cluding Rexpak] 26,000,000 Sinking Fund Payments . . . Treasury Stock........ increase in Cash and Short Term Securities . .. $ 11,022,685 64,158,000 2,012,550 5,059,655 82,252,890 64.392,585 $146,645,475 Cash Flow Increases Cash Flow, which consists of net income plus depreciation, depletion and amortization and deferred income taxes, amounted to $65 million in 1968, as compared with a cash flow of $62.9 million in 1967. The 1968 cash flow exceeded that in 1967 by $2.1 million and was sufficient to provide for all fixed charges and dividends and to provide substantial funds for capital expenditures. Working Capital Higher At December 31, 1968, working capital was $176.3 million and the ratio of current assets to current liabilities was 3.47 to 1. This compared with working capital of $129.8 million and a ratio of 3.52 to 1 at December 31, 1967. Capital Expenditures at High Level During 1968, a record $64.2 million was spent on capital projects for new plants and for expansion and modernization. Ofthistotal, about $26 million was spent for the purchase of Imco Container Company, which is a leading producer of polyethylene bottles and containers. Arrangements were completed to build a plant to produce bromine and ethylene dibromide in Columbia County, Arkansas, through a partnership known as Bromet Company in which Ethyl has an 80% general partnership interest and Great Lakes Chemical Corporation a 20% limited partnership interest. Construc tion of the plant is expected to be completed in mid-1969. In the last six years, total capital expenditures were over $277 million. Long Term Debt De6t repayments during 1968 amounted to $7.7 million. These consisted of payments of $1,250,000 on the 5'% % Bank Loan, due 1970; $685,211 on the 3% % Guaranteed Notes, due 1970; $2,500,000 on the 5%% Subordinated Notes, due 1972; $1,250,000 on the 4% % Promissory Notes, due 1983; and $2,021,154 on Miscellaneous Debt. 6 >,685 .,000 ,550 ,655 ,890 ,585 .475 / vas ;on f bia ;s n. - '5C4.A On December 18, 1968, the Company entered into a long-term note " agreement with four insurance companies to borrow $50 million. The proceeds realized from this borrowing will be used to replace funds used to acquire Imco Container Company, to build an ethylene dibromide plant and for general corporate purposes. On December 31,1968, $19 million of this borrowing was drawn down and the remaining balance of $31 million is expected to be drawn down during 1969 or early 1970. As of December 31,1968, the long-term portion of Ethyl's debt was $215.1 million, equal to 47% of the Company's total capitalization. The long-term debt at December 31,1968 represents an increase of $8.7 million over long-term debt of $206.4 million at December 31,1967. This increase is the result of the $19 million new borrowing plus $2.1 million of mortgages held by Northwestern Mutual Life Insurance Company on two office buildings purchased at the time of the Albemarle sale plus $361,000 of miscellaneous debt less $5.7 million in long-term debt due during the year 1969 and long-term debt of $7.1 million assumed by Hoerner Waldorf in connection with the Albemarle sale. The current portion of long-term debt decreased by $2 million from $7.7 million at December 31,1967 to $5.7 million at December 31, 1968. Accordingly, the net change in total long-term debt for the year 1968 is an increase of $6.7 million. SUMMARY OF IONG-TFRM rscDT ULDi 5V2% Bank Loan-Due 1969-70 ......................................................................... The Chase Manhattan Bank 53/4% Senior Notes ($106 million--Due 1971-78) and 71/2% Promissory Notes ($19* million--Due 1973-83) ..................................................... The Prudential Insurance Company of America The Equitable Life Assurance Society of the United States The Northwestern Mutual Life Insurance Company New York life Insurance Company 33/e% Guaranteed Notes--Due 1969-70 ......................................................... Three Canadion Banks (Debt of Canadian Subsidiary Guaranteed by Parent Company) 53/4% Subordinated Notes--Due 1969-72 ....................................................... The Prudential Insurance Company of America The Equitable Life Assurance Society of the United States New York Life Insurance Company 53/4% Subordinated Notes-Due 1979-82 ...................... r............................ Various Institutional Investors . 47/a% Promissory Notes--Due 1969-83 ........................................................... Miscellaneous...................................................................................................... Total Debt at December 31,1968 ............................................................. Current Portion of Debt............................................................................. Long-Term Debt............................................................................................ $ 4,250,000 125,000,000 1,373,899 9,985,000 50,000,000 27,750,000 2,495,449 220,854,348 5,733,359 $215,120,989 * Represents o portion of a $$0,000,000 commitment. The odditionol $31,000,000 is to te drawn down during 1969 or eorly 1970. SUMMARY "OF DEBT MATURITIES TO 1978 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 5V2% Bank Loan Due 1970 $%% Senior Notes Due 1978 7Vj% Promissory Notes Due 1983 $1,250,000 3,000,000 $12,000,000 12,000,000 12,000,000 12,000,000 12,000,000 12,000,000 12,000,000 22,000,000 $2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 $V4% Subordinated Notes Due 1972 4*/j% Promissory Notes Due 1963 3Vi% Guaranteed Notes ond Misc Debt Maturities to 1992 Toto! Annual Amount $2,500,000 2,500,000 2,500,000 2,485,000 $1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 $733,359 754,863 69,393 313,871 76,454 80,324 84,438 88,814 93,468 83,415 $ 5,733,359 7,504,863 15,819,393 16,048,871 15,826,454 15,830,324 15,834,438 15,838,814 15,843,468 25,833,415 tv.6/. ETC 1T028 ETC 17029 ETC 17030 PETROLEUM Our sales of petroleum chemicals both domestic and foreign were aided CHEMICALS primarily by the continued strong growth in gasoline demand during 1968 and by continuing increases in the automobile population. U.S. sales of antiknock compounds by our Petroleum Chemicals Division naturally reflected the gains in gasoline consumption and at the same time demonstrated anew the economic importance of antiknocks to the oil industry. The year also saw a continuing gain in the demand for the lighter lead alkyls relative to total antiknock demand. New facilities installed at the Houston plant increase Ethyl's ability to supply these lighter lead alkyls to the oil industry. The Division also made significant progress in the marketing of other' ` special purpose additives for fuels and lubricants. Sales of antioxidants, cetane improvers and other diesel additives were particularly strong, and continued growth is forecast for 1969. A new source of supply of ethylene dibromide, used in the manufacture of antiknock compounds, will become available to Ethyl sometime in 1969. Under arrangements made last year with Great Lakes Chemical Corporation, a plant to produce bromine and ethylene dibromide is being built in Columbia County, Arkansas. Great Lakes is building and will operate the plant. In Canada, our subsidiary, Ethyl of Canada, maintained its position Alpho olefins pilot plant at Baton Rouge. as the leading supplier of antiknock compounds in the Dominion. As was the case in the United States, its sales benefited from the increase in Canadian gasoline consumption during the year, which in turn was aided by sustained tourist travel. Sales of other petroleum additives and of industrial chemicals increased over 1967. Among the products in good demand were aluminum alkyls and mixed aluminum halides, which are used as catalysts in the production of synthetic rubber and plastics. Ethyl of Canada supplied all Canadian requirements of these chemicals. The manufacturing facilities at the Sarnia plant were operated at a high level of capacity during the year, to meet the increased demand in most product lines. Also during the year, Ethyl of Canada expanded its technical services which are designed to assist refiners in their manu facturing and marketing operations. These programs, utilizing linear programming, include gasoline blending studies and lead alkyl economic evaluations. Ethyl of Canada looks for increased sales in all of its product lines during 1969 corresponding to the anticipated growth for the oil and chemical industries at large. Overseas, Ethyl's International Division benefited from substantially higher sales of antiknock compounds during 1968, with the major increases occurring in Europe and southeast Asia. Significant gains in sales of industrial chemicals were also achieved in Europe and Latin America, and continuing increases are expected. As a result of its higher volume of sales, the International Division was able largely to offset the selling price reduction resulting from devaluation of the British pound late in 1967. i The Ethyl Hellas plant in Greece, which supplies antiknock compounds ETC 17031 ! v I to refiners in Europe, the Middle East and Africa, made good progress. in overcoming its earlier start-up problems and in improving over-all operations. The plant is in the midst of an expansion program which will increase capacity and improve operating efficiency. The plant will thus be better able to serve refiners in Europe and elsewhere. Ethyl, through its subsidiary, Ethyl Netherlands, is a member of a four-company group that is exploring for natural gas on a one-million acre concession in the Dutch sector of the North Sea. Tenneco Oil Co. is the operator for the group, supervising the drilling operation, and Ethyl has a one-sixth interest in the venture. Exploratory operations, which began in 1968, are continuing this year. INDUSTRIAL The Industrial Chemicals Division made excellent progress in 1968 in CHEMICALS increasing its sales and improving its operating profit--despite the continuing pressure on prices in several of its major lines. The improved results were due not only to higher sales volume but also to improved operations of the new plants which have come on stream in recent years. The synthetic primary alcohols plant at Houston became the Division's principal operation and source of revenue. The alcohols plant ETC 17032 exceeded its design capacity in 1968, and its operating costs were substantially improved, reflecting higher volumes, increased sales of by-products, and better utilization of major raw materials. The major products of this plant are alcohols which are used in the production of plastics and biodegradable detergents. The by-product alcohols and olefins produced in this plant move into various markets, for example, resin manufacture, oil additives, plasticizer, surfactant, metal working, and elastomers. Other products based on related technology which are in the pilot plant and market development stage include such basic chemical intermediates as fatty acids and alpha olefins. Sales of vinyl chloride monomer gained over 1967, when consumption of polyvinyl chloride, into which the monomer is converted, was at a virtual standstill. Vinyl chloride prices were under pressure during 1968, due to excess capacity. Even so, Ethyi anticipates an increase in production and sales for 1969 to meet external sales requirements as well as our internal needs for the monomer in our polyvinyl chloride resins and compounds production. Particular emphasis was placed in 1968 on the marketing of our chlorinated solvents, which are used in metal degreasing, textile treating, and dry cleaning applications, among others. The chlorinated solvents market has been and is projected to be a good growth area, but solvents have been faced with severe price competition over the past two years. Ethyl was able to overcome these problems to some extent through new production records and cost reductions in its solvents operations. The company's plants, all in Baton Rouge, produce tri- and perchlorethylene ETC 17033 New Vypok food grade PVC bottle is 'eadied for shipment at the Rockaway, New Jersey plant. and 1,1, 1-trichloroethane, three of the leading chlorinated solvents in use. Sales of aluminum alkyl compounds, which are widely used as chemical catalysts for plastics and synthetic rubber, increased at a good rate in 1968. A major factor in their growth was the increased demand for them in ethylene propylene (EPDM) rubber. A major expansion in aluminum alkyl capacity was completed at the Houston plant in early 1969. In addition, a number of new aluminum alkyl compounds were introduced in 1968 as catalysts, and other new uses for them are being explored. These applications include alkylation, reduction, production of other metal alkyls, and metal plating. Sales of orthoalkylated chemicals also increased during the year, reflecting not only increased demand for existing products but also the introduction of new ones. The major markets for these orthoalkylated aromatics are in agricultural chemicals, dyes, and antioxidants. Among new products, major sales increases were achieved in diethylaniline and ortho isopropylphenol, which are used as intermediates, and in several specialty antioxidants. In addition. Ethyl licensed a Shell Chemical Company development based on an Ethyl-patented raw material, and began manufacturing and marketing the new product, antioxidant 330. To meet the increasing demands for our orthoalkylated^ chemicals, additional capacity was installed at our Orangeburg, South Carolina plant during 1968, and a further expansion is underway. m PLASTICS --e new facilities either completed or instruction in 1968 were (far left) a new 1 chloride compounding plant ot Tiptoninessee; (top left) a new aluminum exotant at Carthage, Tennessee; (above ' new bromine chemicals plant near 3. Arkan sas, and (bottom) a new poly- 3oule manufacturing facility at Goleta, The Plastics Division increased its sales in 1968 by more than 50% over the preceding year. About half of the sales increase resulted from the acquisition of Imco Container Co. late in July. The balance reflected growth in sales of polyvinyl chloride (PVC) resins and compounds and of PVC bottles, pipe and film. The Imco Container acquisition substantially improves our ability to serve the various markets for plastic bottles, and enables us to compete in markets not open to our existing line of PVC bottles. Imco is one of the leading producers of polyethylene bottles which are used primarily for packaging toiletries, cosmetics, detergents and household chemical products. Ethyl's purchase of Imco includes eight polyethylene bottle manufacturing plants, a molding machinery plant, two closure manufacturing plants, and the exclusive right to the "Imco" trademark in the United States and Canada. Ethyl's PVC bottles, marketed under the "Vypak" trademark, continued their rapid growth in 1968. Two new plants, one each in the San Francisco and Chicago areas, were opened. And in addition to expand ing sales in such areas as household chemicals, detergents and shampoos, Ethyl became the first PVC bottle maker in the United States to supply a food grade PVC bottle commercially. The first consumer products to utilize this new Ethyl container were an artificial sweetener, a mouth wash, and a salad dressing. The vast new market which could open up for PVC in food packaging, together with the growth in existing markets, portends an excellent future for our PVC bottles. Sales of PVC resins and compounds in 1968 were double their 1967 level, as compared with an industry growth rate of only 10%. Moreover, 13 ETC 17034 significant progress was made in improving plant efficiency and reducing production costs, and an expansion of our PVC resins and compounds j facilities is underway. Construction of a new PVC compounding plant in Tiptonville, Tenn., was begun late in the year, and it is expected to be completed in the latter part of 1969. Because of weakness in prices, both of finished product and raw materials, our polyethylene film sales continued at relatively the same level as in 1967. However, operating profits improved as a result of increased efficiency and cost reductions. A new polyethylene film plant. Ethyl's fifth, is under construction in Carbondale, Penna., and upon . completion will improve our ability to serve the Northeast market. Sales of PVC film for packaging red meat and produce, as well as PVC shrink film, continued to grow, and the company continues to be optimistic with respect to the prospects for these highly versatile products. | Reflecting the good reception of Ethyl's Bell: Ring PVC pipe in the water and irrigation trades, sales of PVC pipe continued to increase in 1968. Considerable progress was made in improving manufacturing efficiency, and we are expanding our production capacity to enable us I to keep pace with the growing market. j PAPER Operations of the Paper Division in 1968 were somewhat disappointing, i| due largely to market conditions of overcapacity and resulting price j weakness. This was true of both the bleached and unbleached areas, and i for most of the year price increases to partially offset the continuing cost ! increases of labor and materials were almost non-existent. Fortunately, toward the end of the year, demand for paper products strengthened. In October, Ethyl sold to the Hoerner Waldorf Corp., of St. Paul, Minn., for approximately $56 million, all of its unbleached paper business except for small specialty paper operations in Richmond, Va., ETC 17035 It, t cts. s ind st d. which are being handled by the newly formed James River Paper Co. The Oxford division increased its sales of bleached paper for'the year, but earnings were below expectations for the reasons mentioned above. Capital expenditures at Oxford were restricted to normal maintenance and replacement types of work as well as the continuation of the work at the Rumford mill on the new wood room which started up in the early part of the year. Negotiations continued with the province of New Brunswick, Canada, regarding a settlement of the expropriation of the company woodlands in that province. Sales by end use of Oxford products in ! 968 were as follows: Magazines and Periodicals..................................... Book Publishing ....................................................... Commercial Printing . .. ............................ Converting (Business Forms, Envelopes, Etc.) .. . Total ..................................................... Tons 138,414 78710 75,134 66,726 358,984 % of Total 38.6 21.9 20.9 18.6 100.0 As a leading producer of aluminum shapes, molding and trim for homes, plants and office buildings, the business of our subsidiary, the William L. Bonnell Co., is greatly influenced by the general level of construction activity. Bonnell's extruded aluminum operations were basically strong during 1968, aided by the improvement in new housing starts over 1967. Bonnell's plant in Newnan, Ga. operated at capacity most of the year,and during the peak of the construction season, orders had to be turned down for lack of capacity. Bonnell experienced substantial increases in costs for labor and materials during the year, and was unable to offset these cost increases fully through higher selling prices. Accord ingly, efforts to reduce costs in other areas have been reemphasized. Construction of a second Bonnell plant, located in Carthage, Tenn., was begun in 1968, and it is scheduled to be in full operation during the first half of 1969. The Carthage plant represents a basic expansion of Bonnell's extrusion capacity of about 40%, and also provides additional areas of market penetration not previously possible. Bonnell anticipates a good market for its products in 1969, and with the startup of its Carthage plant, many of its production limitations will be temporarily relieved. Moreover, plans for expansion at Carthage are being formulated in anticipation of a sustained housing boom in the 1970's. RESEARCH Ethyl's Research and Development department conducted a broad range of research programs in 1968 in support of the company's increasingly diversified business. Expenditures by the R and D department were more than $16 million. Automotive Emissions Research One of Ethyl's major research activities in recent years has been concerned with automotive exhaust emissions in relation to air pollution. Since Ethyl's antiknock compounds play a key role in the improvement of gasoline quality and utilization of gasoline in internal combustion engines, its research studies in this area have been very broad and have encompassed the whole field of fuels and engines as it relates to air pollution. 15 ETC 17036 . j ; j (Top) Many novel uses are foreseen for foamed aluminum developed by Ethyl research. (Bottom) Dr. M. F. Gautreaux, Jr., (right) Ethyl's manager of Research and Development, receives award from Calvin S. Cronan, editor, Chemical Engineering, for his practical achievements in the chemical engineering field. l ! j I | These studies involve both chemical and engineering approaches to solving the problem of automotive emissions. A major research program has been to promote more complete combustion inside the engine in order to reduce emissions of unburned hydrocarbons and carbon monoxide. While possible methods for reducing undesirable emissions have included catalyst systems and manifold air injection systems, engine modif ca`:on systems now appear to be the most promising approach, and most automobile manufacturers are using this method to meet present standards. Ethyl's major research effort has been in this direction. We have been working closely with the automobile companies, and the results of this work have been made available to them through direct contacts and through the publication of technical papers. r In the course of our research work, advances have been made in development of experimental carburetors, manifolding and other engine components to allow engine operation at very lean fuel mixtures. The use of lean fuel mixtures reduces unburned hydrocarbons in the engine. In addition, a modified exhaust system provides higher tempera tures to reduce further the emissions from the vehicle. These improved concepts were applied to our "second generation" low emissions research car, and we are enthusiastic about the results. Many thousands of miles of operating experience have been obtained on Ethyl research cars incorporating these concepts, and these research cars operate at emission levels well below those required to meet the present and 1970 Federal Emissions Standards. One of these Ethyl cars was driven around the country by our Petroleum Chemicals Division for extensive demonstrations to oil company personnel of the results of this work. Our research cars are also being made available to the automotive companies for their evaluation of our concepts. While we are proud of our technical progress to date, we are working on still newer versions of these research cars with even further basic improvements. Research also continued toward the development of devices to remove lead and other particulate matter from exhaust gases. An important step forward in our research effort was taken in 1968, when Ethyl placed in operation a new automotive emissions laboratory in Detroit. This new laboratory, with highly specialized facilities, will facilitate and improve the precision of vehicle emission measurements. Already, the laboratory has proven to be of great assistance in our over-all research program, and particularly so in our effort to develop further experimental control systems for automotive vehicles, in order to meet future emission standards. Chemical Research Long range exploratory research is attacking a broad range of unique process and product targets. Work on various synthetic edible fats has progressed well. Ethyl continues a significant research effort in the field of light metals. Evolution of foamed aluminum products and their applications continues to show promise. Extension of Ethyl's unique technology for detergent alcohols has led into etc 17037 development work on straight chain alpha olefins and fatty acids. Research went forward on new polymers, and development work continued on polyvinyl chloride compounds for battery separators, filter media, and glass-reinforced resins. Research support of market development work on CI-2, Ethyl's smoke-reducing additive for oil-burning power stations, oil-fired turbine generators, and aircraft power plants-, continued during the year. New facilities recently added at the Baton Rouge research labora tories include an expanded pilot plant wing and a technical information center building. During 1968, Ethyl received about 60 U.S. patents and 150 foreign ones. Ethyl now holds almost 1,150 unexpired U.S. patents, and maintains over 900 foreign patents. ETC 17038 T' PETROLEUM.CHEM' I-CALS~''~i' - INDUSTRIAL CHE. M ICALS Gasoline antiknock compounds Gasoline ignition control compounds Antioxidants Gasoline detergent-dsfcer- corrosion inhibitors Diesel fuel detergent- - corrosion inhibitor Diesel fuel ignition improvers Fuel oil combustion improver Lubricating oil additives Metal deactivator Oil soluble dyes : Linear primary afcctftols -- Aluminum alkyl compounds Chlorinated solyents ' IperchterShylene, \ichlorethylene, 1,1,1-trichloroethane) V Vinylchloride / Ethy_L chloride . v. , Methyl chloride ', . Caustic soda Sodium ,, Orth`oah:ylate3"pt)enols w .and aniline . -'^^hoalkydfeckprrtioxi3 apecikorqonQtnetoilics~ PLASTICS PRODUCTS PAPER PRODUCTS Polyethylene packaging films . Polyethylene building and agkiCultural films _Reinfored polyethylene films - Polyethylene tape Polyvinyl chloride packaging. films . Polyvinyl chloride shrink films .-"Flocor''-wos!e treatment - . filter media^ * Polyvinyl chloride resins . .Polyvinyl chloride compounds Polyvinyl chloride contaipers ^Polyethylene andaShar " plastic containers ''SM^losures Plastic pipe, con3urf*'_ ' ^tjhd.flftings Art- r.,'- Oxford Paper Company ~ ^Coaled Letterpress Papers j? for commercial printing Coated Offset PapeW for. book publishing, commer printing .; Uncoated Letterpress Papers for book publishing, commer printing *' Uncoated Qffset Papers fot book publishing, commer printing WeSOffsetPapers--. - .- Coated and Uncoated for magazines, book publish commercial printing - Film Coated Papers. for book publishing, commer printing ... Gravure Papers-^ Coated and Uncoated-- - T ISheet and Ro!H' S'fafljagazines,,commercial - "* printing, converting' Converting Papers' ' for envelopes, businesfflSrm . ier masteri-.^ ^c:-.. ' " Janes River roper Company v ^Blotting paper yrj M Gasket pa per - Filter.paper _ -^HMiSsorfeent specialties . ~ -- " Creped kraft `^'Qglored kraft -- Specialty kraft papers ' Kraft wrapping papers-^-- |tr ^^sj^alt wjjsLbnd res.in .. v treated papers , ; : - U 'Cast codrfed coygr arfd'"lt"^> folding boxboaid,. :.-*r ETC 17039 s Papers g.commeb Ders g, commerci sd ok publish^ 9 3, commerd AtllMINUM PRODUCTS Aluminum shapes fosvrtindows and doors, curtain walls, boats and trailers, and tub enclosures Aluminum building shapes Aluminum products for the loor covering industry ;jr 3d-- mmercial'. 3 inessWm 3/npanyr- X - > J- : / ; ;'/>>' . y.' . < '" -.' "X - /: "'Xfe ^ r_- ' 5: r; / " t^S5=.r k*<?. t X.- mm id * '35 JZ. 7T /wr<J - ,, r x>^-\ - ;X- ^ '? - ,y^ ^ -73' ~' ; / PAPER MILLS,: PLASTICS PLANTS ';cisV'^.. ' ALUMINUMEXTgJJJSTON PJANTS ' 'T~> ' V CHEMICAL PLANTS \ ' -C" -' --'XXw/' ' .'V"'T^ v *>'*"-*.,v-,,--. '- *; --v 24V-. T. OfferPlants.- ---' .'. r.'.-:" ,._ . C -'jl ,: T Sarnia;>QntafialXanada :... T"*^ Cooksvi!T9*OTtariO, Canada , ,- --> - ^ ^ ~ # .* * -w.. . Thessaloniki, Greece, -r" . : . / T~' wSBSI ----dr- t ETC 17040 Ethyl Corporation and Subsidiaries !t ? i li li I t December 3? 1968 1967 Current assets: Cash and short-term securities............................... Accounts and notes receivable............................ Inventories ............................................................... Prepaid expenses.................................................... Total current assets................................... $105,098,436 72,016,192 69,122,138 1,536,608 247,773,374 $ 40,705,851 64,994,163 73,376,479 2,081,295 181,157,788 Property, plant and equipment: Land and land improvements................................. Timberlands and standing timber.......................... Buildings.................................................................... Machinery and equipment..................................... Less, Accumulated depreciation and depletion Net property, plant and equipment . . . . 19,944,646 6,341,363 71,250,343 341,960,914 439,497,266 169,736,638 269,760,628 17,663,996 24,329,635 72,873,865 365,630,147 480,497,643 179,152,811 301,344,832 Investment in 50%-owned company........................ 5,071,505 5,071,505 Deferred charges and other assets............................ 16,297,913 16,849,490 Patents, contracts and other intangibles................... 15,723,447 8,311,003 $554,626,867 $512,734,618 The accompanying notes are an integral part of these sfofemenfs. ETC 17041 >5,851 >4,163 '6,479 i 1,295 >7,788 3,996 9,635 3,865 0,147 7,643 2,811 4,832 1,505 9,490 LIABILITIES December 31 1968 Current liabilities: Accounts payable and accrued expenses............ Dividends payable................................................. Notes payable........................................................ Long-term debt, current portion............................ Income taxes............................................................. Total current liabilities............................... Long-term debt: Senior......................................................................... Subordinated .......................................................... Estimated income taxes payable in future years .... Provision for employee benefits................................. Minority interest in consolidated subsidiary............ $ 35,315,171 3,052,754 15,936,261 5,733,359 11,433,480 71,471,025 157,635,989 57,485,000 18,631,167 5,297,722 210,000 1967 $ 33,955,919 2,818,084 3,000,000 7,731,146 3,895,463 51,400.612 146,433,949 59,985,000 19,957,163 5,729,588 280,000 SHAREHOLDERS' EQUITY Capital stock: Cumulative First Preferred Stock, par $100 per share: 6% Series A........................................................ 5 % Series B.......................... .......................... Cumulative Second Preferred Stock $2.40 Con vertible Series A, par $10 per share (aggregate 3,465,300 6,000,000 liquidation price $78,022,602 in 1968 on the outstanding shares)............................................. Common, par $1 per share................................... Capital surplus...................................................... Retained earnings........................................................ 19,487,740 10,027,510 46,071,627 164,235,290 249,287,467 Less, Treasury stock at cost........................................ 5,391,503 Total shareholders' equity........................ 243,895,964 $554,626,867 3,578,200 8,000,000 19,252,700 9,928,300 44,639,421 143,991,030 229,389,651 441,345 228,948,306 $512,734,618 ETC 17042 Consolidated Statements of Income and Surplus December 31 STATEMENTS OF INCOME AND RETAINED EARNINGS , Income: Net sales..................................................................................................... Miscellaneous income, net...................................................................... Costs and expenses: Cost of goods sold.................................................................................. Selling and general expenses.................................................................. Interest and financing costs................................................................... Income taxes.............................................................................................. Net income ................................ Retained earnings atbeginningof year..................................................... Deduct, Cash dividends: Series A, 6% First Preferred stock, $6.00per share.............................. Series B, 5% First Preferred stock, $5.00per share.............................. $2.40 Second Preferred stock, $2.40 per share in 1968 and $1.17 per share in 1967 ........................................................................................ Common stock, per share, $.63 in 1968 and $.60 in 1967 .................. Oxford Paper Company, prior to merger............................................. Retained earnings atend ofyear................................................................. Earnings per share of common stock (treating stock options and warrants as residual securities)..................................................... Pro forma earnings per share of common stock assuming conversion of second preferred stock. (If the second preferred stock were con verted, its dividend would become $.94 per share at the annualized present common dividend rate, as against the present $2.40 preferred dividend.) .................................................................................................. 1968 $509,072,418 3,359,787 512,432,205 374,412,530 63,651,935 13,274,125 29,592,000 480,930,590 31,501,615 143,991,030 175,492,645 199,894 334,250 4,432,402 6,290,809 11,257,355 $164,235,290 $2.59 $2.44 1967 $468,937,810 4,965,815 473,903,625 348,392,738 60,779,084 13,098,966 21,971,000 444,241,788 29,661,837 124,838,438 154,500,275 214,953 445,500 2,245,293 5,866,611 1,736,888 10,509,245 $143,991,030 $2.39 $2.28 STATEMENTS OF CAPITAL SURPLUS Balance at beginning of year..................................................................... Excess of cash received over par value of 151,200 shares of common stock issued upon exercise of warrants................................................. Excess of cash received over par value of shares of stock issued under stock option plans: 99,210 and 238,325 shares of common stock . .. ............................. 21,240 and 11,069 shares of $2.40 Second Preferred stock.......... 3,748 shares of Oxford Paper Company common stock................ Excess of face amount of Oxford Paper Company debentures over par value of 630,967 shares of common stock issued in exchange there for, less related costs................................................................................ Excess of par value over cost of 1,129 shares and 1,130 shares of 6% First Preferred stock cancelled............................................................... Excess of par value of 93 shares of $2.40 Second Preferred stock over 120 shares of common stock issued upon conversion, less cost of fractional shares of common stock purchased....................................... Expenses incurred in connection with the merger of Oxford Paper Company into Ethyl Corporation........................................................... Excess of cost over par value of 13,119 shares of Oxford Paper Com pany stock held in that company's treasury and retired in connection with the merger........................................................................................ Excess of award amount over par value of 2,264 shares of $2.40 Second Preferred stock issued under the Oxford Incentive Compen sation Plan.................................................................................................. Balance at end of year....................................................................... $ 44,639,421 970,747 381,084 10,350 70,025 $ 46,071,627 The accompanying notes are an integral part of these statements. $ 36,651,132 541,800 2,303,066 237,835 24,200 5,666,913 992 775 (584,4211 1202,871) $ 44,639,421 ETC 17043 Motes to Financial Statements no ns .25 38 84 '56 00 88 37 38 75 53 30 ?3 il 58 (5 50 K !. Consolidation Principles. The accom panying financial statements include the accounts and operations of all wholly-owned subsidiaries. In July, 1968, the Corporation acquired IMCO Container Company and certain other assets in a cash transaction amounting to approximately $26,000,000. Accordingly, the accompanying financial statements include the assets and liabilities of IMCO Container Company and the results of its operations for the five-month period ended December 31,1968. In October, 1968, the Corporation sold substantially all of the net assets of two subsidiaries lAlbemarle Paper Company and Interstate Bag Company, Inc.) and the common stock of a third subsidiary (Halifax Timber Company) in a cash transaction of approximately $56,000,000 (the book value of the assets sold). 2. Cash and Short-Term Securities: Short-term securities, stated at cost plus earned discount which approximates market value, amounted to $92,145,482 at December 31,1968 and $22,848,855 at December 31,1967. 3. Inventories: Inventories include: 19681967 Finished goods.................. $29,146,823 $29,085,537 Raw materials and work in process....................... 26,772244 29,966720 Stores, supplies, etc......... 13203,071 14,324,779 $69,122,138 $73,376,479 Inventories are stated at the lower of cost or market with cost being determined on the last-in, first-out basis with respect to approxi mately $31,967,000 at December 31, '68, and $36,914,000 at December 31,1967, and generally on either an average cost or first-in, first-out basis with respect to the balance. 4. Investment in 50%-Owned Company-. This investment is stated at cost and represents the Corporation's investment in Ethyl-Dow Chemical Company, a 50%- owned company. The Corporation's investment exceeded its equity in the net assets of this company at December 31,1968 by approxi mately $3,315,000, which is not materially different from the excess over equity at the date of acquisition, November 30, 1962. Dividends received from Ethyl-Dow were $1,160,000 in 1968 and $ 1,450,000 in 1967. Such amounts were not significantly different from the Corporation's equity in Ethyl-Dow earnings. 5. Deferred Charges and Other Assets: Deferred charges at December 31,1968 consisted principally of unamortized discount on long-term debt and other deferred financing expenses. Other assets include certain timberlands held by a subsidiary which have been expropriated by the Province of New Brunswick. The Corporation expects that negotiations regarding compensation, which are still in progress, will result in recovery substantially etc no44 greater than the amount at which the receivable is stated in the subsidiary's accounts. 6. Patents, Contracts and Other Intangibles. Patents and contracts with an unamortized cost basis of $ 1,755,946 at December 31, 1968 are being amortized over their respective lives,- other intangibles, including the excess of cost of investments over equities in assets acquired amounting to $13,796,656, are stated at cost. 7. Long-Term Debt-. Reference is made to "Long-Term Debt" on page 7 of this report for information concerning the Corporation's borrowings. 8. Capital Slocfc: As of December 31,1968, there were 25,000,000 shares of common stock authorized, of which 10,027,510 shares were issued. As of December 31,1968, there were 1.000. 000 shares of First Preferred stock authorized, of which 34,653 shares of 6% Series A and 60,000 shares of 5% Series B were issued, which includes 2,033 shares of 6% Series A and 2,700 shares of 5% Series B of treasury stock. The 6% Series A stock is callable at $101 and is entitled to annual sinking fund contributions of approxi mately $114,000; the 5% Series B stock is entitled to annual sinking fund contributions of $2,000,000. As of December 31,1968, there were 10.000. 000 shares of Second Preferred stock authorized, of which 1,948,774 shares of $2.40 Convertible Series A were issued, which includes 91,093 shares of treasury stock. Each share of Series A is convertible into 1.3 shares of common stock. The voluntary or involuntary liquidation value of the Second Preferred stock is the greater of (1) $42 per share, or (2) an amount equivalent to the book value of that number of shares of common stock into which such preferred stock is convertible. The aggregate excess of liquidation price over par value on 1,857,681 shares of outstanding stock is approximately $59,400,000 as of December 31,1968. These shares are callable after August 1, 1972 at $75 per share, plus accrued dividends. 9. Warrants: At December 31,1968, there were outstanding warrants exercisable on or before November 1, 1982, which entitle the holders thereof to purchase 45,600 shares of unissued common stock at $4.58 per share. During 1968, there were no warrants exercised. 10. Stock Option Plans. Under the Corporation's restricted stock option plan, 900,000 shares of unissued common stock were reserved for issuance to officers and other key employees. At December 31,1967, there were outstanding options to purchase 285,955 shares at prices ranging from $9.42 to $33.12. During 1968 options to purchase 2,000 shares at $32.35 per share were granted, options for 99,210 shares were exercised, and options for 1,200 shares were cancelled, leaving outstanding at December 31,1968 options covering 187,545 shares at prices ranging from $9.42 to $33.12 (of which options for 59,275 shares were exercisable at that date). No further shares are available for grant under this plan. In connection with the merger of Oxford Paper Company into Ethyl Corporation in August, 1967, the Corporation assumed Oxford Paper Company's obligations with respect to the outstanding options under stock option plans for officers, key employees and eligible salaried employees, and reserved 62,590 shares of $2.40 Second Preferred stock. At December 31,1967, there were outstanding options to purchase 51,128 shares at prices ranging from $19.74 to $59.75. During 1968, options for 21,240 shares were exercised and options for 1,703 shares were cancelled, leaving outstanding at December 31,1968, options covering 28,185 shares at prices ranging from $23.00 to $59.75 (of which options for 8,827 shares were exercisable at that date). No further shares are available for grant under these plans. 11. Retained Earnings Restriction. The Corporation's articles of incorporation and note agreements contain restrictions, among others, against the payment of cash dividends. At December 31,1968, $27,375,000 of retained earnings is free of such restriction under the agreement presently most restrictive. 12. Retirement Income Plans. The Corpo ration and its subsidiaries have a number of retirement income plans covering substan tially all of their employees, including certain employees in foreign countries. The total pension expense for the year was approximately $7,000,000, which includes amortization of prior service costs generally 24 over periods ranging up to 40 years. The policy of the Corporation and its subsidiaries is to fund pension costs accrued. Under one of the plans, the acfuarially computed value of vested benefits as of December 31,1968 exceeded the total of the pension fund by $9,375,000. 13. Depreciation, Depletion and Amorti zation Depreciation and depletion charged to income amounted to $29,753,322 and $28,606,655 in 1968 and 1967, respectively. Amortization of intangibles and of deferred discount and financing expenses charged to income amounted to $1,322,595 and $2,142,591 in the respective years. Depreci ation deductions for income tax purposes are computed on accelerated methods and exceed book provisions which are based principally on the straight-line method. Resultant tax reductions of $2,449,198 in 1968 and $2,464,775 in 1967 have been accounted for as estimated income taxes payable in future years. Depletion of timberlands is provided by charges to income at unit amounts estimated as adequate to apportion the cost of each tract, less residual value of land and young growth, to the cost of timber cut from such tract. 14. Investment Credit: The Corporation's provision for income taxes was reduced (and net income increased! by investment credits of $1,172,000 and $1,636,000 in 1968 and 1967, respectively. 15. Reclassification: For purposes of compar ison, state income taxes previously included in selling and general expenses and in accrued expenses have been reclassified as an increase to income taxes to reflect the treatment accorded by the Corporation of such expenses in 1968. AUDITORS' REPORT To The Board of Directors and Shareholders of Ethyl Corporation: We have examined the consolidated balance sheet of ETHYL CORPORATION and SUBSIDIARIES as of December 31,1968 and the related statements of income and retained earnings and of capital surplus for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the.Corporation's consolidated financial statements for the year ended December 31,1967. In our opinion, the aforementioned statements present fairly the consolidated financial position of Ethyl Corporation and Subsidiaries at December 31,1968 and 1967, and the results of their operations for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Richmond, Vo., February 17, 1969 25 LYBRAND, ROSS BROS. & MONTGOMERY ETC 17046 i en-rear Nummary Ethyl Corporation and Subsidiaries ! i \ Years Ended December 31 1968 1967m 1966 SALES AND INCOME . Net sales (after deducting freight cost)......... $509,072,418 Income before non-cash items and income faxes 92,169,532 Depreciation, depletion and amortization .... 31,075,917 Income taxes, including deferred m ................ 29,592,000 Net income ...................................................... 31,501,615 Cash flow ........................................................... 65,026,730 $468,937,810 82,382,083 30,749,246 21,971,000 29,661,837 62,875,858 $465,823,480 91,286,56^ 28,410,919 25,570,000 37,305,645 68,106,874 FINANCIAL ONDITION Working capital .................................................... 176,302,349 DRat.io ofr curren*t assetts +to curren4t liabilities .... $3.47 to SI.00 Property, plant and equipment (Net)................ 269,760,628 Expenditures for property, plant and equipment 64,158,000 Long-term debt ................................................. 215,120,989 129,757,176 $3.52 to $1.00 301,344,832 26,943,000 206,418,949 107,244,235 $2.83to$1.0C 306,072,86! 59,116,493 219,464,000 COMMON ^Tw^CK Number of shares outstanding ..................... Earnings per share ut ........................................... Pro forma earnings per share, assuming conver sion of the Second Preferred Stockm ............ Income taxes per share m ................................... Equity per share * ............................................... 10,027,510 S 2.59- S 2.44 S 2.90 $14.52 9,927,793 $ 2.39 $ 2.28 $ 2.17 $12.64 9,538,655 $ 3.16 $ 2.90 $ 2.54 $10.82 (\) includes Ox/orc/ operations for entire year. All prior yeors ended December 31 reflect the merger of Oxford into Ethyl on a pooling of interests basis. (2) Includes 4 mon/hs of combined Albemarle paper ond Ethyl chemical operofions. All prior years ended March 31 represent Albemarle poper operofions only. (3) Includes state income taxes. All applicable prior years have been restated to reflect fhe freofmenf of such expenses m 1968.  Veors Ended March 31 966 823,480 286,564 410,919 570,000 305,645 106,874 l 1965 1964 1963 1963 i2j 1962 1961 1960 5375,837,477 73,539,212 25,233,463 20,317,000 27,988,749 55,918,345 $335,663,260 $292,878,235 63,164,854 52,411,957 22,160,614 19,886,083 19,945,000 16,099,100 21,059,240 16,426,774 46,172,275 39,051,615 $ 94,293,820 15,519,623 6,555,892 4,583,000 4,380,731 12,117,007 $44,284,254 5,914,921 2,294,903 1,857,752 1,762,266 4,211,875 $46,117,036 7,252,998 2,077,980 2,740,399 2,434,619 4,680,496 $40,758,994 6,138,973 2,041,843 1,958,081 2,139,049 4,344,420 244,238 ! 92,840,348 103,193,741 86,267,324 63,000,811 10,313,111 8,586,720 7,950,568 to$l .00 53.07 to $1.00 $3.19 to $1.00 $3.43 to $1.00 $2.75 to $1.00 $3.29 to $1.00 $2.73to $1.00 $3 .22 to $1.00 072,861 280,112,427 240,216,457 227,583,134 150,959,130 29,221,972 28,336,492 27,742,696 116,493 .* 57,653,546 35,876,018 33,370,393 4,838,805 4,820,189 2,644,359 5,291,737 464,000 1 223,639,131 225,992,032 226,427,243 196,375,319 15,522,300 13,092,000 13,178,500 538,655 $ 3.16 $ 2.90 $ 2.54 $10.82 d into rch 31 expenses 9,487,380 $2.29 8,438,658 $1.64 2,375,807 $1.18 1,187,362 $ .63 1,029,674 $ .24 976,956 $ .35 $2.20 $2.02 $8.19 $1.68 $2.00 $6.34 $1.32 $1.64 $4.84 -- $ .71 $5.31 -- $ .30 $3.35 -- $ .45 $3.19 *4} based on the average number of shares outstanding, treating warrants and stock options as residual securities. Ecmings per share for the years ended December 31, 1963-67 include a pro forma provision for dividends on the Cumulative Second Preferred Stock, $2.40 Converfi'b/e Senes A (the Second Preferred Stock) issued in fhe Oxford merger. 5) li the Second Preferred Stock were converted, its dividend would become $.94 a share at the annualized present common dividend rate, as against fhe presenf $2.40 preferred dividend. 9) Reflects a deduction for the liquidating value of the Second Preferred Stock, and is based on the number of shares outstanding at the end of each year, treating warrants and stock options as residuai securities. Prior years ended December 31, 1963-67 hove been restated on this basis. Adjusted for stock splits and stock dividends. 971,803 $ .31 -- $ .32 $2.92 27 ETC 17048 Ethyl Corporation DIRECTORS OFFICERS AND STAFF DIVISIONS FLOYD D. GOTTWALD* FLOYD D. GOTTWALD Poper Division JAMES H. MAIN FLOYD D. GOTTWALD, JR.* Chairman of the Executive Committee M onager-Pefro/eum Additives LAWRENCE E. BLANCHARD, JR.* WILLIAM H. CHISHOLM* JOSEPH A. COSTELLO FLOYD D. GOTTWALD, JR. Choirmon of fhe Board GEORGE F. KIRBY Presidenf FLOYD D. GOTTWALD, JR. Chairman WILLIAM H. CHISHOLM Presidenf Deportment ROBERT H. SHANNON Manoger-Chemica/ Products Department l i i i Retired Vice President Ethyl Corporation S. DOUGLAS FLEET Retired Vice President Ethyl Corporation LAWRENCE E. BLANCHARD, JR. Execute Vice Presidenf BRUCE C. GOTTWALD Executive Vice Presidenf Oxford Paper Company ANDREW M. McBURNEY Execufive Vice President Industrial Chemicals MERLE L. GOULD Genera/ Mancger 3RUCE C. GOTTWALD* GEORGE F. KIRBY* A Seerefary WILLIAM H. CHISHOLM Executive Vice Presidenf GORHAM H. SCOTT Senior Vice Presidenf JOSEPH R. CARNEY H. WARREN REES Genera/ Sales Manager STANLEY A. HARRIS JOSEPH M. LOWRY JOSEPH M. LOWRY Senior Vice Presidenf So/es Manoger ROBERT T. MARSH, JR. Retired Chairmen of the Board First A Merchants Nafiono/ Banfc Richmond, Vo. Senior Vice Presidenf JAMES M. GILL Vice President Chemicals Group FRED R. BATES Vice Presidenf-Sa/es C. RICKERT LEWIS Vice President Plastics CLARENCE M. NEHER Divisiono/ Vice Presidenf ANDREW M. McBURNEY WALLACE F. ARMSTRONG Notional Accounts A Genera/ Manager THOMAS W. MCKNEW Vice President LINTON E. SIMERL PAUL E. WEIMER Advisory Chairman of the Board Manufacturing Vice President Manager-Ooerations Notional Geographic Society ROBERT HERZOG Research A Deve/opmenf RICHARD A. KWAPIL MALCOLM P. MURDOCK Vice President B. FREDERICK AYER Mancger-Finoncia/ Services Retired Senior Vice President Ethyl Corporation Planning THOMAS M. SMYLIE Treasurer WILLIAM T. WOOD Imco Container Company LEWIS F. POWELL, JR. Vice Presidenf Confro//er RICHARD V. VOSBURGH Parmer President Hunton, Wi//iams, Goy, Powell A Gibson Richmond, Va. W. THOMAS RICE President Seaboard Coast tine Railroad Co. Richmond. Vo. E. CLAIBORNE ROBINS President KENNETH SWAR7WOOD Vice Presidenf Research ADeve/opmenf FRANK J. McNALLY Treasurer JAMES H. KIRBY Confro//er FREDERICK P. WARNE Genera/ Counsel James River Paper Company BRENTON S. HALSEY President ALLEN S. BAKER Vice President A General Sales Manager ROBERT WILLIAMS Vice Pres/denf-Operofions RICHARD F. SANDS Senior Vice President Manufacturing and P A D ROBERT F. KUHNE Vice President Sales A Marketing JAMES y' COURT Vice Presiaenf-fin " A. H. Robins Company Richmona, Vo. LLOYD B. ANDREW, JR. Director-Financial Relations Petroleum Chem/ca/s V/SQUEEN DIVISION HARRY C. BYRNE, JR. SIDNEY BUFORD SCOTT CHARLES E. COLVIN ROBERT A. DOUGLASS General Manager Partner Scoff A String/ef/ow Richmond, Vo. ERWIN H. WILL Chairman of the Board Virginia Electric A Power Co. Richmond, Va. Direcfor-Purchasing A Traffic JAMES B. LONERGAN Director-Advertising A So/es Promotion G. SAMUEL ROBERTS Chief Engineer STEPHEN B. ROD1 Direcfor-Corporofe Divisional Vice President A Genera/ Monager JOHN F. KOEHNLE Genera/ Soles Manager R. J. OSTRANDER Technical Director Ethyl International JACK F. BIEHL Genera/ Soles Manager JACK C. WRIGHT Technicof Operations Manoger ROLAND E. McKENZIE Manufacturing Manager POLYMER DIVISION 'Member of the Executive Committee Employee Relations CHARLES H. ZEANAH ALBERT B. HORN, JR. Divisional Vice President HARRY ZIMMERMAN Generol Monoger Direcfor-Corporofe & General Manager CHARLES W. MONTGOMERY Pub/fc Re/ofions JULIAN J. FREY Manager-Production A Techmco/ Assistant Vice President-Staff ARTHUR A. SMITH K. F. CAST Genera/ Sa/es Monager Genera/ Manoger-Operafions PIPE DIVISION JOHN D. SAUNIER M onager- Marketing LOWELL SWAIDNER Confro//er PALMER A. BROWN Manoger A. WILLIAM PERRY Sc/es Monager ETHYL S.A. WILLIAM J. RUSHER Managing Director PVC FILM AND SHEETING STEPHEN] BARCIK Monager Changing, to Serve a Changing World The text of this report is lithograpnea on Star Sapphire Enamel Dull (basis IOC pounds), produced by Oxford Paper Company. The cover is lithographed on cast coat stock (.008) supplied by James River Paper Company. The poly ethylene mailing envelope for this report is T n T packaging Film (2Vz mil | manu factured by the VisQueen Division. ETHYL HELLAS CHEMiCAL COMPANY S A. WILLIAM J. RUSHER Chairman ELMO F. DIEDRICH Managing Director Ethyl Corporation of Canada Limited ALAN C. TULLY President KENNETH A. FREBERG Vice President A Genera/ Manoger The William L Bonne/f Company, Inc. E. MALCOLM HARVEY President A Treasurer LLOYD L. REYNOLDS Vice Presidenf A General Monager WARREN H. BROCKWAY Vice President A Generol Sa/es Monager DONALD A. WAGNER Vice President-Monufocturing FRANK DANIELS, JR. Controller etc 17049 ETC 17050 Ethyl's Plastics in Use ETC 17051 FINANCIAL HIGHLIGHTS Years Ended December 31 1969 1968 Percent i Increase ! (Decrease) .j Net Sales............................. $509,302,000 $509,072,000 - c) Income Before Extraordinary Item Net . ......................... 33,024,000 29,524,000 31,502,000 31,502,000 4.8 (6.3) 1 Earnings per share of Common Stock Income Before Extraordinary Item $2.77 Net Income.................... $2.43 $2.61 $2.61 6.1 (6.9) Income Taxes.................... 33,020,000 29,592,000 11.6 Cash Flow......................... 67,193,000 65,027,000 3.3 Cash Flow per Share of Common Stock .... $6.61 $6.39 3.4 Cash Dividends . 12,311,000 11,258,000 9.4 Dividends per Share of Common Stock $.75(2) $.63 19.0 Depreciation. Depletion & Amortization................... 29,562,000 31,076,000 (4.9) Capital Expenditures . 53,312,000 64,158,000 (16.9) Total Assets......................... 619,164,000 554,627,000 11.6 Working Capital .... 176,499,000 176,302,000 o.i Equity per Share of Common Stock .... $16.01 $14.56 10.0 (2) The increase in 7969 net sales would hai'c been approximately 11% after excluding from 1968 sales $48,573,000 representing sales of Albemarle which was sold in 1968. (2) Current annual dividend rate is $.84 a share. v CONTENTS 1 Message to Shareholders 5 Operations Review 16 Financial Results of 1969 20 Financial Statements 23 Notes to Financial Statements 25 Auditors' Report 26 Ten-Year Summary 28 Officers and Directors ANNUAL MEETING The annual meeting of Ethyl Corporation shareholders will be held at the Company's corporate headquarters in Richmond, Va., on Thursday, April 23,1970. STOCK TRANSFER AGENTS First & Merchants National Bank, Richmond, Va. Chase Manhattan Bank N. A., New York, N.Y. REGISTRARS OF STOCK The Bank of Virginia, Richmond, Va. Morgan Guaranty Trust Co., New York, N.Y. GENERAL COUNSEL Hunton, Williams, Gay, Powell &.( Richmond, Va. CORPORATE HEADQUARTERS 330 South Fourth Street, Richmond, Va. 23219 EXECUTIVE OFFICES 451 Florida Street, Baton Rouge, La. 70801 100 Park Avenue, New York, N.Y. 10017 1 Cover Photo: The synthetic primary ! alcohols plant at Ethyl's Houston \ manufacturing center forms a fitting background for the site of a new and chemically related alpha olefins plant, now under construction there. I ETC 17053 o the Shareholders of Ethyl Corporation: Continued growth, expansion, diversification and changing product mix were achieved by Ethyl in 1969. Consolidated net sales exceeded a half billion dollars for the second year in a row, and income from oper ations increased almost 5%. We ended the year in a strong cash position that enables us to take advantage of profitable opportunities as they arise. Income from operations was $33 million, or $2.77 a share, as compared with $31.5 million, or $2.61 a share, for 1968. Such income was before a third quarter extraordinary item of approximately $3.5 million. This represented a writedown of an investment in a bromine recovery plant at Freeport, Texas, which has been replaced by the new and more efficient facility at Magnolia, Arkansas. Net income for 1969 after this extraordinary item amounted to $29.5 million or $2.43 a share. Details of our operations and our financial results are, of course, contained in this report, and I urge you to review them. At this point, however, I would like to highlight a few of Ethyl's achievements for 1969 and then discuss a subject that I am sure is uppermost in the minds of all shareholders. The Ethyl concept of "changing ... to serve a changing world" was never more evident than in 1969 in terms of changing product mix and continuing diversification in the fields beyond antiknock compounds. The Plastics division, for instance, enlarged its markets for finished products and resins and compounds to the point where the division accounted for close to 20% of total company sales as compared to only 1% seven years ago. Two developments strengthened our diversification program in the field of aluminum products. These were the start of operations at a new plant by our William L. Bonnell subsidiary and the purchase in late December of the controlling stock interest in Capitol Products Corporation, of Mechanicsburg, Pennsylvania. In another area, the synthetic primary alcohols plant at Houston, Texas exceeded its design capacity. This plant, the largest of its kind in the world, will be complemented by a new unit now under construction for the production of alpha olefins which are also used in detergents and plasticizers. In all. Ethyl's 1969 capital expenditures totaled more than $50 million, and we confidently expect they will accelerate our expansion and diversification, and contribute to further earnings growth in 1970. As you know from the press, the use of lead antiknocks in gasoline has been under heavy attack. The most immediate result has been a precipitous drop in the market price of Ethyl shares, as markets inevitably respond to spectacular news--especially when the implications are shrouded in both politics and uncer tainty. Ethyl's management has been deeply concerned by this assault on a product which, for nearly a half enturv, has served the motoring public so well. The possible relationship of leaded gasoline to the air pollution problem--even to health--has frequently been discussed in the media and elsewhere in recent years. It is generally acknowledged that emissions from the internal combustion engine do contribute to the air pollution problem. But lead itself is a negligible part of such emissions and is not a contributing cause to the photochemical smog which so concerns the public. Nor is there proof that lead in gasoline constitutes a health hazard. But recognizing the potential seriousness of the emissions problem, the automobile manufacturers have been working for several years on engine improvements which will reduce emissions to acceptable levels. As you know from the press, emission standards have been announced by California and the federal gov:rnment, and there is constant pressure for standards which will reduce further`the level of emissions. Ethyl's Detroit laboratories have engaged in extensive research to assist the automotive industry in accom plishing this objective. We have had for some time a conventional automobile (Pontiac) with engine modifications designed by Ethyl, which already meets all emission standards presently prescribed for 1974 --using leaded gasoline. (This research program is discussed more fully in the special insert of this report.) This, in general, was the situation prior to the speech in January by the President of General Motors and subsequently amplified (though scarcely clarified) by later statements from other Detroit automobile manufacturers. The essence of the new position of these manufacturers seems to be that lead in gasoline akes it too difficult to build automobiles which will meet the low emission standards forecast for the ature. Thus, beginning with the 1971 models, they propose to design automobile engines which will oper ate without leaded gasoline. This sudden shift in the public posture of the automobile manufacturers came I as a surprise to Ethyl management. Since Ethyl has already developed modifications that met 1974 stand ards at least four years before their effective date--using leaded gasoline--it never occurred to us that the Detroit automobile manufacturers could not do at least as well. This action by the automobile manufacturers has been interpreted by some as a strategic move to shift the burden of the pollution problem--and much of its expense--from themselves to the oil industry which provides the gasoline. In any event, the several manufacturers of lead antiknocks--including Ethyl--are in the middle of what seems to us to be a precipitous attempt to solve a vastly complex problem without due regard to the economic consequences and the interest of the public. Ethyl's basic position on these issues is as follows: 1. The argument for removing lead from gasoline is not health. We know of no proof that the use of lead antiknocks in gasoline is or will be detrimental to public health. 2. If the oil industry is required to replace present high performance gasoline with unleaded fuels of equivalent quality, the economic consequences will be severe--to the oil industry, the manufacturers of lead antiknocks, and the public. It is estimated that the cost of such conversions to the petroleum industry alone could be in the range of six billion dollars--which is believed to be more than that industry has spent on new construction in the last decade. 3. The production of high performance unleaded gasoline would require different fuel compositions tc offset the removal of lead, including an increase in the use of aromatics. The Bureau of Mines Petroleum Research Center has recently reported that "fuel alterations from leaded to unleaded (gasoline) changec emission characteristics so that the pollution effect was increased by as much as 25%." Other studies indi cate that a significant increase in the use of aromatics in gasoline would dramatically increase eye irritations and possibly could introduce new and serious health problems. 4. If lower compression engines are designed, using gasoline of inferior quality, the economic effects DES'C 2 ETC 17056 (1) B. C. Cottwald and F. D. Cottwald, Jr. (2) J. F. Koehnle, M. L. Could and7. M. Gill. (3)S.B. Rodi. (4) R. K. Scales. (5) E. M. Haruey. (6) i. B. Andrew. (7) M. F. Cautreaux (standing), 7. Johnston, F. D. Cottwald and W. Foster. (8) W. F. Armstrong. (9) C. R. Hailey, A. M. McBurney and VJ. H. Chisholm. (10) C. H. Zeanah. (11) F.J. McNally and J. H. Kirby. (12) J. B. Lonergan. (13) R. A. Douglass. (14) T. M. Smylie. (15) C. A. Kyle and F. P. Warne. (16) L. E. Blanchard, Jr., R. Herzog and J. M. Lowry. (17) A. B. Horn, K. F. Cast and L. N. Applegate. (18) C. M. Neher. 74 stand; that the e to shift :ry which yl--are in :hout due * he use of i fuels of rturers of 1 industry has spent isitions to 'etroleum ) changed idies indi irritations nic effects could be quite significant both for the oil industry and the public. The motorist will bear such manufac turing costs as may be necessary to redesign engines, and will pay more per gallon for a fuel that certainly gives less power and less mileage, with reduced performance from his vehicle. Meanwhile, the oil industry will be subject to great expense to restructure its supply and distribution system to handle this gasoline. \s the head of a major oil company declared recently, this cost alone would be in excess of four billion ollars. Since the new position of the automobile companies was announced, and our special report was sent to shareholders in February, there have been a number of other developments. These include the President's environmental message to Congress and the introduction of legislation which would amend th Clean Air Act of 1967 to vest broad discretionary power in the Secretary of HEW to regulate, by prescribing stand ards and otherwise, the composition of automotive fuels and fuel additives. Although every effort will be made to prevent punitive legislation or regulations at either the state or federal levels, the present climate t opinion is centered around the popular and emotional issue of air pollution. No one knows at this time, or can predict accurately, what in fact will be done by the automotive indus try, the oil industry or the federal and state governments. If assumptions are made as to what might be done, there is still the unknown--yet vital--element of timing. In view of the pressures already so evident, we must face the possibility that changes in engine design and perhaps in fuel composition may reduce the use of lead in gasoline and in time may even eliminate it. We do know, for the reasons stated above, that the process must be gradual. Moreover, in addition to ;he economic costs and dislocations, there are millions of high compression automobiles presently in use-- tH an estimated service life of up to 10 years or more. Most of these will continue to require leaded gaso'e to operate properly. There are also substantial foreign markets for leaded gasoline which are unlikely o disappear in the now foreseeable future. At present, nearly one-third of Ethyl's antiknock sales are in 3 ETC 17057 * foreign markets. You may be assured, therefore, that we see no likelihood of lead antiknocks ceasing to be important products of the company for years to come. As a shareholder you naturally want to know the effect of all this on future earnings. And yet, for reasons which are apparent upon reflection, we cannot predict the consequences of events not yet known either as to substance or timing. Although lead antiknocks account for about 40% of our total sales, they are still the most important product line of the company, and contribute a higher percentage of our profits. The Petroleum Chemicals, Industrial Chemicals and Plastics divisions of the company utilize many joint facilities for manufacture, research and development, and are interrelated in terms of raw materials, inter mediates and byproducts. Consequently, overhead and other costs cannot be allocated among the divisions or product lines in such a way as to permit accurate determination of relative contributions to that income. Despite the problems discussed in the foregoing, we face the future with confidence. Ethyl is a large, strong and diversified business. We have pursued vigorously our program of expansion and diversification since the lead antiknock business was acquired in 1962. In the first full year after such acquisition, lead antiknock sales were close to 70% of total sales. This situation was dramatically changed by 1969, when the sales of other product lines totaled about 60!%. Although the profit percentages have not followed in the same ratio, we now have substantial profits which are wholly unrelated to petroleum chemicals. And, as indicated elsewhere in this report, we are pressing forward with major programs for the further expan sion and diversification of our Plastics, Industrial Chemicals and Aluminum divisions. We also expect our business in lead antiknocks to continue to contribute to profits for years to come. Even if the use of leaded gasoline should be phased out in the United States within the next five years (which we consider unlikely), it is our present opinion that Ethyl's cashflow during this period can reason ably be expected to be somewhere between $60 and $75 million a year. After making all debt payments as they mature, and after paying reasonable dividends, this cash flow, along with Ethyl's present excess cash, should permit the investment of amounts in the range of $30 to $50 million a year in Ethyl's continuing diversification program started seven years ago. Such amounts would be exclusive of any funds realized from the issuance of equity or debt securities. With funds of this mag nitude added to the large investments that the company already has made in its diversification program, we have every reason to believe that the years ahead will see a continuation of Ethyl's progress to date. You will, of course, appreciate that statements of this type are of necessity based on estimates, and corporate managements are generally reluctant to engage in long-range estimating. However, because the recent unprecedented attack on lead in gasoline has tended to affect the confidence of many investors in the long range future of Ethyl, we feel obligated to share with you our present best judgment as to such future. In summary, we strongly disagree with the present proposals for restricting the use of lead in gasoline. We believe quite sincerely--for the reasons indicated--that restricting or eliminating the use of lead in gasoline would have seriously adverse economic effects on the industries most concerned, would further degrade our atmosphere, would increase demands on the petroleum reserves of our country (as the use of lead conserves gasoline), would result in less efficient automobile performance, and would certainly result in increased costs for motorists. In short, we think the proposals are contrary to the public interest. But even if the most pessimistic assumptions are made, we still have full confidence that Ethyl Corpora tion--with strong financial resources, its excellent position in a number of other major product lines, its ongoing expansion and diversification program, and its exceptionally talented research organization--will continue as a major corporation serving the public and its shareholders. We close with an even more than usual note of thanks for the remarkable loyalty, support and under standing of our employees, shareholders, customers and suppliers. March 16,1970. Floyd D. Gottwald, Jr. Chairman of the Board and Chief Executive Officer 4 ETC 17058 'Petroleum chemicals fill many needs Ethyl produces a long list of chemical additives for petro leum products. The leading additives are antiknock com pounds, which are added to asoline to increase its octane number (or ability to produce power) to the required level for optimum performance. Ethyl also produces a large number of other special pur pose additives for automotive and industrial uses. They include a broad range of highly effective anti-oxidants nd others which act as deter gents and anti-corrosion agents. Among other Ethyl additives are several which improve the combustion effi ciency of diesel fuels and cleanliness of fuel oils. Sales of petroleum chemicals world wide in 1969 were about on a par with those of the year before. Gains were achieved in the United States and Canada, but overseas results were affected by adverse market conditions in several areas. In the United States, sales of antiknock compounds increased slightly for the year. Sales of other Ethyl additives were about equal to those of 1968. An outstanding exception was "Ethyl" Combustion Improver 2, whose sales continued to show substantial gains. This additive is finding increasing use in distillate and residual fuels because of its ability to improve their combustion characteristics and to reduce fireside deposits, carbon and soot. As part of its continuing service to the petroleum industry. Ethyl's Petroleum Chemicals Division offered the VOLRACTM (Vapor Over Liquid Ratio Controller) to refiners. This is the first commercial, on-line analyzer system for con tinuous monitoring or control of the vapor to liquid (V/L) ratio in gasoline blending operations. The system gives refiners year-round flexibility, economy and efficiency in blending butane and other light gasoline stocks, and enables them to control the so-called front-end volatility of their gasolines. During the year, new facilities for the production of ethylene dibromide, a key ingredient in antiknock compounds, went into operation. Utilizing bromine recovered from brine wells, a new plant in Magnolia, Arkansas will supply all of Ethyl's requirements for ethylene dibromide. Ethyl has an 80% partnership interest in the bromine venture, and Great Lakes Chemical Corporation the remain ing 20%. The new plant, which will substantially lower our bromine costs, replaces the former EthylDow Chemical Co. bromine oper ation at Freeport, Texas, which is discontinued. Our Canadian subsidiary, Ethyl Corporation of Canada Limited, had an excellent year. Sales set new records, and Ethyl of Canada 5 maintained its position as the leading supplier of antiknocks in Canada and as its only supplier of aluminum alkyls and aluminum halides, which are used as catalysts. The Canadian company's con tinuing objective is to maintain its leadership in existing product lines while diversifying and expanding with the Canadian economy. Antiknock sales of Ethyl's Inter national Division were off some what during 1969, due to unusual conditions. However, sales in several areas, including Japan, exceeded those of previous years. In addition, industrial chemical sales again showed significant increases in Europe, and continuing strength is expected. The International Division's results were lower than anticipated,' as the result of the lower sales volume and increased material and labor costs. However, antj^pated increased sales are expected to improve future profits. Among other developments, continued improvement has been made in the operating efficiency of the Ethyl Hellas manufacturing plant in Greece, thereby aiding the Divi sion's over-all performance. Construction began in late 1969 on a new antiknock manufacturing plant in Japan. The plant is being built by Toyo Ethyl, and Ethyl Corporation has a 47.5% interest in this joint venture with several Japanese companies. The new plant is expected to supply the Far East market by 1971. Ethyl, through its subsidiary. Ethyl Development Corporation, has entered into an exploration agreement with Triad Oil Company Limited and B. P. Exploration Canada Limited. The three com panies plan to invest up to $6 million in a three-year period on joint exploration projects in west ern Canada. Ethyl Development will contribute 50% of the costs. This is the second venture for oil and gas that Ethyl is participat ing in. Ethyl is also a member of a four-company group exploring for oil and gas in the Dutch sector of the North Sea. Additional explor atory wells are planned for 1970. ETC 17059 ETC 17060 Industrial chemicals entering new fields The industrial chemicals pro duced by Ethyl range from basic chemicals with manv everyday uses to highly com plex compounds which are a result of Ethyl's specialized technology. Basic chemicals include chlorine, ethyl chlor ide, methyl chloride, ethylene dichloride, sodium, alum, and caustic soda. Derivatives of these basics include vinyl chloride monomer and chlori nated solvents. A rapidly growing chemical area for Ethyl is represented by the aluminum alkyls which are jsed as catalysts in the manu facture of synthetic rubber and plastics and as chemical intermediates. In another highly technical field. Ethyl produces a series of synthetic primary alcohols. Their prin cipal uses are as intermediates tor biodegradable detergents and plasticizers. Pi;: :cw bromine recovery Magnolia, Arkansas - Ethyl's needs for -cne dibromide. The Industrial Chemicals Division set a new sales record in 1969. In addition, several major expansion programs were begun, which will increase the Division's participation in established markets and also bring it into newer fields. The synthetic primary alcohols plant at Houston, whose products are used in the manufacture of detergents and plastics, continued to operate at a high level during the year. Some bottlenecks were eliminated, and an expansion pro gram was begun which will result in increased capacity in 1970. Moreover, additional markets were developed for co-product alcohols and olefins which emanate from the plant. New products from this plant will be available in 1970. Vinyl chloride monomer, used for the production of polyvinyl chloride resins and hence plastics, was produced at a very high rate throughout the year. Vinyl demand is expected to continue strong throughout 1970. The chlorinated solvents opera tion substantially improved its performance in 1969, as a result of higher sales, a tendency of the solvents market to stabilize, and reduced production costs. Work is underway to achieve further increases in capacity to supply anticipated increases in sales in 1970. A major expansion in aluminum alkyl capacity was brought on stream early in 1969. This expan sion puts Ethyl in a good position to meet the needs of the rapidly expanding stereo polymer market. This market includes polypropy lene, polybutadiene, polyisoprene, and ethylene propylene rubber. New aluminum alkyl catalysts were introduced during the year, and others are ready for commercializa tion as the stereo polymer and related markets lead to a higher degree of specialization in catalyst requirements. As the use for aluminum alkyls becomes more widespread, pene tration into completely new mar kets is expected. Plans are under way to assist potential consumers in developing applications and techniques for using aluminum alkyls and aluminum alkyl hydrides in specialty reactions. Ethyl tech nical personnel have been active in tying the capabilities of aluminum alkyl technology with phosphorus technology to make new chemicals for the agricultural chemicals industry. Plant expansions were completed at Orangeburg, South Carolina for the production of orthoalkyiated chemicals, including orthoalkyiated anilines and orthoalkyiated phenols. Major markets for these chemicals are antioxidants, inter mediates for antioxidants, and agricultural chemicals. A new alpha olefins chemical plant, located in our Houston manufacturing center, is under construction and is scheduled to be completed early in 1971. The plant, which will cost over $10 million, will enable the Industrial Chemicals Division to become a major sup plier of alpha olefins to the deter gent intermediate, plasticizer, and fatty chemical intermediate mar kets. The major markets to be served are household detergents and plasticizers. Other markets will involve the sale of alpha olefins and of other intermediates produced from alpha olefins. Chlorinated :olvents comprise an important group of Ethyl's industrial chemicals. ETC 17061 E?c 17062 elastics operations continue to grow Ethyl's plastics operations are centered around two heading plastics--polyethylene and polyvinyl chloride. Through its Imco Container Company, Ethyl is a leading jducer of both polyethylene .nd polyvinyl chloride bottles and containers. In addition, Ethyl is the world's largest producer of polyethylene packaging films. In polyvinyl chloride, Ethyl's operations begin at the vinyl chloride -.onomer stage, and extend all the way through the pro duction of polyvinyl chloride resins and compounds and of finished PVC products. They include polyvinyl chloride packaging films, particularly films for wrapping fresh meat and produce, and polyvinyl chloride shrink films as well. Still another growing PVC area consists of PVC pipe which is finding increasing use in domestic water, irriga tion, and sewage systems. Ethyl also has a unique PVC system, Flocor, for cleaning up liquid waste, and sells a complete service for both municipal and industrial wastes. te final steps in action of plastic and containers at mco Container plant. Aided by a full year of operation of Imco Container Company, acquired in mid-1968, Ethyl's Plastics Division increased its 1969 sales over the year before by a wide margin. In addition, the com pany made excellent progress in polyethylene film, in polyvinyl chloride resins and compounds, and in o ther product lines. Polyethylene film sales rose more than 15% as Ethyl remained at the forefront of a tough competitive industry. Moreover, market de velopment of specialty films, together with increased manufac turing efficiencies, contributed to the better showing. A new poly ethylene film plant in Carbondale, Pennsylvania, completed in mid1969, strengthened the Division's capability to serve the eastern markets. Imco's polyethylene containers maintained their consistent sales growth in packaging for toiletries, cosmetics, detergents and house hold chemicals. Meanwhile, its polyvinyl chloride bottles and containers expanded movement in the food product packaging area and in other consumer products such as shampoos and household chemicals. Manufacturing innova tions and increased efficiency contributed to Imco's improved results. At year's end, Imco put into operation a new polyethylene bottle manufacturing plant, its seventeenth facility, in Vandalia, 111. Also during the year, Imco Con tainer (Canada) Ltd. acquired Polobak Plastics, Ltd., an injection molder of various plastic parts. The addition has enabled Imco of Canada to offer a broader product line and, with caps and closures plus the basic bottle, a complete package. Sales of polyvinyl chloride resins and compounds increased more than a third over 1968 levels, con tinuing to outstrip the industry growth rates. Resin production exceeded the expected capacity, and manufacturing costs were sub stantially improved. A new PVC compounding plant was brought on stream at Tiptonville, Tennessee, in the third quarter of 1969, and construction began on a dual expansion of the PVC resins plant at Baton Rouge. This capacity will enable us to meet present require ments and to maintain our position in the rapidly growing PVC market. PVC pipe sales increased ap proximately 15%, despite intense competition and price declines. Increased productivity was achieved in pipe manufacturing operations, and Ethyl's "Bell :Ring" Pipe con tinued to be well received in the water and sanitation markets. Sales of PVC packaging films, principally for red meat and produce wrap, were about 15% higher than in 1968, although the market was affected by price cutting. Construc tion began on a new PVC film manufacturing plant in Richmond, Virginia, which will improve Ethyl's ability to serve its customers. A new Converted Products Division was organized during the year and gave Ethyl entry into the consumer products area with a new plant to make polyethylene refuse bags. A facility in Richmond started up at midyear. Furthermore, the New Market Development group was established to explore new opportunities in plastics and facilitate our optimal entry into yet new product areas. Ethyl's new PVC compounding plant at Tiptonville, Tennessee, was brought on stream in 1969. Our Oxford Paper Company division is one of the major producers of printing and fine papers in the United States. These papers are all in the bleached or white category. The largest single outlet for Oxford papers consists of magazine publishers, including a number of leading national publications. Our Paper divi sion is also the largest supplier in the country of book pub lishing papers. Oxford's products fall under two other major categories: commercial printing and converting papers. Commercial printing includes all kinds of brochures, direct mail pieces, proxy statements, annual reports, and so on, while converting papers in volve those used in business forms, envelopes and other office applications. Demand for the products produced by our Oxford Paper Division improved during the year, and as a result that division attained its second highest sales on record. Despite the stronger market, it was not possible to increase prices suf ficiently to offset the continually rising costs of labor and raw ma terials. This fact, plus some operat ing problems at the Rumford, Maine, mill, and development costs of a new process at the West Carrollton, Ohio, mill, kept the Paper division's results consider ably below anticipated levels. Further price increases have been instituted effective the first quarter of 1970, and progress has been made both on the problems at Rumford and the development at West Carrollton. The Paper division has under study at this time an important expansion and improvement pro gram which should materially add to the earning power of that opera tion. Recommendations based on this study will be forthcoming in the near future. Sales by end use of Oxford products in 1969 were as follows: Magazines and Tons Periodicals 125,283 Book Publishing 81,779 Commercial Printing 82460 Converting (Business forms, envelopes. etc.) 69,972 Total 359,594 % of Total 34.8 22.7 23.0 19.5 100.0 xfard papers go into e quality printing d '.imerous other Rolls of newly produced paper are moved along at an Oxford mill in one of the mill's many operations. 11 THE AUTOMOTIVE EMISSION PROBLEM... ETHYL'S APPROACH TO A SOLUTION... GLOSSARY AUTOMOTIVE EMISSIONS--All gaseous and particulate material discharged from the automotive4 exhaust pipe into the air. j SMOG--The products of the photochemical reac-' tion of reactive hydrocarbons and nitrogen oxides in the presence of sunlight. HYDROCARBONS--The family of chemicals result ing from the combination of hydrogen and carbon. (Gasoline is made up of hydrocarbons.) NITROGEN OXIDE--Nitrogen and oxygen in the air combine during the combustion process and form nitrogen oxides. CARBON MONOXIDE--A colorless, odorless, toxic gas formed as a result of incomplete combustion. Etc 1?69 - 4- INTRODUCTION Sc issions--aii gaseous and parlischarged from the automotive the air. ucts of the photochemical reacdrocarbons and nitrogen oxides : sunlight. --The family of chemicals resultination of hydrogen and carbon, up of hydrocarbons.) --Nitrogen and oxygen in the air >e combustion process and form DE--A colorless, odorless, toxic esult of incomplete combustion. This report is an attempt to bring some order out of the present confusion on the subject of leaded gasolines and automotive emissions. We hope that this information will give you a better understanding of emission control and the value of leaded gasoline. Let us now look at the subject in more detail... Certain automobile companies announced that they intend to make automobiles in the future with special emission devices which will require unleaded gasoline. They contended that leaded gasoline interferes with some of their experimental emission devices and they will be unable to meet emission standards forecast for the future. In a matter of several weeks they announced a change in plans... as they revealed their intentions to modify 1971 models so that they would operate on unleaded gasoline--but such announcements also indicated that these cars would be capable of operating on leaded gasoline. The recent statements by the automotive industry have caused great confusion in the petroleum and related industries that manufacture and market today's highly efficient gasoline. Actually, the goal of a pollution-free car on today's gasoline is within our grasp. Many approaches are currently being explored and announced by government and industry. Ethyl Corporation, for instance, has already devel oped an experimental car whose emission levels are below the existing 1974 California requirements and at the same time are close to the standards for unburned hydrocarbons, carbon monoxide, and I nitrogen oxides recently proposed by the Department of Health, Education and Welfare for 1975 model year cars. ETC 17070 3 leaded GASOLINE Lead antiknocks for gasoline resulted from many] years of intensive research to overcome the tencH ency of a fuel to knock in an engine. Through th& years, the demand for better fuel economy and more! power resuited in increased compression ratios and the requirement for higher quality fuels. Aboufi one teaspoon of the clear liquid lead antiknock compound added (0 each gallon of gasoline raises the quality of Itiat gasoline sufficiently to eliminate* power-robblny knock. j Oil refiners cun nlso raise the quality of gasoline by various refining processes. ach operation, how-] ever, results in a |0SS jn yield of gasoline from each barrel of crurl refined. Therefore, lead antiknocks] are used as economical tools to increase fuel qual-, ity in combinuiion with processing methods. Gaso-] line is refino<1 t0 an economical quality level by processing, and the lead antiknocks are added tp( bring the finished product to its desired higher' quality level. j Antiknock compounds, with tetraethyl lead as thet active antiknock agent, were introduced commer-j dally in 1923. In the intervening near-50 years, their; contributions to national defense, conservation of our natural rtmources, automotive/fuei progress,' and the general advancement of the automotive and petroleum industries have been many and diverse.1 Not the least ot the credits attributable to lead anti-^ knocks is thal they conserve something on the order of 250 million barrels of crude oil each year* This is a majoi consideration at a time, such as the. present, when thy nation's petroleum reserves are, on the decline. Itecause of the more extensive re-: 1 fining operation-, that would have to be carried out to raise the octane number ot unleaded gasoline,i fully 6% more nude oil would be required to do thej job that lead antiknocks now perform. Restrictions! on lead antiknocks would increase the cost ofj gasoline. - The relationship 0f gasoline to smog and air pollu-* tion has long boon studied. A published investiga-] tion carried out by Midwest Research Institute^ showed that adding lead antiknocks to gasoline had] no influence on tne amount of smog formed from vehicle exhnusi omissions or the amount of eye irri tation .produced The investigators summarizedj their work as foiieWs: Neither tetraethyllead nor halogen-containing] scavengers of lead have any delectable effect oflj the smog-formunj potential of automobile exhaust." 4 ETC 17071 knocks for gasoline resulted from many ' ntensive research to overcome the tendfuel to knock in an engine. Through the demand for better fuel economy and more suited in increased compression ratios iquirement for higher quality fuels. About )oon of the clear liquid lead antiknock 1 added to each gallon of gasoline raises / of that gasoline sufficiently to eliminate >bing knock. s can also raise the quality of gasoline by .fining processes. Each operation, howIts in a loss in yield of gasoline from each :rude refined. Therefore, lead antiknocks is economical tools to increase fuel qualbination with processing methods. Gasoined to an economical quality level by 3, and the lead antiknocks are added to finished product to its desired higher el. compounds, with tetraethyl lead as the iknock agent, were introduced commer123. In the intervening near-50 years, their >ns to national defense, conservation of al resources, automotive/fuel progress, ' neral advancement of the automotive and industries have been many and diverse. ast of the credits attributable to lead antithat they conserve something on the 50 million barrels of crude oil each year, lajor consideration at a time, such as the hen the nation's petroleum reserves are :line. Because of the more extensive reations that would have to be carried out e octane number of unleaded gasoline,', ore crude oil would be required to do the ad antiknocks now perform. Restrictions]; intiknocks would increase the cost o<^_ rnship of gasoline to smog and air pollu;] ng been studied. A published investiga-^] ;d out by Midwest Research Institute^at adding lead antiknocks to gasoline had^. ;e on the amount of smog formed from^ aaust emissions or the amount of eye irri-] duced. The investigators summarize as follows: etraethyllead nor halogen-containing^ a of lead have any detectable effect orming potential of automobile exhaust." UNLEADED gasoline If lead is taken out of gasoline, the nation's motorists will be penalized in many ways. They will witness higher fuel costs, lower quality gasolines, an un necessary waste of our petroleum resources, and new and potentially serious air pollution problems stemming from automobile exhaust. To begin with, unleaded regular grade gasoline will in all likelihood cost more per gallon, and it is ex pected to be of lower quality. Thus, motorists will have to pay more for gasoline that gives them losses of as much as 10% in mileage and power. The unleaded fuels now being discussed for 1971 use could mean a return to the gasoline quality levels of the 1950's. Later, if the oil industry attempts to raise the octane level of unleaded gasoline, substantially higher costs will be seen. Replacing leaded gasoline completely with unleaded gasoline of equivalent quality would cost the oil industry an additional four cents a gallon to make, on the aver age, and up to twice that amount for the smaller re finers. All told, the oil industry would have to spend more than $6 billion for additional refining facilities, and would have increased gasot-e production costs of S3.5 billion annually. Meanwhile, the greater use of unleaded gasoline would aggravate the problem of air pollution. In and of itself, the use of unleaded gasoline of lower quality than present leaded fuels will result in a greater volume of exhaust emissions. This is be cause more gasoline will be required to provide the same amount of transportation. Subsequently, as the hydrocarbon composition of gasoline is changed to provide the higher fuel quality now supplied by lead, greater emissions of harmful pollutants can be expected. Recently, an investigation of the smog-forming po tential of leaded fuels and unleaded fuels embody ing such changes in hydrocarbon composition was conducted by the U.S. Bureau of Mines Petroleum Research Center at Bartlesville, Oklahoma. The publication based on this work includes the follow ing statement: "Leaded and the comparable quality prototype un leaded fuels yielded about equal amounts of emis sions. This was true for both evaporative and exhaust losses. If the photochemical effect is con sidered. the fuel factor is shown to exert significant influence. The fuel alterations from leaded to un leaded changed emission characteristics so that the pollution effect was increased by as much as 25%." DRAMATIC PROGRESS In the understandable haste to speed the day of the pollution-free automobile, there is often a tendency to overlook the dramatic progress in exhaust emis sion reduction that has been achieved in just recent years. General Motors recently said, "On the stand ard California smog test, the average uncontrolled 1960 model emits 567 grams per day, and the aver age 1970 model emits 104 grams--less than one fifth." Researchers have examined two basic areas in at tacking the problems of automobile exhaust emis sions--the engine and the exhaust system. Various methods for reducing emissions still further are under investigation. These include engine modifica tions, exhaust gas recycle, exhaust manifold re actors and catalytic systems. The catalyst systems proposed to reduce exhaust emission is receiving considerable attention today and is said by some to be incompatible with leaded gasoline. :he Ethyl has conducted extensive research on cata icy lytic mufflers and in the early 1960's developed a 'is- catalyst system that met the performance require Jnt ments then specified by California. Catalyst sys id- tems have not been adopted for vehicles using ed leaded or unleaded gasolines because of several er drawbacks--mainly high cost, low service life and ne destruction due to over-heating. Continued re search may change the outlook, but Ethyl believes atis- that when effective catalysts are developed, they will work with leaded gasolines. >us The most promising route to lowering emissions ire m the future now appears to be through engine :a- modifications, exhaust gas recycle, exhaust mani 'e- fold reactors,Ethyl has followed this route in de ns veloping its Lean Reactor Car. ng ne ETHYL HAS A LOW EMISSION CAR NOW ! Ethyl's many research advances in engine improve ments are embodied in the Ethyl Lean Reactor car. This research vehicle incorporates four significant engine modifications: (1) an Ethyl-designed high velocity carburetor for better fuel distribution of very lean mixtures, (2) a two-step control of vacuum ignition advance for best ignition timing under vari ous speed and load conditions, (3) an exhaust re cycle system to supply the proper amount of exhaust gas and mix it with the incoming fuel-air mixture, and (4) exhaust reactors to conserve heat and pro vide time for further burning of combustible emis sions. Hydrocarbon and carbon monoxide emissions are reduced by the use of lean mixtures, optimum ignition timing, and heat conservation. The combination of exhaust gas recirculation and very lean fuel-air mixtures results in low emissions of nitrogen oxides. Operating on today's high-performance leaded gas oline, the Ethyl Car can reduce emission levels be low the existing 1974 California requirements and close to those recently proposed by the Department of Health, Education and Welfare for 1975 model cars, as follows: r. Cross section of stainless steel ex haust port liner and reactor. These modifications, promote more com plete burning of combustible ma terial. J The Ethyl high-velocity carburetor supplies well mixed, evenly distrib uted. very lean fuel-air mixtures to the engine's cylinders. -S" ve- ETHYL :ar. 1974 Proposed LEAN ani California 1975 HEW REACTOR igh of Requirements Requirements CAR Grams/mile Grams/mile Grams/mile um ari- unburned re- Hydrocarbons 1.5 0.5 0.55 iust Carbon Jre, Monoxide 23.0 >ro- Nitrogen nis- Oxides 1-3 ons Particulates -- lum 11.0 0.9 0.1 10.4 1.3 * and ons , Although the HEW proposed standards for 1975 include a re quirement lor particulates of 0.1 g/mi, no methods have been established for measuring particulates. The Ethyl Lean Reactor Car achieves these typical jas- low emission levels without sacrificing any of the be- advantages of the modern high compression gas and oline engine. The system provides smooth power lent for the acceleration and performance that the mo odel toring public has become accustomed to, including the extra luxury accessories. Components of Ethyl's engine modifications system for low emissions. TRAPPING PARTICULATES In addition to gaseous pollutants, the atmosphere contains small particles of matter, called particu lates, which are generated largely by industrial and residential sources. Here again, Ethyl research is diligently seeking methods to reduce automotive emissions by trap ping this particulate matter before it can escape into the atmosphere from the automobile. Accord ing to U.S. Public Health estimates nationwide, only 5% of the total particulates in the air come from motor vehicles. And in our research work at Ethyl we have found of that small portion, only a small amount is attributable to lead. Ethyl now has working prototypes of particulate traps that will remove 65% of exhausted lead com pounds, and are testing more advancer! devices trying to remove up to 100%. We are confident that continued research by Ethyl and others will result in economically practical devir- -, should particu late traps be needed to satisfy future proposed standards. A cyclone-type trap, high-speed swirling mo tion ol exhaust gas drives particles to the wall where they are swept into collection can. 10 ETC 17077 CONCLUSION This brief report has been offered by Ethyl Corporation to inform all concerned of the great .alue of leaded gasoline and of some of the oroblems that would result if a hasty decision -ere made causing lead usage to be curtailed. We are proud that the experimental Ethyl Lean Reactor Car is five years ahead of schedule, approaching the low emission level standards proposed by the Federal Government for 1975 model cars using today's high quality leaded aasoiine. It is reasonable to assume that by .vorking together, the Federal agencies involved, he automotive and petroleum industries, Ethyl Corporation and the other suppliers of lead antiknock compounds can promptly evolve a pollution-free automobile without depriving motorists and the nation of the efficiency and economy that leaded gasoline provides. ertoi trol' 5 ion carr stu< the nifi ..e, to' ui ei O' P a .1 ETHYL CORPORATION Petroleum Chemicals Industrial Chemicals Plastics Paper Aluminum Products : f, Ethyl research covers a wide spectrum In keeping with the diversified operations of the company. Ethyl's Research and Development depart ment conducted a large number of research programs during 1969. Expenditures by the department exceeded $16 million for the year. Automotive Emissions Research A large portion of Ethyl's research effort was concerned with the con trol of automobile exhaust emis sions. Our research laboratories carried forward comprehensive studies of fuels and engines and heir combustion products, and sig nificant progress was made. Our new automotive emissions labora tory, put into operation in 1968, has proved to be a valuable research tool in this broad effort. Ethyl's program has had two underlying objectives: to reduce emissions within the framework of presentday automobiles and oresentday leaded gasoline, and to iccomplish that goal substantially ahead of the time when the proposed state as well as federal standards on emissions would apply. Our major research thrust has been in the direction of engine design modifications. Through modifications in the induction, ignition and exhaust systems of a conventional automobile engine, extremely low levels of emissions have been achieved--using leaded gasoline. As an example, an advanced experimental car developed along these lines records typical emissions of 0.55 grams per mile (or 40 parts per million) of unbumed hydrocarbons, 10.4 grams per mile (or 0.4 percent) of carbon monoxide, and 1.3 grams per mile (300 parts per million) of nitrogen oxides. These low emission levels, achieved in 1969 and 1970, compare favorably with the standards pre ' 'ecialized testing is required for :h studies of fuels 'H engines. scribed for 1974 and 1975. More over, these low emissions have been accomplished without sacrificing the basic advantages of the gasoline engine or the superior performance of leaded gasoline. Tn fact, the fuel economy and performance of the experimental modified car are equiv alent to those of a corresponding conventional car in everyday use. At the invitation of President Nixon's Environmental Quality Council, the latest model of our experimental car, along with devel opments of other companies, was put on display last summer. We are con tinuing our work on newer versions of this research car, and others, to make further improvements. (For a discussion of recent developments relating to automobile emissions, see the Message to Shareholders on Page 1.) Chemical Research The year 1969 further expanded Ethyl's horizons in three areas of aluminum alkyl technology--alpha olefins, fatty adds, and edible fats. Development of the process for production of selected alpha olefins provided the technical basis for a new plant now being built in Houston. Research and develop ment progress in synthetic fatty adds offers promise of early commerdalization. Fatty adds from natural sources are not adequate to serve certain antidpated growing needs in the market place. Ethyl's new process which permits con trolled production of the desired fatty adds can bridge this market gap. Exploratory work on synthetic edible fats continues with planned progress. Ethyl's patented process for orthoalkylation is now playing a major new role in agriculture. Diethylaniline now produced and sold by Ethyl is an intermediate for an extraordinarily effective new commerdal weed killer--which leaves no permanent residue to contribute to later crop damage or to pollution. Another herbicide based on an Ethyl alkylated phos phorus compound is also finding excellent commerdal acceptance. A new orthoalkylation product may become a major antioxidant for synthetic rubber. In rubber com pany tests to date, this is the first chemical to offer competitive anti oxidant effectiveness and nonstain ing characteristics at the same time. Ethyl's manganese-based antiknock compound has been developed for use in large, super charged industrial gas engines. This patented antiknock increases the knock rating, or power potential, of propane to that of natural gas. Under advanced development are extended-range gasoline additives; these do the same thing for certain other engine parts that Ethyl's existing additives do for carburetors --keeping them clean and function ing properly for lowest possible exhaust emissions. A compound which is effective in reducing smoke from diesel engines is in the ad vanced development stage. Research effort in the plastics field has resulted in the introduction of improved injection molding and bottle compounds. Ethyl's fiberglass-reinforced polyvinyl chloride compound--first in the industry-- was commercialized, and research on improved versions is continuing. Large-particle PVC is being developed for the filtration of swimming pool water and indus trial wastes. Ethyl has continued to conduct significant research in the field of aluminum and other metals, seeking to develop useful new technologies. Ethyl's special process for foamed aluminum adds light weight, strength, and stiffness to a uniform, fine-pore, closed-cell structure of the metal. During 1969, Ethyl received approximately 100 U.S. patents and 100 foreign ones. Ethyl now holds just over 1,200 unexpired U.S. patents, and maintains about 900 foreign patents. 15 Financial Results of 1969 11 Net Sales Again Exceed $500 Million Years Ended December 31 M. U,,Uou ofDoUus 61 62 63 63 64 65 66 67 68 69 Rial Year Ended Maidi 31 Sales Set aNewRecord Consolidated net sales in 1969 were $509,302,000, representing an increase of approximately $49 million, equal to about a 11% gain over 1968 sales of $460,499,000 after excluding from the 1968 sales $48,573,000, representing sales of Albemarle which was sold on October 31,1968. Net Sales by Product Lines (In Thotumdi of DoUan) 1969 Net Percent Sales of Total 1968 Net Percent Sales of Total 1967 Net Percent Sales of Total Chemicals Petroleum . . . Industrial.... Plastics................... Paper and Paper Products. . Aluminum Products Albemarle .... $213,840 42% 65,157 13 95,461 19 97,783 37,061 509,302 -- $509,302 19 7 100 -- 100% $210,807 42% 57,688 11 63,034 12 94,447 34,523 460,499 48573 $509,072 19 7 91 9 100% $199,310 42% 45,030 10 40,111 9 93/480 20 32,642 7 410473 88 58465 12 $468,938 100% As seen in the above table, net sales in 1969 increased in all categories after 1968 paper sales are adjusted to exclude sales of Albemarle Paper Company. The largest sales increases were scored in Plastics and Industrial Chemicals. Income from Operations Advances Again Income from operations for 1969 amounted to $33,024,000 compared with income from operations of $31,502,000 for 1968. The increase in income is accounted for mainly by improvements in Industrial Chemicals and Plastics (including a full year of operation for our Imco Container Division which was acquired in 1968). Earnings per Share Increase The 1969 income from operations was equal to $2.77 per share, based on the average 10,170,000 shares of common stock outstanding during 1969, treating common stock options and warrants as common stock equivalents. It compares with income from operations of $2.61 per share for 1968, on the basis of the average 10,172,000 shares of common stock outstanding during the year, treating common stock options and warrants as common stock equivalents. Net Income after Extraordinary Item The 1969 income from operations is before an extraordinary item of $3.5 million, representing a writedown of Ethyl's investment in a bromine recovery plant in Freeport, Texas. Net income for 1969 after the extraordinary item amounted to $29,524,000 or $2.43 a share. 16 ETC 17081 'z'.'-ti. /' '7-- V.V . - /. : . ;v ]pcone from Operations Advances to $33 Million holYur bdd Mscfan *MefpnLdnon8mryh*m Working Capital Exceeds $175 Million YujsEnded December31 MiDkm of Dollar* 210 175 140 105 70 35 0 62 63 63 64 65 66 67 68 69 fcal Year E&dcd UndiJl Capital Stock The total number of common shares and of the $2.40 convertible second preferred shares outstanding on December 31,1969 were 10,059,444 and 1,760,982, respectively. Dividend Increased At its November meeting, the Board of Directors increased the regular quarterly dividend on the common stock to 21 cents per share or an annual rate of 84 cents a share effective with the January 1,1970 payment. This compares with the former annual dividend of 72 cents a share. This was the second dividend increase within a year. Cadi and Short-Term Investments Increase During 1969, there was an increase in cash and short-term securities of $18.2 million, from $105.1 million at December 31,1968 to $123.3 million at December 31,1969. The following table shows the source and disposition of funds: Sonne of Funds Disposition of Funds Income before Extraordinary Item. . . $33,024,000 Depredation, Depletion and Amortization . . . 29,562,000 Deferred Income Tax . . 4,607,000 Proceeds from Exercise of Stock Options . . 689,000 Increase in Notes Payable................... . 11,959,000 Net Increase in Long-Term Debt . . . 14,600,000 __________ $94,441,000 Dividends Paid............... $12,084A>0 Capital Expenditures: Property, Plant and Equipment. . .$48,423,000 Acquisition of Stock of Capitol Products Corpora tion . . . 4,889,000 53,312,000 Treasury Stock Purchases and Sinking Fund Payments.......................`6,934,000 Other Items................... 3,907,000 Increase in Cash and Short-Term Securities 76,237,000 18,204,000 $94,441,000 Cadi Flow Increases Cash Flow, which consists of income before extraor dinary item plus depreciation, depletion and amortization and deferred income taxes, amounted to $67.2 million in 1969, as compared with a cash flow of $65 million in 1968. The 1969 cash flow exceeded that in 1968 by $2.2 million, and was sufficient to provide for all fixed charges and dividends and to provide substantial funds for capital expenditures. Working Capital At December 31,1969, working capital was $176.5 million and the ratio of current assets to current liabilities was 2.71 to 1. This compared with working capital of $176.3 million and a ratio of 3.47 to 1 at December 31,1968. 17 yT 082 ETC Total Assets Up Over $60 Million Years Ended December 31 Millions of DoUsn Fiscal Year Ended March 31 Capital Expenditures at a High Level During 1969, $53.3 million was spent on capital projects for new plants and for expansion and moderniza tion. Of this total, $4.9 million was a partial payment for the purchase of approximately 56% of the stock of Capitol Products Corporation of Mechanicsburg, Pennsylvania, fabricators of aluminum windows and doors and other aluminum products. Ethyl also has under construction in its Houston manufacturing center a $10 million plant for the production of alpha olefins, which chemical products are used in detergents and plasticizers. In the last seven years, total capital expenditures were over $330 million. Long-Term Debt Debt repayments during 1969 amounted to $6.0 million. These consisted of payments of $1,250,000 on the 5Vs% Bank Loan, due 1970; $685,000 an the 3*/s% Guaranteed Notes, due 1970; $2,500,000 on the 5*1*% Subordinated Notes, due 1972; $1,250,000 on the 47/s% Promissory Notes, due 1983; and $289,000 on Miscellaneous Debt. On December 31,1969, the company drew down $15.5 million of an original $50 million commitment received from four insurance companies in 1968. The remaining balance of $15.5 million is scheduled to be drawn down in early 1970. As of December 31,1969, the long-term portion of Ethyl's debt was $230.1 million, equal to 48% of the company's total capitalization. The long-term debt at December 31,1969 represents an increase of $15 million over long-term debt of $215.1 million at December 31,1968. This increase is the result of the $15.5 million new borrowing plus additional foreign debt of $4.8 million plus $2.5 million in long-term debt of Capitol Products Corporation less $7.8 million in long-term debt due during die year 1970. Hie current portion of long-term debt increased by $2.1 million from $5.7 million at December 31,1966 to $7.8 million at December 31,1969. Accordingly, the net change in total long-term debt for the year 1969 is an increase of $17.1 million. How Ethyl Used the Revenues It Received During 1969 (Millions of Dollars) $516.9 100.0% WAS RECEIVED BY ETHYL from all sources $256.4 $139.9 $ 39.9 $ 13.5 $ 12.3 49.6% 27.1% 7.7% 2.6% 2.4% _///$ 29.6 --//% 20.7 =--$ 4.6 $ 54.9 5.7% 4.0% 0.9% 10.6% THESE RECEIPTS WENT: To suppliers for materials, services, etc__ To employees for payrolls, employee benefits For income and other taxes For interest expense To Ethyl shareholders For use in the business including expansion, modernization, working capital, debt repayments and sinking fund payments: From depreciation, depletion and amortization From earnings From deferred income tax 18 SACMAT OF LONG-TOM MIX 51/i% Bank Loan-Due 1970 . : The Chase Manhattan Bank ;,V . . ... 7 $ 3,000,000 ,5*/% Senior Notes ($106 miBion-Due 1971-78) and 7*/*% Promissory Notes ($34-5 million*'--Due 1973-83) . . . The Prudential Insurance Company of America \ : Hie Equitable life Assurance Society of die United States The Northwestern Mutual Life Insurance Company ' New York Life Insurance Company 140,500,000 3*/a% Guaranteed Notes--Due 1970 . . .. . Thu-- rtmatiinn Banlta (Dgbt of Canadian Subsidiary 689,000 Guaranteed by Parent Company) 5*/% Subordinated Notes-Due 1970-72 . . - . .. . . The Prudential Insurance Company of America The Equitable Life Assurance Society of the United States New York Life Insurance Company 7,485,000 5*/4% Subordinated Notes--Due 1979-82 . . . , Various Institutional Investors 47/% Promissory Notes--Due 1970-83 - . . . .. . .. . 50,000,000 26,500,000 Miscellaneous . . . . . . . . ..... - > . r __9A49J000 Total Debt at December 31,1969 .. 225023000 GunentPorticmofDebt . . . ' - - r. - . 7,871,000 Long-Term Debt , . - . . . ... . . $230A52jOOO ' ;r *Reprteentt a portion of e 530000000 commitment. - The additional $15000000 it echeduled to be drawn down in early 1970, SUMMAKY OF DEBT MATURITIES TO 1979 . . S*/i% Bank Loin, `--'V-?.. J*/% Guaranteed S*Mt *U% Vhff. 5V.% 4Va% Note# and Senior Pramlaeofy SabonUnited Pramitsory Wit Deb* Motet Notea Note# Note# Note* MatoHUea Dot 197*42 Due 197* Du 1903 Dot 1972 Doe 1*63 to 1*92 Total Annual Amount 1970 $4500,000 $1,250,000 $4,121,000 $ 7,571,000 1971 $14000,000 . 2000000 1050000 457,000 16,207,000 1972 12,000,000 4485,000 1250000 413,000 16,148,000 1973 12,000,000 $2000000 1,250,000 5,339,000 ZL0S90OO 1974 - 14000,000 2000000 1050000 322000 16,072,000 1975 v, 12000000 2000000 1050000 332000 16062000 1976 12000000 2000000 -1050000 341,000 16,091,000 1977 12000000 2000000 1,250,000 323,000 16,073,000 1978 22000000 2000000 , 4250,000 263,000 26,0133300 1979 $8,000,000 4000,000 1,250,000 2243X30 16,474,000 Consolidated Balance Sheets ETHYL CORPORATION AND SUBSIDIARIES ASSETS December SI 1969 Current assess: Cash and short-term securities. . $123,302,000 Accounts and notes receivable.......................... 74,620,000 Inventories........................................................ 79,116,000 Prepaid expenses................................................... 2,587,000 279,625,000 1968 $105,098,000j nmn) 69,122400] 247,773408] Property, plant and equipment, at cost: Land and land improvements..................... Development costs, producing properties . Timberlands and standing timber.... Buildings........................................................ Machinery and equipment ...... Less, Accumulated depreciation, depletion and amortization.......................... Net property, plant and equipment. Investment in 50% -owned company 23,773,000 4,020,000 7,483,000 77,183,000 373,208,000 485,667,000 192,467,000 293,200,000 1,552,000 19,945400 2,770400 6,341400* 71,250400 339,191400 439,497400 169,736400 269,761400 ,*3 it 5,072400 16,479,000 16,298,000 i Excess of cost of investments over equities in businesses acquired and other intangibles . 28,308,000 15,723400 $619,164,000 $554,627400 LIABILITIES SHAREHOLDERS' EQUITY December 31 1969 Current liabilities: Accounts payable and accrued expenses. . . $ 54,759,000 Dividends payable........................................ , . 3,280,000 Notes payable............................................... . 28,070,000 Long-term debt, current portion . . . .. . 7,871,000 Income taxes............................................. Total current liabilities. . . . .. . 103,126,000 1968 $ 35,315,000 3,053,000 15,936,000 5,733,000 11,434,000 71,471,000 Long-term debt: Senior......................................... . . . Subordinated............................................. , Deferred income taxes................................... . Provision for employee benefits .... . Minority interests.................................... . . . . . 54,985,000 23,258,000 4,961,000 4,782,000 157,636,000 57,485,000 18,631,000 5,298,000 210,000 Capital stock: Cumulative First Preferred Stock, par $100 per share: 6% Series A......................................... 5% Series B......................................... Cumulative Second Preferred Stock, $2.40 Convertible Series A, par $10 per share (aggregate liquidation price $73,961,000 on 1,760,982 outstanding shares, after treasury stock).... . . Common, par $1 per share..................... Capital surplus......................................... Retained earnings......................................... 19,580,000 263,109,000 Less, Treasury stock at cost..................... . . 10,224,000 Total shareholders' equity. . . $619,164,000 3,465,000 6,000,000 19,488,000 10,027,000 46,072,000 164,235,000 249,287,000 5,391,000 243^96,000 $554,627,000 The accompanying nottt art an integral part of then ttatemente. 31 ETC 17086 y " - 'V/ ; ' y r- :*y- -'-'- - <-*i-C.'- .;. ' ... - Yam &uUDecember tl 1969 1966 income:. . ;' Net sales. . - . . . ' . . . . . $509,302,000 Miscellaneous income, net . . . . 7,621,000 516,923,000 Cost and expenses: $509,072400 j 51243248 ] | Cost of goods sold. . ... . .... Selling and general expenses . . . . . ..: Interest and financing costs. . ... Income taxes . i ...... . . . . . Income before extraordinary item . . Extraordinary item ... .... Net income . ... . . . . Retained earnings at beginning of year. Reversal of accumulated depreciation on , appraisal increase of property, plant and equipment restored to cost . ... . . ... Deduct, Cash dividends; 376,439,000 60,218,000 14,222,000 33,020,000 483,899,000 33,024,000 (3,500,000) 29,524,000 164,235,000 1,427;.J0 374412410 ] 63452400] 13474400 29,592,000 480,930400 31402400 31402400: 143,991400 Series A, 6% Hrst Preferred stock, $6.00 per share ............ 193,000 200400 Series B, 5% First Preferred stock, $5.00 : per share ........................................................ 239JOOO 334400 $2.40 Second Preferred stock, $2.40 per share 4,345,000 ' 4433400 Common stock, per share, $.75 in 1969 and $.63 in 1968 ................................................... 7434400 6491400 12411400 11458400 Retained earnings at end of year...... $182475400 $164435400 Earnings per share of common stock and common stock equivalents: Income before extraordinary item . . $2.77 -- $241 Extraordinary item......... Net income . . . . . ... . (34) $2.43 $241 IV iviuia GaiiiuiRO uu aimi c ut wwuiuivm g*vv and common stock equivalents assuming conversion of $2.40 second preferred stock. (If the second preferred stock were converted, its dividend would become $1.09 per share at the annualized present common dividend rate, as against the present $2.40 preferred dividend). Income before extraordinary item . . Extraordinary item. . .... . . - Net income . . . . . . . . . The accompanying note* ere an integral part of these statements. ETC Consolidated Statements of Capital Surplus The accompanying notet are an integral part of theee statements. Year* Bniti December 31 1969 1968 Balance at beginning of year............................... $ 46,072,000 $ 44,640,000 Reduction of certain property, plant and equipment from appraised value to cost in accordance with Federal Power Commission requirements.............................................. . (3,476,000) Excess of cash received over par value of shares of stock issued under stock option plans: 28,936 and 99,210 shares of common stock 308,000 971,000 9,857 and 21,240 shares of $2.40 Second Preferred stock Excess of par value over cost of 1,130 and 1,129 shares of 6% Series A First Preferred stock cancelled............................................................. Excess of par value of 2,316 shares of $2.40 Second Preferred stock over par value of 3,010 shares of common stock issued upon conversion, less cost of fractional shares of common stock purchased............................... 253,000 12^)00 20,000 381,000 10,000 Excess of award amount over par value of 1,760 and 2,264 shares of $2.40 Second Preferred stock issued under the Oxford Incentive Compensation Plan............................... 54,000 70,000 Balance at end of year.......................... $ 43,243,000 $ 46,072,000 Notes to Financial Statements 1. Consolidation Principles: The accompanying financial state ments include the accounts and operations of all wholly-owned subsidiaries, the assets and liabili ties of Capitol Products Corporation (Capitol), a 56% owned subsidiary acquired for cash December 24, 1969, and the accounts and oper ations of newly formed Bromet Company, in which Ethyl Corpora tion has an 80% partnership interest. A special meeting of sharehold ers of Capitol has been called for March 19,1970 for the purpose of considering and voting upon a Plan of Merger which, if approved by a majority of the outstanding shares of Capitol's capital stock, will, among other things, entitle the remaining shareholders of Capitol to receive $17 per share in cash (subject to appraisal in the event of dissent). As a result of the merger, the Corporation will own all of the outstanding shares of Capitol. Excess of cost of investments over equities in businesses acquired in cludes the amount applicable to the Corporation's 56% interest in Capi tol which has not been allocated pending approval of the merger and an appraisal of assets. The excess of cost of investment over underlying equities in other businesses acquired is not being amortized. 2. Cash and Short-Term Securities: Short-term securities, stated at cost plus earned discount which ap proximates market value, amounted to $104,132,000 at December 31, 1969 and $92,145,000 at December 31,1968. 3. Inventories: Inventories include: 1969 1968 Finished goods *31,399,000 *28,425,000 Raw materials and work In process 32,692,000 27,573,000 Stores, supplies, etc. 14,625,000 13,124,000 *79,116,000 $69,122,000 Inventories are stated at the lower of cost or market with cost being determined on the last-in, first-out basis with respect to approximately 23 ETC n88 Notes to Financial Statements continued 'r, . $36,743,000 at December 31,1969, and $31,967,000 at December 31, 1968, and generally on either an av erage cost or first-in, first-out basis with respect to the balance. 4. Investment in 50%-owned Company: The Corporation's investment in Ethyl-Dow Chemical Company, in process of liquidation, approximates its 50% equity in the net assets of that company and is stated after a writedown of $3,500,000 (a capital loss without current tax benefit) from cost included as an extraordi nary item in the accompanying consolidated statement of income. Dividends received from EthylDow were $900,000 in 1969 and $1,160,000 in 1968 which amounts were not significantly different from the Corporation's equity in Ethyl-Dow earnings. 5. Deferred Charges and Other Assets: Deferred charges at December 31, 1969 consisted principally of un amortized discount on long-term debt and other deferred financing expenses. Other assets include a receivable applicable to certain timberlands of a subsidiary which have been expropriated by the Province of New Brunswick. The Corporation expects that litigation regarding compensation, which is now in progress, will result in re covery substantially greater than die amount at which the receivable is stated in the subsidiary's accounts. 6. Notes Payable: The Corporation borrowed $25,000,000 in 1969 on short-term notes under a revolving credit agreement with five banks and has the right to convert these notes not later than May 15,1970, into term promissory notes payable in ten equal, semi-annual install ments commencing six months from the date of conversion. 7. Long-Term Debt: Reference is made to "Long-Term Debt" on page 19 of this report for information concerning die Cor poration's long-term borrowings. 8. Capital Stock: As of December 31,1969, there were 25,000,000 shares of com mon stock authorized, of which 10,059,456 shares were issued which includes 12 shares of treasury stock. As of December 31,1969, there were 1,000,000 shares of First Pre ferred Stock authorized, of which 33,523 shares of 6% Series A and 40,000 shares of 5% Series B were issued, which includes 2,114 shares of 6% Series A and 1,800 shares of 5% Series B of treasury stock. The 6% Series A stock is redeemable at $101 and annual sinking fund pay ments of approximately $114,000 are required. The 5% Series B stock is redeemable at $100 from a sink ing fund having required annual payments of $2,000,000 and is otherwise redeemable at $102 to June 30,1970 and $101 thereafter. The First Preferred Stock is pref erentially entided to par value in involuntary liquidation and to its current redemption price in voluntary liquidation. As of December 31,1969, there were 10,000,000 shares of Second Preferred Stock authorized, of which 1,957,982 shares of $2.40 Convertible Series A were issued, which includes 197,000 shares of treasury stock. Each share of $2.40 Convertible Series A is convertible into 1.3 shares of common stock. The voluntary or involuntary liquidation value of the Second Preferred Stock is the greater of (1) $42 per share, or (2) an amount equivalent to the book value of that number of shares of common stock into which such preferred stock is convertible. The aggregate excess of liquidation price over par value on 1,760,982 shares of outstanding stock is approximately $56,350,000 as of December 31, 1969. These shares are callable after August 1,1972 at $75 per share, plus accrued dividends. 9. Warrants: At December 31,1969, there were outstanding warrants exercisable on or before November 1,1982, which entitle the holders thereof to purchase 45,600 shares of unissued common stock at $4.58 per share. During 1969 there were no warrants exercised. 10. Stock Option Plans: Under the Corporation's restricted stock option plan, 148,339 shares of unissued common stock are re served for issuance to officers and other key employees. At December 31,1968, there were outstanding options to purchase 187,545 shares at prices ranging from $9.42 to $33.12. During 1969, there were no options granted, options for 28,936 shares were exercised, and options for 10,270 shares were cancelled, leaving outstanding at December31, 1969 options covering 148,339 shares at prices ranging from $9.42 to $33.12 (of which options for 67,689 shares were exercisable at that date). No further shares are available for grant under this plan. Under a qualified stock option plan approved by the shareholders on April 24,1969,300,000 shares of unissued common stock are re served for issuance to officers and other key employees. No options to purchase shares under this plan were granted during 1969. In connection with the merger of Oxford Paper Company into Ethyl Corporation in August, 1967, die Corporation assumed Oxford Paper Company's obligations with respect to the outstanding options under stock option plans for officers, key employees and eligible salaried employees, and reserved shares of $2.40 Second Preferred Stock there fore. At December 31,1968, there were outstanding options to pur chase 28,185 shares at prices rang ing from $23.00 to $59.75. During 1969, options for 9,857 shares were exercised and options for 4,584 shares were cancelled, leaving out standing at December 31,1969, options covering 13,744 shares at prices ranging from $24.84 to $59.75 (of which options for 6,655 shares were exercisable at that date). No further shares are avail able for grant under these plans. IL Retained Earnings Restriction: Ttie Corporation's articles of incor poration and note agreements con tain restrictions, among others, against the payment of cash divi dends. At December 31,1969, $17,674,000 of retained earnings may be made available for such payments under the agreement presently most restrictive. 12. Retirement Income Plans: The Corporation and its subsidi aries provide retirement benefits for substantially all of their employees, induding certain employees in foreign countries, under several different plans funded with insur ance companies or corporate trust ees. Plan contributions, based upon actuarial calculations, are irre vocably devoted to the payment of retirement and other benefits for employees. Total costs of retire ment income plans for 1969 were approximately $6,500,000 which includes amortization of prior ser vice costs generally over periods ranging up to 40 years. The policy of the Corporation and subsidiaries is to fund pension costs accrued. Under one of the plans, the actuarially computed value of vested benefits for active employees not yet retired exceeded the total pen sion fund allocable to the active group by $9,250,000 with full funding anticipated in the valuation method by the time each employee becomes eligible to retire. 13. Depreciation, Depletion and Amortization: Depreciation and depletion charged to income amounted to $28,132,000 and $29,753,000 in 1969 and 1968, respectively. Amortization of in tangibles and of deferred discount and financing expenses charged to income amounted to $1,430,000 and $1,323,000 in the respective years. Depletion of timberlands is provided by charges to income at unit amounts estimated as adequate to apportion the cost of each tract, less residual value of land and young growth, to the cost of timber cut from such tract. 14. Deferred Income Taxes: Depreciation computed on acceler ated methods for income tax pur poses exceeds book provisions based principally on the straight-line method which excess, together with timing differences in intangible drilling and development costs and other expenses, resulted in reduc tions of current income tax payable of $4,607,000 in 1969 and $2,449,000 in 1968. 15. Investment Credit: The Corporation's provision for income taxes was reduced (and net income increased) by investment credits of $1,988,000 and $1,172,000 in 1969 and 1968, respectively. 16. Earnings per Share: Earnings, and pro forma earnings, per common share are computed using the weighted average number of shares of common stock and common stock equivalents (com mon stock options and warrants) outstanding during the year. Pro ceeds from common stock equiva lents are assumed to be used to purchase outstanding shares of the Corporation's common stock. Per share amounts for 1968 have been restated accordingly. AUDITORS' REPORT To The Board of Directors and Shareholders of Ethyl Corporation: We have examined the consolidated balance sheet of Ethyl Corporation and Subsidiaries as of December 31,1969 and the related consolidated statements of income and retained earnings and of capital surplus for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the Corporation's consolidated financial statements for the year ended December 31,1968. In our opinion, the aforementioned statements present fairly the consolidated financial position of Ethyl Corporation and Subsidiaries at December 31, 1969 and 1968, and the consolidated results of their operations for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. LYBRAND, ROSS BROS. k. MONT Richmond, Virginia February 16,1970 25 ETC 17090 TenYear Summary ETHYL CORPORATION AND SUBSIDIARIES RALES AND INCOME $ Years Ended December 31 Net sales (after deducting freight cost). ......... income before non-cash items and income taxes. ..... Depreciation, depletion and amortization............................... Income taxes, including deferred . Income before extraordinary item . Net income . . . . . ... Cashflow. ........ 1969 1968 $509,302,000 $509,072,000 95,606,000 92,170,000 29,562*300 31*376,000 33*320*300 * 29,592,000 33*324*300 31,502,000 29,524*300 31,502,000 7,193*300 65,027*300 $468,934; 82342; 30349; 21,971; 29*6% 29362, 62*76, FINANCIAL CONDITION Working capital .......................... Ratio of current assets to current liabilities . ............................... Property, plant and equipment (Net)......................................... Capital expenditures..................... Long-term debt............................... 176,499,000 $2.71to$1.00 393,200,000 53,312*300 230,152*300 176,302,000 129,757* $3.47to$1.00 $352to$ 269,761,000 64,158,000 215,121,000 301,345* 26,943* 206,419* COMMON STOCK Number of shares outstanding . . Earnings per share (3)..................... Pro forma earnings per share, assuming conversion of the Second Preferred Stock (*).-. . Income taxes per share .... Equity per share (s), . . . 10*359,444 $ 2.77* 10,027310 $ 2.61 $ 2.61* $ 3.25 $16.01 $ 2.46 $ 2.91 $14.56 9,9273 $ 2.41 V $ 229 $ 2.16 $12.70 Before extraordinary item. After extraordinary item, would be $2.43 and $2.33 respertioeiji. (1) Includes Oxford operations for entire year. All prior years ended December 31 reflect the . merger of Oxford into Ethyl on a pooling of interests basis. (2) Includes 4 months of combined Albemarle paper and Ethyl chemical operations. All prior years ended March 31 represent Albemarle paper operations only. (3) Computed in accordance with Accounting Principles Board Opinion Number 15. Earnings per share for the years ended December 31,1963-63 haoe been restated on this basis. V .vfe"- " iff- ETC 17091 1966 1965 1964 1963 ^ Years tadei March SI 1963P) 1962 1961 #65,823,000 $375,837,000 $335,663,000 $292^78^)00 $ 94294,000 $ 44,284,000 $ 46,117,000 91,287,000 73,539,000 63,165,000 52,412,000 15/520,000 5,915,000 725300 28,411,000 25,570,000 37,306,000 37,306,000 68,107,000 25,233,000 20,317,000 27,989,fl00 27,989,000 55,918,000 22,161,000 19,945,000 21,059,000 21,0594)00 46,1724)00 19,8864)00 16,099,000 16/427,000 16,427,000 39,052,000 6256,000 42834KX) 4281,000 4281,000 12,117,000 2,295,000 1258,000 1,7624>00 1,762,000 4212,000 24)78,000 2,740,000 2/435,000 2/435,000 4280,000 107244,000 9224040 103,194,000 86^167,000 634)014)00 10/313,000 8,587,000 $283to$1.00 $3.07to $1.00 $329tO$lD0 $3.43tO $1.00 $2.75tO$1.00 $3.29to$1.00 $2.73tO$1.00 306,073,000 59A164>00 219464,000 280,112,000 5754,000 223,639,000 240,216,000 35,876,000 225,9924)00 227,5834)00 33/3704)00 226/4274)00 150,9594)00 44)394>00 1964375,000 29,2224)00 44320,000 15/522,000 28,336,000 2,644,000 134)924)00 9238255 $ 3.21 9,487,380 $2432 8/438,658 $128 2275,807 $120 1,187262 $ .63 1229274 $ 24 $ 2.94 $ 2.54 $10.98 $222 $2.01 $8.26 $1.68 $2.02 $6.55 $1.30 $1.75 $523 _ $ .71 $5.31 $ .30 $325 M If the Second Preferred Stock were converted, iti dividend would become SIM a share at the annualized present common dividend rate, as against the present $2.40 preferred dividend. (!) Reflects a induction for the liquidating value of the Second Preferred Stock, and is based on the number of shares outstanding at the end of each year, treating warrants and common stock options as common stock equivalents. - Prior years ended December 31,1963--63 have been restated on this basis. Adjusted for stock splits and stock dividends. 976,956 $ 25 . -_ $ .45 $3.19 Ethyl Corporation DIRECTORS, OFFICERS AND STAFF WALLACE F. ARMSTRONG Vice President--Manufacturing LAWRENCE E. BLANCHARD, JR. Executive Vice President, Director WILLIAM H. CHISHOLM Executive Vice President, Director. Chairman, Oxford Paper Company/ JOSEPH A. COSTELLO Director. Retired Vice President, Ethyl Corporation S. DOUGLAS FLEET Director. Retired Vice President, Ethyl Corporation M. F. GAUTREAUX Vice President- Research & Development JAMES M. GILL Senior Vice President- Chemicals Croup; Director BRUCE C. COTTWALD President, Director FLOYD D. COTTWALD, JR. Chairman of the Board and Chief Executive Officer FLOYD D. GOTTWALD Chairman of the Executive Committee, Director C. RAYMOND HAILEY Vice President ARTHUR W. HELWIG Director--Planning Sr Profit Improvement ROBERT HERZOG Executive Vice President, Director A. B. HORN, JR. Vice President-- International Division GEORGE F. KIRBY Director. Executive Vice President, Texas Eastern Transmission Corporation JAMES H. KIRBY Controller JOSEPH M. LOWRY Senior Vice President, Director ANDREW M. McBURNEY Director. Executive Vice President, Oxford Paper Company THOMAS W. McKNfeW Director. Advisory Chairman of the Board, National Geographic Society FRANK J. McNALLY Treasurer ROBERT T. MARSH, JR. Director. Retired Chairman of the Board, First Sr Merchants National Bank Richmond, Va. MALCOLM P. MURDOCK Director. Retired Senior Vice President, Ethyl Corporation CLARENCE M. NEHER Senior Vice President- Plastics Division; Director Nominee LEWIS F. POWELL, JR. Direcfor. Partner, Hunton, Williams, Gay, Poioell & Gibson Richmond, Va. W. THOMAS RICE Director. President, Seaboard Coast Line Railroad Co. Richmond, Va. E. CLAIBORNE ROBINS Director. President, A. H. Robins Co. Richmond, Va. RICHARD K. SCALES Vice President SIDNEY BUFORD SCOTT Director. Partner, Scott Sr Stringfellov, Richmond, Va. THOMAS M. SMYLIE Vice President; Chairman of the Board, Capitol Products Corporation KENNETH SWARTWOOD Vice President FREDERICK P. WARNE General Counsel and Secretary ERWIN H. WILL Director. Chairman of the Board, Virginia Electric Sr Power Co., Richmond, Va. LLOYD B. ANDREW, JR. Director--Financial Relations CHARLES E. COLVIN Director--Purchasing Sr Traffic JAMES B. LONERGAN Director--Advertising Sr Sales Promotion G. SAMUEL ROBERTS Chief Engineer STEPHEN B. RODI Director--Corporate Employee Relations CHARLES H. ZEANAH Director-Corporate Public Relations * Member of the Executive Committee This report is lithographed on Luxcote High Gloss Enamel (basis 100 pounds for the text and 80 pounds for the covers), produced by Oxford Paper Company. DESIGN: ROBERTS, ^EINMAROT A ONG, INC. COLOR PHOTOGRAPHS: COVER AND PAGES 6*12: O. WINSTON LINK PAGES 2 ANO 14: ERC OWEN 26 DIVISIONS Oxford Paper Company C. RAYMOND HAILEY President ANDREW M. McBURNEY Executive Vice President GORHAM H. SCOTT Senior Vice President RUSSELL H. CHAMBLISS, JR. Vice President--Sales C. RICKERT LEWIS Vice President- National Accounts LINTON E. SIMERL Vice President- Research Sr Development B. FREDERICK AYER Treasurer WILLIAM T. WOOD Controller Petroleum Chemicals ROBERT A. DOUGLASS Divisional Vice President Sr General Manager JOHN F. KOEHNLE General Sales Manager R. J. OSTRANDER Technical Director Ethyl International JULIAN J. FREY Assistant Vice President L. N. APPLEGATE Director of Exploration K. F. CAST General Manager--Operations D. L. JENNINGS Vice President of Toyo Ethyl K.K. EthylS.A, WILLIAM J. RUSHER Managing Director Ethyl Hellas Chemical Company S.A. WILLIAM J. RUSHER Chairman ELMO F. DIEDRICH Managing Direcfor Ethyl Corporation of Canada Limited KENNETH A. FREBERG President JAMES H. MAIN Manager--Petroleum Additives ROBERT H. SHANNON Manager--Chemical Products Industrial Chemicals MERLE L GOULD General Manager ROGER A. MOSER Director--Product Management H. WARREN REES General Sales Manager STANLEY A. HARRIS Sales Manager Plastics PAUL E. WEIMER Manager--Operations JOHN E. WILLIS Director--Financial Services HARRY M. ZIMMERMAN Manager--New Market Development Imco Container Co. Dh RICHARD V. VOSBURGH President RICHARD F. SANDS Executive Vice President ROBERT F. KUHNE Vice President- Sales Sf Marketing JAMES W. COURT Vice President--Finance VisQueen Division HARRY C. BYRNE, JR. General Manager JACK F. BIEHL General Sales Manager JACK C. WRIGHT Technical Operations Mona ROLAND E. McKENZIE Manufacturing Manager Polymer Division CHARLES W. MONTGOMERY General Manager ARTHUR A. SMITH General Sales Manager Pipe Division PALMER A. BROWN Manager L. RAY MeCULLEY Sales Manager PVC Film and Sheet STEPHEN J. BARCIK Manager Converted Film Products HOWARD L. LEVENTHAL Manager MARTIN L. WEINER Marketing Director The William L. T' onneil Company, Inc. E. MALCOLM HARVEY President Sr Treasurer LLOYD L. REYNOLDS Vice President & General Manager WARREN H. BROCKWAY Vice President Sr General Sales Manager DONALD A. WAGNER Vice President--Manufacture FRANK DANIELS, JR. Assistant Treasurer Capitol Produc: Corjxnati JOSEPH T. COLLIrlOWER President GEORGES. THUMLERT Vice President & Treasurer WALLACE FREMONT Vice President DONALD G. HORNUNC Vice President ETC 17093 s Products and Facilities are Nationwide fETROLE M CHEMICALS Gasoline! itiknock compoi ids Gasoline nition control compo ids Antioxid its Gasoline ticrgent-deicer- conus n inhibitors Diesel fu detergent- corros: n inhibitor Diesel fu ignition improvers Fuel oil C nbustion improver Distillati fuel anti-static additi : Lubricat g oil additives Meta! de ctivator Oil solu e dyes INDUS! IAL CHEMICALS Linear f imary alcohols Alumin m alkyl compounds Chlorin ted solvents (pert lorethylene, trichi rethylene, 1,1,1 richloroethane) Special orga bmetallics Orthoa Icylated phen js and anili es Orthoa feyljted antic iidants Vinyl c loride p, C-- 1 // I i Lthyl c loride / Meihy; hloride / Caustic coda / Sodiun Alum PLASTICS PRODUCES Polyethylene packaging films .Polyethylenebuilding and agricultural films Reinforced polyethylene films Polyethylene shrink films Refuse bags Polyvinyl chloride packaging films Polyvinyl chloride shrink films "Flocor" waste treatment filter media Polyvinyl chloride resins Polyvinyl chloride compounds Polyvinyl chloride containers Polyethylene containers Bottle closures and other injection molded specialty products Plastic pipe and fittings PAPER PRODUCTS Coated Letterpress Papers for commercial printing Coated Offset Papers for book publishing, commercial printing Uncoated Letterpress Papers for book publishing, commercial printing Uncoated Offset Papers for book publishing, commercial printing Web Offset Papers--Coated and Uncoated for magazines, book publishing, commercial printing Film Coated Papers for book publishing, commercial printing Gravure Papers--Coated and Uncoated--(Sheet and Roll) for magazines, commercial printing, converting Converting Papers for envelopes, business forms, paper masters ALUMINUM PRODUCTS Aluminum shapes for windows and doors, curtain walls, boats and trailers, and tub enclosures Aluminum building shapes Aluminum products for the floor covering industry Aluminum windows and dpors V' Aluminum billets T t T PAIJR MILLS i plaItics plants T AuEuNUM PRODUCT PLANTS J CHWtICAL PLANTS OtherW/mfs: * Sarna, Canada ? Mitssauga, Canada r Do*,sview, Canada * Th^aloniki, Greece ETHYL CORPORATION 330 South Fourth Street Richmond, Va. 23219 Changing .. .to Serve a Changing World. 6 Chemical Planta/Distribution Facilltiea C PlatHce Ptants # Paper Uilla ANNUAL MEETING The annual meeting of Ethyl Corporation's shareholders will be held at the Company's corporate headquarters in Richmond, Va., on Thursday, April 22,1971. STOCK TRANSFER AGENTS First & Merchants National Bank Richmond, Va. Chase Manhattan Bank N.A. New York, N.Y. REGISTRARS OF STOCK The B^nk of Virginia Richmond, Va. Morgan Guaranty Trust Co. New York, N.Y. GENERAL COUNSEL Hunton, Williams, Gay, Powell & Gibson Richmond, Va. CORPORATE HEADQUARTERS 330 South Fourth Street Richmond, Va. 23219 EXECUTIVE OFFICES 451 Florida Street Baton Rouge, La. 70801 100 Park Avenue New York, N.Y. 10017 1970 Ethyl Annual Report CONTENTS 1 Message to Shareholders 4 Financial Results of 1970 9 Operations Review 20 Financial Statements 24 Notes to Financial Statements 25 Auditors'Report 26 Ten-Year Summary 28 Directors, Officers and Staff FINANCIAL HIGHLIGHTS Yean Ended December 31 1970 Net Sales.............................................. $556,856,000 Income Before Extraordinary Items . . . Net................................................... 35,582,000 37,199,000 Earnings per Share of Common Stock Income before Extraordinary Items Net Income.................................... $3.06 $3.22 Income Taxes......................................... 34,649,000 Cash Flow.............................................. 73,917,000 Cash Flow per Share of Common Stock Dividends per Share of Common Stock $7.29 $ .84 Depreciation, Depletion & Amortization 31,949,000 Capital Expenditures......................... 64,190,000 Working Capital.................................... 209,724,000 Equity per Share of Common Stock . $18.45 1969 $509,302,000 33,024,000 29,524,000 $2.77 $2.43 33,020,000 67,193,000 $6.61 $ .75 29,562,000 53,312,000 176,499,000 $16.01 etc 17097 To the Shareholders of Ethyl Corporation: Ethyl's program of "changing... to serve a changing world" through diversification, expan sion and continued growth was important to our 1970 performance. Despite generally depressed economic conditions and an unprecedented attack on lead in gasoline, we ended the year with a 9.3% increase in net sales and a 7.7% rise in income from opera tions. Per share income from operations rose 10.5% over 1969. Our cash position continues to be very strong and enables us to maintain our search for other profitable investments. Net sales for 1970 were a record $556.9 million, compared with $509.3 million for 1969. income from operations was $35.6 million, or $3.06 a share for the year. This com pares with $33 million, or $2.77 a share, for 1969. In addition, we had a net extraordinary credit in 1970 of $1.6 million. After the extraordinary credit, Ethyl's net income for 1970 totaled $37.2 million, or $3.22 a share, compared with $29.5 million, or $2.43 a share, after allowintffor an extraordinary charge in 1969. information on the Company's operations and financial results is contained in this report, and we encourage you to read it. in this letter, we want to review a few of the more significant developments at Ethyl during 1970 and then deal with the continuing contro versy over the use of lead antiknocks in gasoline. The Industrial Chemicals Division continued to penetrate new market areas in 1970 as part of an expansion of Ethyl's participation in this segment of the chemical industry. Additional sales of co-product alcohols and olefins produced at the Houston, Texas plant were made in the plasticizer, detergent and lube additive markets. (See page 9.) A four-company group in which Ethyl has a one-sixth interest has made two wildcat oil discoveries in the Dutch sector of the North Sea. They were the first oil finds in this sector. The 1971 exploration program calls for more wildcat wells. (See page 11.) Among other 1970 developments: --Completed acquisition of Capitol Products Corporation. --Entry into manufacture of instruments and systems for measuring auto emissions through the acquisition of Air Monitoring, Inc. --Production of developmental quantities of foamed aluminum. --Transfer of Oxford Paper's headquarters and several departments to Richmond, Va. --Construction begun on a $2.7 million plastics film plant. --Construction completed on new alpha olefins plant at Houston, Texas. --Synthetic alcohols plant capacity expanded. --PVC film plant production started at Richmond, Va. --Announcement of plans to build a $2 million vinyl bromide plant --Extended range gasoline additives developed by Ethyl researchers. You may recall that in our letter last year, we reported the unexpected acceleration of the attack on the use of lead antiknocks in gasoline. As you know from the press, the controversy in 1970 over leaded versus unleaded gasoline became a national issue with focus on the catchy phrase, "Get the Lead Out." Early in 1970, major automobile makers announced plans for the future manufacture of vehicles requiring lead-free gasoline because they claimed lead might interfere with catalytic devices that might be needed to meet stringent exhaust emissions standards that go into effect in 1975. They also have marketed 1971 models with low compression engines designed for gasoline of lower octane quality with little or no lead, even though catalytic devices are not expected to be installed before 1974 at the earliest. A number of oil companies have marketed unleaded and low lead gasolines of varying octane quality, or have said they will make available unleaded gasoline as soon as automobile engines requiring such fuel are made in substantial numbers. Interspersed with these developments were a number of governmental plans and legis lative proposals at the federal, state and municipal levels to reduce or eliminate the use of lead antiknocks. Among the legislative proposals were bills to restrict or phase out leaded gasoline, to empower regulatory authorities to control fuel composition and fuel additives (including lead antiknocks), and to levy confiscatory taxes on lead antiknocks. Although most of these legislative proposals failed to pass, Congress did adopt major 1 ! Clean Air amendments. While these amendments empower the Administrator of the new Environmental Protection Agency (EPA) to control fuel composition and fuel additives,! he is required to consider certain evidence and various alternatives before taking action. In January 1971, the EPA gave notice that it intends to propose rules at the eariieat possible date to control or prohibit the use of lead antiknocks in gasoline. The EPA said regulations are anticipated which will provide for (1) general availability by July 1,1974 of lead-free gasoline suitable for 1975 and subsequent model cars, (2) reduction as soon as "technologically feasible" of the lead antiknock content of gasolines from the present average level of 2.5 grams per gallon to 0.5 gram per gallon on a schedule not yet deter mined and (3) the continued sale of gasolines of octane quality suitable for cdrs currently on the road for as long as the demand exists, as long as that is consistent with the goal of a maximum lead content of 0.5 gram per gallon. If such federal regulations of lead antiknocks are either adopted or found to be unnec essary by the EPA, this action will prevent states and localities from enforcing any control or prohibition concerning those fuel additives, except for California which is granted a special exemption from this preemption provision. California has recently adopted an extremely stringent air quality standard for lead. In February 1971, President Nixon again recommended a tax on lead in gasoline similar to the one he recommended in 1970, which failed to pass. The lead issue has been discussed in a politically and emotionally charged atmosphere that makes rational decisions and long-range planning by government officials extremely difficult. Ethyl sought throughout 1970 to present the other side of this complex Issue so that decisions concerning the use of lead antiknocks in gasoline could be made in the light of an objective examination of all the facts. Ethyl representatives appeared before numerous legislative commissions and committees, including both Houses of the U.S. Congress and several state legislatures, to defend the role of lead antiknocks in gasoline. We held press briefings, published brochures and pamphlets, conducted a nationwide advertising campaign in leading trade publications and major newspapers and accepted many speaking engagements. Most importantly, we continued and intensified our exten sive research on automotive emissions. Ethyl's position on the issue of lead antiknocks in gasoline remained unchanged throughout 1970, despite numerous charges and counter-charges. Our position is: 1) The great weight of medical and scientific evidence shows the public is not now, or in the foreseeable future, facing a health hazard from lead in the ambient air. 2) The removal of lead from gasoline will not decrease smog. If lead antiknocks are removed and aromatic compounds increased in order to maintain present octane levels, photochemical smog will be increased, according to the U.S. Bureau of Mines. And, there will be an increase in the emissions of certain compounds which are clearly detrimental to health. Thus, the substitution of high octane unleaded fuels for today's gasolines may very well introduce new and unassessed health hazards. 3) Oil refiners must make multi-billion dollar capital investments, in an already strained economy, to install refinery facilities needed to handle new blending with aromatics and other compounds. It is estimated that these new facilities will cost well in excess of $6 billion. 4) The removal of lead antiknocks means that 6 to 8% more crude oil will be consumed if we are to produce the same amount of gasoline with the octane quality provided by lead. And, crude oil reserves in the U.S. continue to decline. 5) The motorist will pay more for unleaded gasoline and experience reduced efficiency and economy of operation. '6) The catalytic converter, advanced by some, has never been installed on any produc tion vehicle and is not the only approach to reducing automobile emissions. Ethyl's Lean Reactor Car, developed in our Detroit laboratories to operate on leaded gasoline at low emissions levels, is believed to be a feasible alternative approach to this problem. At the same time, Ethyl is encouraged by its developments with catalytic converters which operate effectively with leaded gasoline. 2 ETC 17099 7) Lead traps will be developed which will significantly reduce or eliminate particulate jn&ions. Ethyl already has under long-mileage tests inexpensive, practical lead traps. We believe that we are presenting to decision makers in government and industry and b the public persuasive evidence that eliminating lead from gasoline will not solve complex problem of automobile air pollution, and may even make it worse. At the same time, there is little doubt that the attack on lead will conti ue at a strong gge in 1971. Therefore, we are prepared to continue and intensify our campaign to ?e$en1 the many advantages of lead antiknoci* compounds. We simply do not know at this time, and cannot predict, what the final outcome of the sad controversy will be. If decisions are made to eliminate the use of leaded gasoline in Sis country, we believe that this can only be accomplished gradually over a period of years because of the burdensome, economic penalties required for conversion to unleaded gasolines on a crash basis. The great majority of automobiles now in operation were built c require relatively high octane gasoline to operate efficiently. There are also substantial toreign markets for leaded gasoline which are unlikely to disappear in the foreseeable future. Therefore, we fully expect to be in the lead antiknock business for a long time to come -both in domestic and in international markets. The removal of lead from gasoline is not b simple as some say it is, and there are still many issues which must be resolved by the utomobile industry, the oil industry and various levels of government. The immediate and ultimate impact on Ethyl's earnings from a substantial reduction in the use of lead antiknocks depends on the resolution of many varied and unpredictable lectors. Lead antiknock compounds are still our principal product and contribute sub stantially more to operating profits than their contribution of about 37% to net sales. A substantial decline in our lead antiknock business would have an adverse effect on our other present chemicals business since lead antiknocks and certain other chemical products are interrelated in terms of raw materials, intermediates and by-products. (See the Financial Results section, beginning on page 4, for more information on the profitability of lines of business.) However, with continued emphasis on our diversification program, we are confident that Ethyl will remain a strong, diversified company, with cash flow suf ficient to make its debt payments, pay reasonable dividends and be able to take advantage of promising investment opportunities. In recent years Ethyl has made major investments in plastics, industrial chemicals and aluminum products--and each area has experienced substantial growth. We expect sales of industrial chemicals, plastics, aluminum products and paper to increase substantially in the years ahead as a result of aggressive marketing and the increasing utilization of new and expanded facilities, some of which are just beginning to generate new earnings. Ethyl will continue to pursue successfully its goal of "changing ... to serve a changing world." Our good positions in a number of product lines, our strong financial resources, our extensive research organization--all will be major factors in our continued strength. We extend to our employees, shareholders, customers and suppliers our sincere thanks fortheir continued support and understanding in 1970. Floyd D. Gottwald, Jr. Chairmen of the Board and Chief Executive Officer (LtcAizzt/ Bruce C. Gottwald President March 22,1971 BRUCE C. GOTTWALD / esaaexaMareaaero Nat Sales The following table sets forth Ethyl's net sales represented by each of its lines of business for the period 1967-1970: Domestic ... .. $226,843 41% Foreign........ 71,944 13 Plastics............ .. 102,748 18 Paper .............. 92,283 17 Aluminum........ 63,038 11 Total........ .. $556,858 100% 1969 Net Percent Sales of Total $214,151 42% 64,846 13 95,461 19 97,783 19 37,061 7 $509,302 100% 1968 Net Percent Sales of Total $203,199 40% 65,296 13 63,034 12 143,020 28 34,523 7 $509,072 100% 1967 Net Percent Sales of Tots $185,691 40% 56,649 12 40,111 9 151,845 32 32,642 7 $468,938 100% In determining its lines of business for reporting purposes, management has taken into account rates of profitability of operations, degrees of risk and opportunity for growth. For these reasons, and because of the diversity of operating characteristics, including markets and competitive conditions, the chemicals line of business is separately classified into domestic and foreign. The extent of foreign business in the plastics, paper and aluminum lines is relatively immaterial and does not justify separate treatment. Profit Contribution The following table shows, with respect to the Company's lines of busi ness, the respective operating profits before taxes, extraordinary items and certain corpo rate overhead expenses that are not practical to identify with a particular line of business: Operating Profit (Loss) by Lines of Business After Identifiable Corporate Expense (In Thousands ol Dollars) Chemicals: Domestic ... .. Foreign........ Plastics............ Paper .............. Aluminum........ Total........ .. 1970 1969 1968 1967 Percent of Percent of Percent of Percent of Operating Operating Operating Operating Operating Operating Operating Operating Profit Profit Profit Profit Profit Profit Profit Profit $66,936 15,345 7,406 3,413 4,471 $97,571 68% 16 8 3 5 100% $63,007 '11,664 7,963 5,228 3,048 $90,910 69% 13 9 6 3 100% $63,459 12,943 909 12,823 3,288 $93,422 68% 14 1 14 3 100% $51,618 12,076 (5,077) 16,215 3,515 $78,347 66% 15 (6) 21 4 100% The operating profits used for purposes of the above table include charges for general and administrative and research and development expenses at the Corporate level which are identifiable with each line of business but do not include the charges that are not practical to identify with lines of business. The latter include financing costs, net of interest earned, "search and development expense in new product areas and other general and adminis trative net expenses as shown in the following table: Wt Financing Costs ....................................... Corporate Overhead....................................... Total....................................................... 1970 $10,208 17,132 $27,340 (In Thousands of Dollars) 1969 $ 7,696 17,170 $24,866 1968 $10,819 21,509 $32,328 1967 $11,365 15,349 $26,714 Within the chemicals lin^of business, petroleum and industrial chemicals often utilize joint facilities for manufacture, research and development and in many instances are hterrelated in terms of raw materials, intermediates and by-products. Consequently, while sales of chemical products can be determined accurately without allocations, it is not practicable in management's judgment to make further allocations within the chemicals tine of business which would be meaningful in determining with any degree of accuracy the relative contribution to the Company's operating profits by classes of chemical prod ucts. Because lead antiknocks (the principal contributor to chemical sales and profits) are interrelated with certain other chemical products in terms of raw materials, intermediates and by-products, any substantial reduction or elimination of the use of lead antiknocks in gasoline would adversely affect the costs and profitability of certain of our other present chemicals as well. Net Sales by Classes of Similar Products (In Thousands of Dollars) For a number of years, the Company has reported a breakdown of its net sales by classes of similar products, determined by the use to which a class of product is put The following table sets forth the amounts and percentages of net sales of each of its classes of similar products for the 1967-70 period: Classes ol Similar Products Chemicals: Petroleum........ Industrial ........ Plastics............... Paper ................. Aluminum........... Total............ 1970 Net Percent Sales of Total $229,119 41% 69,668 13 102,748 18 92,283 17 63,038 11 $556,856 100% 1969 Net Percent Sales of Total 1968 Net Percent Sales of Total $213,840 42% 65,157 13 95,461 19 97,783 19 37,061 7 $509,302 100% $210,807 42% 57,688 11 63,034 12 143,020 28 34,523 7 $509,072 100% 1967 Net Percent Sales of Total $199,310 42% 45,030 10 40,111 9 151,845 32 32,642 7 $468,938 100% Net sales in 1970 increased in all categories except for paper. The largest sales increase occurred in aluminum, reflecting the acquisition of Capitol Products Corporation, com pleted in March,1970. Lead antiknock compounds (which contributed about 90% of all petroleum chemicals sales in 1970) remain the Company's principal product and contrib ute to operating profits a substantially higher percentage than their approximate 37% contribution to net sales. Income from Operations Advances Again Income from operations for 1970 amounted to $35,582,000 compared with income from operations of $33,024,000 for 1969. Earnings per Share Increase The 1970 income from operations was equal to $3.06 per share, based on the average 10,138,000 shares of common stock outstanding during 1970, treating common stock options and warrants as common stock equivalents. It compares with income from operations of $2.77 per share for 1969, on the basis of the average 10,170,000 shares of common stock outstanding during the year, treating common stock options and warrants as common stock equivalents. 5 ToMAMts Vmi* Endad OtoailAar31 Net Income otter Extraordinary Items The 1970 income from operations is before a net extraordinary credit of $1.6 million. Net income for 1970 after the extraordinary credit amounted to $37,199,000 or $3.22 a share. This compares with the 1969 net income of $29,524,000 or $2.43 a share which reflects an extraordinary charge of $3.5 million. Dividends Common stock dividends for 1970 were paid at the quarterly rate of 21 cents a share or 64 cents for the year. This compares with 75 cents paid for the year 1969. Cash Flow Sets a Record Cash Flow, which consists of net income plus depreciation, depletion and amortization, deferred income taxes and a provision for write-down of our Pittsburg, California plant, amounted to a record $73.9 million in 1970, as compared with a cash flow of $67.2 million in 1969. The 1970 cash flow exceeded that in 1969 by $6.7 million, and was sufficient to provide for all fixed charges and dividends and to provide substantial funds for capital expenditures. Working Capital At December 31,1970, working capital was $209.7 million and the ratio of current assets to current liabilities was 4.54 to 1. This compared with working capital of $176.5 million and a ratio of 2.71 to 1 at December 31,1969. Capital Expenditures Continue at a High Level During 1970, $64.2 million was spent on capital projects for new plants, expansions and modernizations and for acquisitions. Of this total, $25 million represents payment in 1970 of the balance of the purchase price for the stock of Capitol Products Corporation of Mechanicsburg, Pennsylvania. Long-Term Debt On March 31,1970, the Company drew down the remaining $15.5 million of an original $50 million commitment received from four insurance companies in 1968. On May 15,1970, the Company converted its $25 million short-term notes under a revolving credit agreement with five banks into term promissory notes repayable in ten semi-annual installments of $2.5 million which commenced on November 15,1970. As of November 1, 1970, the Company agreed to refinance its $106 million senior notes with four insurance companies which resulted in the 1971,1972 and 1973 installments ($12 million each) being rescheduled to mature at the rate of $3 million annually from 1979 to 1982 and $6 million annually from 1963 to 1986 and the interest rate on this issue was increased to 7.6%. Debt repayments during 1970 amounted to $15.3 million. These consisted of payments of $3,000,000 on the 5%% Bank Loan; $2,500,000 on the 5%% Subordinated Notes, due 1972; $1,250,000 on the 4% % Promissory Notes, due 1983; $2,500,000 on the Term Promis sory Notes, due 1975; $689,000 on 3%% Guaranteed Notes; $4,761,000 on Eurodollar Bank Loan; and $602,000 on Miscellaneous Debt. As of December31,1970, the long-term portion of Ethyl's debt was $254.1 million, equal to 48% of the company's total capitalization. t DCS How Ethyl Used the Revenues It Received During 1970 (Millions of Dollars) $565.3 100.0% $282.9 $145.3 $ 45.6 $ 17.6 $ 13.0 50.0% 25.7% 8.1% 3.1% 2.3% $ 31.9 $ 25.8 $ 3.2 $ 60.9 5.6% 4.6% 0.6% 10.8% WAS RECEIVED BY ETHYL from all sources THESE RECEIPTS WENT: To suppliers for materials, services, etc. To employees for payrolls, employee benefits For income and other taxes For interest expense To Ethyl shareholders For use in the business including expansion, modernization, working capital, debt repayments and sinking fund payments: From depreciation, depletion and amortization From earnings, net of dividends From deferred income taxes ETC 17103 i Summary of Long-Term Debt 76% Senior Notes ($106 million--due 1974-86) and 7%% Promissory Notes ($50 million--due 1973-83)........................................... The Prudential Insurance Company of America The Equitable Life Assurance Society of the United States The Northwestern Mutual Life Insurance Company New York Life Insurance Company Term Promissory Notes'--due 1971-75 ........................................................... Five Banks Subordinated Notes--due 1971-72 ....................................................... The Prudential Insusence Company of America The Equitable Life Assurance Society of the United States New York Life Insurance Company 5%% Subordinated Notes--due 1979-82 ........................................................ Various Institutional Investors 4%% Promissory Notes--due 1971-83 ............................................................. Miscellaneous .................................................................................................... Total Debt at December 31,1970 ............................................. Current Portion of Debt............................................................. Long-Term Debt......................................................................... $156,000,000 22,500,000 4,985,000 ~ 50,000,000 26,250,000 4,689,000 263,424,000 9,264,000 $254,160,000 `Converted from short-term notes on May IS, 1970; bear interest at the rate ot'A ot 1 % in excess of the prime commercial rate. Summary of Debt Maturities to 1980 544% Subordinated Notes Due 1972 and 1979-82 7.6% Senior Notes Due 1986 714% Promissory Notes Due 1983 Term Promissory Notes Due 1975 4%% Promissory Notes Due 1983 Misc. Debt. Maturities to 1992 Total Annual Amount 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 $2,500,000 2,485,000 8,000,000 8,000,000 $12,000,000 12,000,000 12,000,000 12,000,000 22,000,000 3,000,000 3,000,000 $2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 7,000,000 7,000,000 $5,000,000 5,000,000 5,000,000 5,000,000 2,500,000 $1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 $514,000 469,000 596,000 298,000 307,000 317,000 298,000 263,000 224,000 94,000 $ 9,264,000 9,204,000 9,346,000 21,048,000 18,557,000 16,067,000 16,048,000 26,013,000 19,474,000 19,344,000 7 Ifni It a major producer of industrial Treats and chemical additives tor iLlwun products. The leading petroaum chemical additives are antiknock .^pounds which are added to gasoline * increase its octane rating. Ethyl also gnduces a variety of other special pur* mm additives for automotive and indus- uses. Ethyl's Industrial chemicals nop from basic chemicals to highly complex compounds. Among them are mthetic primary alcohols and alpha cieflns-both of which have applications w Intermediates for biodegradable dstergents and plasticizers. Aluminum iltyls continue to be an Important and growing area for Ethyl. These are used as otalysts in plastics and synthetic rubber and as intermediates in agri cultural chemicals. Domestic chemical sales in 1970 totaled $226.8million,upabout5.9% above 1969. The sales of antiknock compounds in the U. S. through the Petroleum Chemi cals Division were about equal to 1969 volume despite an unprecedented attack on lead antiknocks in relation to air pol lution which resulted in the marketing by various refiners of several grades of gasoline containing "no lead" or "low lead." Continuation of these adverse (actors is expected to restrict antiknock tales again in 1971. Sales of other petroleum additives in the U. S. continued to grow in 1970 and reached record levels. Ethyl's combus tion improver and antioxidants were the major contributors to growth, with future gains expected in these product lines. New market development products, introduced in 1970, gained acceptance and should be factors in 1971 sales performance. Among these are a multi purpose carburetor detergent and antiicer and an additive to prevent static build-up in pumping and loading distil lates. Both of these new products are in commercial distribution. The Industrial Chemicals Division con tinued to increase its sales in 1970. The synthetic alcohols plant at Hous ton,Texas was expanded in 1970 to meet increasing demands for detergent alcohols marketed through this division. Construction of the alpha olefins plant at Houston was completed ahead of schedule. Production began early in the first quarter of 1971. The chain-growth capacity of this new plant, combined with that of the alcohols plant, will give Ethyl a total chain-growth capacity of approximately 500 million pounds annu ally. From this combined operation will come olefins for plasticizer, detergent and lube additive markets plus alcohols for the plasticizer, detergent and spe cialty markets. An expansion at Houston, to be completed in 1971, will increase capacity for aluminum alkyls. They are used not only as catalysts in the production of synthetic rubber and polypropylene, but also In the.manufacture of Ethyl's synthetic alcohols and alpha olefins. The rapid growth of aluminum alkyl catalyst sales was slowed appreciably during the second half of 1970. This was attributed to the reduction in polypro pylene and synthetic rubber production. The sales of antioxidants, antioxidant intermediates, and agricultural interme diates increased substantially in 1970, particularly for specific pesticides for which Ethyl supplies intermediates. Expansions are underway at our chemical facilities in Orangeburg, S.C. for the production of these products. The sales of chlorinated solvents increased in 1970. However, price weak ness during the major part of the year led to a narrowing of profit margins. In June 1970, Ethyl acquired Air Monitoring, Inc. of Femdale, Mich. Operating as a wholly-owned subsidiary, AMI develops and builds sampling and analytical systems for measuring auto mobile exhaust emissions. Combined with substantial Ethyl technology in this field, AMI is growing rapidly. Expanding its interest in detergent intermediates, Ethyl announced in October plans for a new plant in the Houston complex to produce nitrilotri- acetic acid (NTA), a substitute for phosphates in household detergents and cleaners. Under pressure from the Federal Government, not previously evidenced, detergent manufacturers announced in December that the use of NTA would be discontinued. Ethyl accordingly stopped engineering, design and equipment procurement for its NTA plant at the request of its largest contract customer. Under the arrange ment with Ethyl's customer, it is not anticipated that Ethyl will sustain any significant loss on the termination of this project. An in-depth investigation of the bromine chemicals market is being com pleted by Ethyl. To date, results of the study indicate many future marketing op portunities. The first planned entry into bromine chemicals, other than ethylene dibromjde, is vinyl bromide. It will be produced at a plant under construction at Magnolia, Ark. Construction is sched uled for completion in the third quarter of 1971. Vinyl bromide's major use is as a flame retardant in fibers. I ^yye,lon workers put finishing I .T*4on the new alpha olefins plsnt I'feuHM), Texas. M z- * a ETC 17106 Operations Review Ethyl International distribute* the compgnV petroleum and industrial cheml- ali ln 36 countries around the world. Antiknock compounds are manufactured it our Ethyl Hellas Chemical Company plant at Thessaloniki, Greece. Ethyl Corporation of Canada Limited pro* duces and distributes petroleum chemi* cal additives and industrial chemicals in Canada. In addition, Ethyl participates moil explorations in the North Sea and in Canada. The International Division st sales rec ords In 1970 while the sales of Ethyl Corporation of Canada nearly equalled the record levels reached in 1969. An approximate 100% rise in specialty chemicals sales and increased anti knock compound sales led to the new highs for Ethyl International. Sales of antiknock compounds to Eastern Europe and South America more than offset a lall-off in the Far East Gasoline sales by the Canadian petro leum industry were slightly lower than expected in 1970, with a consequent effect on our antiknock sales in that country. However, Ethyl of Canada con tinued as the leading supplier of anti knock compounds in Canada. Sales of other products in Canada were satisfactory, and Ethyl remained the only supplier in the country of alumi num alkyls and aluminum halides used as catalysts. The U.S. controversy over leaded versus unleaded gasoline reached into Canada in 1970. Three companies intro duced low-lead or no-lead gasolines in the fall, while other companies vigorously and publicly defended lead antiknocks. Operating efficiency of the Ethyl Hellas antiknock manufacturing plant in Greece was improved significantly in 1970, and production volume exceeds design capacity. fn view of present projections for the Japanese market, the completion and start-up of the proposed Toyo Ethyl KK lead antiknock plant has been deferred indefinitely. Ethyl has a 47.5% interest in the equity of the venture, but did not participate in other financing. Ethyl will continue to supply Japan and the Far East with antiknock compounds produced in its U.S. facilities. Ethyl has a one-sixth interest in a four-company group conducting oil explorations in the Dutch and German sectors of the North Sea. Tenneco Oil Company is the operator for the group. Twelve blocks totaling 1.2 million acres are held by the group. Two wildcat wells in one block have shown significant amounts of oil. The 1971 program calls for four or more wildcat wells with confirmation wells as indicated. It is too early to assess the significance of the indications of oil discovered in explora tory work. Oil exploration in Canada is being undertaken by our subsidiary, Ethyl Development Corporation, in conjunc tion with the operator, British Petroleum Oil and Gas Limited. Five wildcat wells were drilled and acreage for future ex pansion was acquired in 1970 in the provinces of Alberta and British Colum bia. Several exploratory wells are planned for 1971 along with develop ment wells, which are contingent on success of exploration. ft>e offshore drilling rig, Orion, vh/ch drilled the discovery wells in the North Sea. Ethyl has a one-sixth interest In the North Sea exploration venture. 11 Operations Review EtM it involved in two leading plastics product lines, polyethylene and polyvinyl chloride (PVC). The company is a major producer of polyethylene and PVC bottles through its Imco Container Com* pany Division. Through its VisQueen Division, Ethyl is the world's largest pro ducer of polyethylene films. Products include polyethylene packaging films, building and agricultural films, shrink films and specialty films. Other Plastics Division products include PVC resins ind compounds, refuse bags, PVC packaging film, "Floeor" waste treat ment filter media, bottle closures and other injection molded specialty prod ucts and PVC plastic pipe and fittings. The Plastics Division's 1970 sales totaled $102.7 million, an increase of about 7.6% over 1969 results. The division's growth was attributed primarily to concentration on major markets and improvements in manufacturing efficiency. Gains were generally uniform across all major product lines with continued penetration of the markets for poly ethylene and PVC packaging films and containers and PVC resins and com pounds. Ethyl also continued promotion of "Floeor" waste treatment filter media. The company currently is providing "Floeor" systems for several major sew age disposal projects in different sec tions of the United States. As a result of the successful use of our system in these installations, the Plastics Division has started a new Environmental Control Division. Capital expenditures for plastics in 1970 were largely for modernization and increased efficiency of existing facilities. Construction of a $2.7 million specialty Dm plant was begun in the fall in Man chester, Iowa. It is expected to be ready for production in early 1972. The Man chester plant will be the Plastics Divi sion's 27th plant in the U.S. and Canada and its seventh plasticslilm plant. The VisQueen Division registered about a 6% increase in sales, despite a weak economy, to reinforce Ethyl's num ber one position in the polyethylene film industry. Technical and marketing efforts in VisQueen were successful in expanding Ethyl's participation in specialty film areas. The Imco Container Company division showed an approximate 11 % increase in sales over 1969. This growth is espe cially noteworthy since increases in the plastics container industry over the past yearwere ata virtual standstill. In poly ethylene and PVC containers, Ethyl con- VIsQueen plastic film is checked and prepared tor shipment from Ethyl's plant at Terre Haute, Ind. The shipping container la wrapped In VisQueen shrink film. tinued as the top U.S. supplier of highly customized containers. The Polymer Division's sales of PVC resins and compounds gained over 1969 despite the General Motors strike and a sharp increase in competition. The expansion of our Baton Rouge PVC resins plant was completed at mid-year and it will strengthen our competitive position for 1971. PVC pipe sales improved substantially in 1970. Record gains were made in plant productivity. However, these gains were partially offset by a general price weakness in the industry. Sales of PVC film were up more than 5% in 1970. Production was begun at our new film plant in Richmond, Va., in early summer as part of a program of consolidation and expansion. The Converted Film Products Division, formed in mid-1969 to market polyethy lene refuse bags, registered sales gains in 1970. The New Market Development Group, established in 1969, examined a number of new product areas and opportunities for future development. The Company has agreed with The Standard Oil Company (Ohio) to produce a new polymer for Sohio in a portion of Ethyl's PVC plant at Baton Rouge, La. This polymer has exciting possibilities for use by Ethyl in clear containers for carbonated beverages and other "hardto-contain" products. Tha Baton Rouge PVC resins plant tfiuislort was completed at mid-year. 13 Operatio Review Ethyl's Oxlord Paper Company Division is one of the major U.S. producers of quality printing papers. These papers hire four major end uses: in magazine and periodical publishing, book publish* mg, commercial printing and converting. Magazine and periodical publishers are the largest single outlet for Oxford papers with a number of leading publi cations being printed on our paper stock. Oxford, moreover, is the largest supplier in the U.S. of book publishing papers. Papers for commercial printing are used lor such materials as brochures, proxy atatements, corporate annual reports and direct mailers. Converting papers involve those used in business forms, tnvelopes and other office applications. The pulp and paper industry as a whole experienced a difficult year in 1970, with industry sales registering a slowdown in the second half. The Oxford Paper Division was no exception. In our seg ment of the industry, order backlogs declined, the demand for book publish ing paper fell while commercial printing and converting volumes held their own. During the year, Oxford constantly sought to minimize the impact of higher labor and fringe benefit costs, increased costs of raw materials, transportation and fuel as well as higher taxes. Oxford's program to achieve increased efficiencies included capital expendi tures for new equipment, more efficient operation of existing equipment, engi neered standards of performance and higher unit sales prices where possible. This past year was one of change for the Oxford Paper Division. A major por tion of Oxford's headquarters was moved from New York City to Richmond, Va. July 1. The lease on Oxford's New York offices was sold at a profit. In addition, major changes were made in the organizational structure of the paper division to conform to new emphasis on management accountability. Oxford's sales organization was re structured to strengthen its competitive position. The new organization includes four major components which specialize in end markets served--magazine and periodical publishing, commercial print ing, book publishing and converting. Research and development efforts at Rumford, Maine, were re-oriented in 1970 to correlate more closely with operational problems. Certain long-range research activities were phased out. Planning of pollution abatement facili ties will continue in 1971 at all three mill locations. A major step this past year in pollution control was a decision at year-end to build a bark disposal facility at the mill in Rumford. The new unit will have the capacity to handle all bark residue from present and future pulping operations. With a major portion of the reorgani zation and cost reduction programs completed in 1970 and an anticipated upswing in the pulp and paper industry in the second half of 1971, Oxford expects to be in a stronger position. I Above: Winding customer rolls from a master roll Is a key step '"paper manufacture at Oxford's Rumford, Maine mill. Left: Dr. Melville Bell Grosvenor, Chairman of the Board of the National Geographic Society, and Dr. Thomas W. McKnew, national Geographic's Advisory Chairman of the Board and an Ethyl director, inspect a "flying paster" of Oxford paper at a press run of National Geographic gets underway. 15 Oper Revie 9 Aluminum products from Ethyt are de signed primarily for the building and construction industry. Ethyl aluminum intrusions are used in industrial plants, pores, offices, homes, boats and trailers. Finished aluminum products include windows, doors and residential lawn buildings. The company also produces aluminum billets which are used by other fabricators to make extrusions. Ethyl's participation in the aluminum products field is through two whollyowned subsidiaries--the William L. Bonnell Company and Capitol Products Corporation. The main prbduct of both subsidiaries is soft alloy extrusions. Construction activity was depressed by tight money and high interest rates during 1970. As a result, the overall soft alloy extrusion market was off approxi mately 6.5% from 1969. This market usually has enjoyed in the past an annual increase of 6 to 8%. The reduced rate in 1970 had an impact on our sales and operating results. The transportation industry, another market for our aluminum extrusions, also experienced a decline in 1970. Trailer production, for example, was off by 21 %. in 1970, Ethyl acquired the remaining stock of Capitol Products. With the com pletion of this acquisition and the sales of Bonnell, total aluminum products sales were approximately $63 million. The installation of a new 10-inch ex trusion press at Bonnell's Carthage, Tennessee plant was completed in 1969 and has given Ethyl an entry into the large market for structural and truck trailer shapes. In 1970, hard-coat anodiz ing facilities were installed at Carthage and facilities for polishing and rippling extrusions were completed at that site. A new electrostatic paint line was completed in 1970 at the Bonnell plant in Newnan, Georgia. The new paint line provides Bonnell with an expansion in its painting capabilities of about seven times previous levels. This new paint line permits quick and automatic change to different colors as needed for different jobs. It also provides a superior finish on the painted extrusions. Despite a slowdown in housing starts, Capitol Products' window and door sales were up more than 15% over 1969 fig ures with a significant number going into the replacement market. In April, Capitol Products began mar keting of a new window which was developed to meet the demand for a design incorporating the best features of residential and apartment windows. The new window unit has been success ful with initial annual sales of approxi mately $1 million. A turn-around in the aluminum market is expected in 1971. As a result, both Bonnell and Capitol Products are study ing expansion plans and new site locations. Right: In 1970, Ethyl built a semi-commercial unit to produce 4 by 8-foot by 8-inch blocks ot foamed aluminum. These are under tests by commercial users. I Left: Bonnell's new I electrostatic palm line I at Newnan, Ga., permits I Ouf'cAr and automatic change I to different colors and 1 wovides a superior I Utiish on painted aluminum extrusions. >7 - 17 gfM't expenditure* for research Did development in 1970 were *out $18 million. More than half ol Ethyl's R & D effort in 1970 was devoted to new products, and ap proximately 100 U.S. patents and 75 foreign ones were received. Ethyl currently holds more than 1,200 unexpired U.S. patents, and maintains about 875 foreign pat ents. About half ot the more than 400 professionally-trained members of the department have idvanced degrees. Ethyl's major tttearch centers are in Baton Rouge, La., and Detroit, Mich. At Baton Rouge, work is concen trated on industrial chemicals, plastics products, plastics inter mediates and in areas unrelated to present product lines. At Detroit, the emphasis is on con tinued research on automotive amissions as well as new and im proved petroleum and industrial chemicals. Plastic film research is conducted in Terre Haute, Ind. while plastic bottle research is centered in Kansas City, Mo. Paper research is done at Rich mond, Va. and Rumlord, Maine. Automotive Emissions Research A significant part of Ethyl's re search effort in 1970 continued in the area of reduction of automo tive exhaust emissions. The com pany's research findings and test vehicles were used extensively in defense of lead antiknocks. An important development in emis sions research in 1970 was the signing of an agreement with Chrysle r Corporation to work jointly on vehicles to retain the good performance of compression ratios of pre-1971 models operat ing on gasolines containing lead. Ethyl's research indicates that lead removal causes excessive wear of exhaust valve seats in engines in high-speed service and greatly increases emissions. Further, Ethyl researchers re ported in October results of a five-year test program on octane requirements. The report noted that automobiles using lead-free gasoline require very significantly higher octane fuel as the age of the vehicle increases than do cars using leaded gasoline. In 1970, work continued on the program to reduce exhaust emis sions with practical approaches that do not sacrifice the advan tages of high octane leaded fuels. Modifications in the induction, ignition and exhaust systems of an automobile engine (Ethyl's Lean Reactor Car) have achieved extremely low emissions of hydrocarbons, carbon monoxide and oxides of nitrogen. Work to improve the Lean Reactor Car continues with promise of reach ing the even lower emissions levels required in the future. In November, Ethyl loaned one of its Lean Reactor Cars to the Cali fornia Air Resources Board for an evaluation program expected to last for two years. It was demonstrated in 1970 that the lead in exhaust is neither responsible for a major part of the particulates in exhaust nor for a major part of any visibility reduc tion which may result from exhaust particulates. Practical devices designed to reduce particulate emissions, including lead com pounds, are being tested by Ethyl. These devices or traps are inex pensive and could replace standard mufflers and reduce exhausted lead particulates by 6070%. A more advanced trap being tested recovers over 90% of the exhausted lead particulates. New Products Research Ethyl developed new performance information to demonstrate the effectiveness of its extended range gasoline additives. These additives, which keep engine intake system parts clean and working properly for lowest pos sible exhaust emissions, were introduced on a market develop ment basis in 1970. Catalysts for the reduction of emissions from automobiles using leaded gaso line were tested in the laboratory and on the road; these investiga tions are continuing in 1971. A strong R & D program has been established to broaden the business of Ethyl's subsidiary, Air Monitoring, Inc. (See page 9.) Development of Ethyl's new foamed aluminum continued in 1970. During the year, a semi commercial unit was constructed and is supplying market develop ment samples. Foamed aluminum is useful in applications demand ing dimensional stability, light weight rigidity, metallic durability, fire resistance and high-impact energy absorption. (See page 17.) An attractive separation proc ess for ilmenite and rutile was established in 1970. These min erals are used in the manufacture of titanium dioxide pigment. Product samples were distributed for market development use. Research also is progressing well on new aluminum and nickel production processes. Plant design has been essen tially completed on a new syn thetic fatty acid process and market development planning is far advanced. These fatty acids will displace those currently pro duced from natural products and have potential use in bar soap and in jet engine lubricants. R & D work on bromine chemi cals in 1970 was fruitful. A process was developed for a large volume specialty bromine chemicalvinyl bromide. (See page 9.) Several new orthoalkylated phe nols and anilines have been de veloped and are being tested as chemical building blocks for new biodegradable herbicides. Research in the plastics area in 1970 emphasized technology to extend polyvinyl chloride (PVC) into new use areas. Rigid injec tion molding compounds with exceptional flow characteristics have been developed which are expected to find major uses in appliances and in communica tions. Ethyl also has pioneered a method to reduce the density of PVC so that it can compete with other plastics on a volume basis in new areas. Ethyl has extended its leadership in emulsion resins by introducing a new battery sep arator resin with which it plans to penetrate the large paper separator market. A new resin for plastisol foam for participation in a new growth area of vinyls for carpet backing also has been introduced. Progress continues on a program for higher-barrier resins for packaging. l-'sfergenf research is a part of Ij'tyfs RSD program ot research and ytrelopmenl in areas both related and 1-nitlated to present product lines. V-- 19 vi ETC 17116 Consolidated Balance Sheets ETHYL CORPORATION AND SUBSIDIARIES ASSETS December 31 Current assets: Cash and short-term securities......................... Accounts and notes receivable......................... Inventories ......................................................... Prepaid expenses .............................................. Total current assets............................. 1970 $105,307,000 73,990,000 85,851,000 3,789,000 268,937,000 1969 $123,302,000 74.620.000 79.116.000 2,587,000 279,625,000 Property, plant and equipment, at cost: Land and land improvements............................. Development costs, producing properties........ Timberiands and standing timber..................... Buildings............................................................. Machinery and equipment................................ 23,755,000 5,147,000 10,301,000 79,764,000 393,068,000 512,03; ,-00 23.773.000 4,020,000 - 7,483,000 77.183.000 373,208,000 , 485,667,000 Less, Accumulated depreciation, depletion and amortization............................................ Net property, plant and equipment___ 213,264,000 298,771,000 192.467.000 293.200.000 Investment in 50%-owned company 1,552,000 Deferred charges and other assets....................... 17,569,000 16,479,000 Excess of cost of investments over equities in businesses acquired and other intangibles .... 35,743,000 28,308,000 $621,020,000 $619,164,000 The accompanying notes are an Integral part of these statements. 20 liabilities December 31 Current liabilities: Accounts payable and accrued expenses.......... Dividends payable............................................. Notes payable........... ......................................... Long-term debt, currentportion.......................... Income taxes..................................................... Total current liabilities......................... Long-term debt: Senior ................................................................ Subordinated ......... Deferred income taxes......................................... provision for employee benefits............................ Minority interests................................................... 1970 $ 39,095,000 3,244,000 2,931,000 9,284,000 4,679,000 59,213,000 201,675,000 52,485,000 27,544,000 4,535,000 1,409,000 1969 $ 54,759,000 3.280.000 28.070.000 7.871.000 9.146.000 103.126.000 175.167.000 54.985.000 23.258.000 4.961.000 4.782.000 SHAREHOLDERS' EQUITY Capital stock: Cumulative First Preferred Stock, par $100 per share: 6% Series A................................................... 5% Series B................................. Cumulative Second Preferred Stock, $2.40 Convertible Series A, par $10 per share (aggregate liquidation price $72,576,000 on 1,728,011 outstanding shares, after treasury stock)........................... Common, par $1 per share................................ Capital surplus....................................................... Retained earnings................................ Less, Treasury stock at cost.................................. Total shareholders' equity ................. 3,239,000 2,000,000 19,600,000 10,088,000 43,562,000 207,097,000 285,586,000 11,427,000 274,159,000 $621,020,000 3,352,000 4,000,000 19.580.000 10.059.000 43.243.000 182.875.000 263.109.000 10.224.000 252.885.000 $619,164,000 The accompanying notea ere an Integral pvt of these statements. 21 Consolidated Statements of Income & Retained Earnings Years Ended December 31 Income: Net sales............................................................ Miscellaneous income, net................................ 1970 $556,856,000 8,437,000 565,293,00: 1969 $509,302,000 __ 7,621,000 516,923,000 Cost and expenses: Cost of goods sold.............................................. Selling and general expenses............................. Interest and financing costs.............................. Income taxes..................................................... 410,973,000 65,804,000 18,285,000 34,649,000 529,711,000 376.439.000 60218,000 14.222.000 33.020.000 483.899.000 Income before extraordinary items........... Extraordinary items................................................ 35,582,000 1,617,000 33.024.000 (3,500,000) Net income..................................................... Retained earnings at beginning of year................. Reversal of accumulated depreciation on appraisal increase of property, plant and equipment restored to cost......................... 37,199,000 182,875,000 29.524.000 164.235.000 1,427,000 Deduct, Cash dividends: Series A, 6% First Preferred Stock, $6.00 per share......................................................... 187,000 193.000 I Series B, 5% First Preferred Stock, $5.00 per share......................................................... 140,000 239.000 1 $2.40 Second Preferred Stock, $2.40 per share.. 4,189,000 4.345.000 Common Stock, per share, $.84 in 1970 and $.75 in 1969 ..................................................... 8,461,000 7.534.000 12,977,000 12,311,000 Retained earnings at end of year........................... Earnings per share of Common Stock and common stock equivalents: Income before extraordinary items............... Extraordinary items................... Net income................................................. $207,097,000 $3.06 .16 $3.22 $182,875,000 $2.77 (.34) $2.43 Pro forma earnings per share of Common Stock and common stock equivalents assuming conversion of $2.40 Second Preferred Stock. (If the Second Preferred Stock were converted, its dividend would become $1.09 per share at the annualized present common dividend rate, as against the present $2.40 preferred dividend). Income before extraordinary items............... Extraordinary items........................................ Net income................................................. $2.85 .13 $2.98 $2.61 (.28) $2.33 The accompanying notes are an Integral part ot these statements. 22 ETC 17119 Consolidated Statements of Capital Surplus Hears Ended December 31 I Balance at beginning of year................................ I Reduction of certain property, plant and equipment from appraised value to cost j in accordance with Federal Power i Commission requirements................................ Excess of cash received over par value of shares of stock issued under stock option plans: 27,890 and 28,936 shares of Common Stock .. 750 and 9,857 shares of $2.40 Second Preferred Stock......................................... Excess of par value over cost of 1,130 shares of 6% Series A First Preferred Stock cancelled .. Excess of par value of 2,316 shares of $2.40 Second Preferred Stock over par value of 3,010 shares of Common Stock issued upon conver sion, less cost of fractional shares of Common Stock purchased............................................... Excess of award amount over par value of 1,279 and 1,760 shares of $2.40 Second Preferred Stock issued under the Oxford Incentive Compensation Plan........................................... Balance at end of year.............................. 1970 $43,243,000 248,000 12,000 20,000 39,000 $43,562,000 1969 $46,072,000 (3,476,000) 308,000 253,000 12,000 20,000 54,000 $43,243,000 plication of Funds Source Of Funds: Years Ended December 31 Operations: Net income....................................................... Depreciation, depletion and amortization........ Deferred income taxes.................................... Provisions for extraordinary write-downs........ Provided from operations............................ Working capital of consolidated subsidiaries at dates of acquisition...................................... Issuance of long-term debt.................................. Other items--net................................................... Total................................................... 1970 $ 37,199,000 31,949,000 3,173,000 1,596,000 73,917,000 40,703,000 3,774,000 $118,394,000 Application of Funds: Additions to property, plant and equipment........ Reduction of long-term debt................................ Cash dividends..................................................... Acquisitions of consolidated subsidiaries.......... Capital stock reacquired or redeemed............... Increase in working capital.................................. Total..................... .............................. $ 39,136,000 16,694,000 12,977,000 13,173,000 3,189,000 33,225,000 $118,394,000 The accompanying nolee ere an Integral part ot these statements. 1969 $29,524,000 29,562,000 4,607,000 3,500,000 67,193,000 3,965,000 20,333,000 2,943,000 $94,434,000 $50,484,000 7,514,000 12,311,000 16,994,000 6,934,000 197,000 $94,434,000 23 17120 Notes to Financial Statements t 1. Consolidation Principles: The accompanying financial statements include the ac counts and operations of all wholly-owned subsidiaries, and the accounts and operations of Bromet Company, in which Ethyl Corporation has an 80% partnership interest. On December 24, 1969 the Corporation acquired 56% of the outstanding capital stock of Capitol Products Cor poration ("Capitol"). On March 19, 1970 a majority of the shareholders of Capitol approved a Plan of Merger with the result that the Corporation acquired the remaining 44% of Capitol's outstanding capital stock for cash. The accom panying financial statements include the assets and lia bilities of Capitol at December 31,1970 and 1969 and the results of its operations tor 1970. The excess of cost of investments over equities in busi nesses acquired is not being amortized. 2. Cash and Short-Term Securities: Short-term securities, stated at cost plus earned discount which approximates market value, amounted to $90,696,000 at December 31, 1970 and $104,132,000 at December 31, 1969. 3. Inventories: 1970 Inventories include: Finished goods................................. $34,912,000 Raw materials and work In process. 36,323,000 Stores, supplies, etc.......................... 14,616,000 $85,851,000 1969 $31,399,000 32,892,000 14,825,000 $79,116,000 Inventories are stated at the lower of cost or market with cost being determined on the last-in, first-out basis with respect to approximately $43,158,000 at December 31,1970, and $36,743,000 at December 31, 1969, and generally on either an average cost or first-in, first-out basis with re spect to the balance. 4. Deferred Charges and Other Assets: Deferred charges at December 31, 1970 consisted princi pally of unamortized discount on long-term debt and other deferred financing expenses. Other assets include a receiv able applicable to certain timberlands of a subsidiary which have been expropriated by the Province of New Brunswick. The Corporation expects that litigation regarding compen sation, which is now in progress, will result in recovery substantially greater than the amount at which the receiv able is stated in the subsidiary's accounts. 5. Long-Term Debt: Reference is made to "Summary of Long-Term Debt" on page 7 of this report for information concerning the Cor poration's long-term borrowings. 6. Capital Stock: 1 Transactions in capital stock during 1970 were as follow^ . Cumulative First Preferred (authorized, 1,000,000 shares): Series A: January 1, 1970 .............. Purchases .................. Cancelled.................... December 31,1970 . Series B: January 1, 1970 ............... Purchases ................... Cancelled..................... December 31, 1970 .. issuEd Shares Amounts --------- ----------- Treasury l Shares imu. f -------- --j 33,523 S 3,352,300 (1,130) (113,000) 32,393 S 3,239,300 2,114 S 177,7*1 674 48.64 11,130) - <83J 1 133,02 40,000 $ 4,000,000 (20,000) (2,000,000) 20,000 6 2,000,000 1,800 20,550 (20,0001 2,350 Cumulative Second Preferred (authorized, 10,000,000 shares): January 1,1970 ............... Issued under stock option plan.... Issued under incentive compensation plan ... Purchases .................. December 31, 1970 .. 1,957,982 750 1,279 ljU^m $19,579,820 7,500 12,790 619,600.110 197,000 35,000 232,000 1 9,865,78 1.085,00 Common (authorized, 25,000,000 shares): January 1,1970............... 10,059,456 Issued under stock option plan..... 27,890 Forfeitures under employee bonus plan Transfer of shares previously held for employee bonus plan December 31, 1970 .. 10,087.346 610,059,456 27,890 510,087,346 12 1,186 2.082 3.280 43,542 64794 The 6% Series A stock is redeemable at $101 and annua] sinking fund payments of approximately $114,000 are re quired. The 5% Series B stock is redeemable at $100 front a sinking fund having required annual payments of $2,000,000 and is otherwise redeemable at $101. The First Preferred Stock is preferentially entitled to par value in involuntary liquidation and to its current redemption price in voluntary liquidation. Each share of $2.40 Convertible Series A is convertible into 1.3 shares of common stock. The voluntary or involun tary liquidation value of the Second Preferred Stock is the greater of (1) $42 per share, or (2) an amount equivalent to the book value of that number of shares of common stock into which such preferred stock is convertible. The aggre gate excess of liquidation price over par value on 1,728,011 shares of outstanding stock is approximately $55,296,000 as of December 31, 1970. These shares are callable after August 1, 1972 at $75 per share, plus accrued dividends. 7. Warrants: At December 31, 1970, there were outstanding warrants exercisable on or before November 1, 1982, which entitle the holders thereof to purchase 45,600 shares of unissued common stock at $4.58 per share. During 1970 there were no warrants exercised. 8. Stock Option Plans: At December 31, 1969, under the Corporation's restricted stock option plan, there were outstanding options to offi cers and other key employees for the purchase of 148,339 shares of common stock at prices ranging from $9.42 to $33.12. During 1970, there were no options granted, options for 27,890 shares were exercised, and options for 11,500 shares were cancelled, leaving outstanding at December 31,1970 options covering 108,949 shares at prices ranging from $9.42 to $33.12 (of which options for 71,611 shares 24 r tere exercisable at that date). No further shares are availale lor grant under this plan. Under the Corporation's qualified stock option plan, 300000 shares of unissued common stock are reserved tor nuance to officers and other key employees. No options B purchase shares under this plan have been granted. m connection with the merger of Oxford Paper Company mto Ethyl Corporation in August, 1967, the Corporation turned Oxford Paper Company's obligations with respect io the outstanding options under stock option plans for officers, key employees and eligible salaried employees, and reserved shares of $2.40 Second Preferred Stock there fore. At December 31,1969, there were outstanding options fo purchase 13,744 shares^t prices ranging from $24.84 c$59.75 During 1970, options for 750 shares were exer cised and options for 6,280 shares were cancelled, leaving outstanding at December 31, 1970, options covering 6,714 shares at prices ranging from $34.25 to $59.75 (of which options for 5,512 shares were exercisable at that date). No further shares are available for grant under these plans. 9. Retained Eamings Restriction: 4 The Corporation's articles of incorporation and note agree<* merits contain restrictions, among others, against the pay ment of cash dividends. At December 31,1970,$16,194,000 of retained eamings is free of such restriction under the agreement presently most restrictive. 10. Retirement Income Plans: The Corporation and its subsidiaries provide retirement benefits for substantially all of their employees, including certain employees in foreign countries, under several dif ferent plans funded with insurance companies or corporate trustees. Plan contributions, based upon actuarial calcula tions, are irrevocably devoted to the payment of retirement and other benefits for employees. Total costs of retirement income plans for 1970 were approximately $7,000,000 which includes amortization of prior service costs gener ally over periods ranging up to 40 years. The policy of the Corporation and its subsidiaries is to fund pension costs accrued. Under one of the plans, the actuarially computed value of vested benefits as of the end of the plan year, for active employees not yet retired, exceeded the total pension fund allocable to the active group. The excess amounted to $12,200,000 (an increase of $2,950,000 from 1969 resulting primarily from an increase in pension benefits and a de crease in the market value of pension fund assets), with full funding anticipated in the valuation method by the time each employee becomes eligible to retire. 11. Depreciation, Depletion and Amortization: Depreciation and depletion charged to income amounted to $30,796,000 and $28,132,000 in 1970 and 1969, respec tively. Amortization of intangibles and of deferred discount and financing expenses charged to income amounted to $1,153,000 and $1,430,000 in the respective years. Deple tion of timberlands is provided by charges to income at unit amounts estimated as adequate to apportion the cost of each tract, less residual value of land and young growth, to the cost of timber cut from such tract 12. Deferred Income Taxes: Depreciation computed on accelerated methods for in come tax purposes exceeds book provisions based princi pally on the straight-line method which excess, together with timing differences in intangible drilling and develop ment costs and other expenses, resulted in reductions of current income tax payable of $3,173,000 in 1970 and $4,607,000 in 1969 for which the Corporation has provided deferred income taxes. 13. Investment Credit: The Corporation's provision for income taxes was reduced (and net income increased) by investment credits of $432,000 and $1,988,000 in 1970 and 1969,respectively. 14. Extraordinary Items: Extraordinary items include: Provision for write-down of investment in Ethyl-Dow Chemical Company in 1969 and adjustment thereof upon liquidation in 1970 (tax benefit in 1970 of $819,000).................. Net credit from reorganization of administrative and selling operations including capital gain on sale of office lease (net of capital gains tax of $604,000 less ordinary income tax reduction of $572,000 applicable to expenses) ........................................................... Provision for further write-down to realizable value of Pittsburg, California plant (net of income taxes, $785,000)..................... 1970 1969 $1,519,000 $(3,500,000) 909,000 (811,000) $1,617,000 $13,500,000) 15. Eamings per Share: Eamings, and pro forma earnings, per common share are computed using the weighted average number of shares of common stock and common stock equivalents (common stock options and warrants) outstanding during the yec' Proceeds from common stock equivalents are assumed to be used to purchase outstanding shares of the Corpora tion's common stock. Auditors' Report To the Board of Directors and Shareholders of Ethyl Corporation: We have examined the consolidated balance sheet of Ethyl Corporation and Subsidiaries as of December 31,1970 and the related consolidated statements of income and retained earnings and capital surplus and the consolidated state ment of source and application of funds for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the Corporation's consolidated financial statements for the year ended December 31,1969. In our opinion, the aforementioned statements present fairly the consolidated financial position of Ethyl Corporation and Subsidiaries at December 31,1970 and 1969, and the consolidated results of their operations and consolidated source and application of funds for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Suite 1000 LYBRAND, ROSS BROS. & MONTGOMERY Seventh end Franklin Bldg. Richmond, Virginia 23210 February Z4> 1871 O' 25 Ten Year Summary ETHYL CORPORATION AND SUBSIDIARIES SALES AND INCOME Net sales (after deducting freight cost)............................................... Income before taxes and extraordinary items........................ Depreciation, depletion and amortization...................................... Income taxes, including deferred . . Income before extraordinary items . . Net income........................................... Cash flow............................ . . . ^ Yours Ended December 31 1970 1969 1968 $556,856,000 $509,302,000 $5O9572jQ0b| 70,231,000 31,949,000 34,649,000 35,582,000 37,199,000 73,917,000 66,044,000 29,562,000 33,020.000 33,024,000 29,524,000 67,193,000 61,0940001 5* 31.0768001| 3C 29,5920001 2 31,5020001 2 31,502000] 2 65,0270001 6 FINANCIAL CONDITION Working capital............................. Ratio of current assets to current liabilities...................................... Property, plant and equipment (Net) Capital expenditures........................ Long-term debt............................. 209,724,000 176,499,000 1763028001 r. $4.54to $1.00 298.771.000 64,190,000 254.160.000 $2.71 to$1.00 . $3.47tO$lj00|{3 293,200,000 269,761000] 3 53,312,000 64,158,000] 230,152,000 215,1218001 COMMON STOCK Number of shares outstanding Earnings per share .... Pro forma earnings per share, assuming conversion of the Second Preferred Stock (3) . Income taxes per share. . . Equity per share 10,084,066 $ 3.06* 10,059,444 $ 2.77* 10,027510 I $ 2.61 $ 2.85* $ 3.42 $18.45 $ 2.61* $ 3.25 $16.01 Before extraordinary items. After extraordinary items, would be 13.22 and $2.98 in 1970 and $2.43 and $2.33 In 1969,respectively. (1) Includes Oxford operations lor entire year. All prior years ended December 31 relied the merger 01 Oxford Into Ethyl on a pooling ol Interests besis. (2) Includes 4 months ol combined Albemarle paper and Ethyl chemical operations. Year ended March 31,1982 represents Albemarle paper operations only. (3) H the Second Preferred Stock were converted, Its dividend would become $1.09 a share at the annualized present common dividend rate, as against the present $2.40 preferred dividend. (4) Reflects a deduction lor the liquidating value ol the Second Preferred Stock, and is based on the number ol shares outstanding at the end ol each year, treating warrants and common slock options as common stock equivalents. Adfusted tor stock splits and stock dividends. ETC 17123 1967(f) 8,938,000 1966 $465,823,000 1965 $375,837,000 1964 $335,663,000 1963 ^ V#ars Ended March 31 1963(2) 1962 $292,878,000 $ 94,294,000 $ 44,284,000 51,633,000 62,876,000 48,306,000 41,004,000 32,526,000 8,964,000 3,620,000 30,749,000 (1,971,000 (9,662,000 (9,662,000 S2,B76,000 28,411,000" 25,570,000 37,306,000 37,306,000 68,107,000 25,233,000 20,317,000 27,989,000 27,989,000 55,918,000 22,161,000 19,945,000 21,059,000 21,059,000 46,172,000 19,886,000 16,099,000 16,427,000 16,427,000 39,052,000 6,556,000 4,583,000 4,381,000 4,381,000 12,117,000 2,295,000 1,858,000 1,762,000 1,762,000 4,212,000 119,757,000 107,244,000 92,840,000 103,194,000 86,267,000 63,001,000 10,313,000 ks2to$1.00 HI ,345,000 26,943,000 56,419,000 $2.83to $1.00 306,073,000 59,116,000 219,464,000 $3.07to$1.00 280,112,000 57,654,000 223,639,000 $3.19to$1.00 240,216,000 35,876,000 225,992,000 $3.43to$1.00 227,583,000 33,370,000 226,427,000 $2.75to$1.00 150,959,000 4,839,000 196,375,000 $3.29to $1.00 29,222,000 4,820,000 15,522,000 9,927,793 J 2.41 $ 2.29 i 2.16 $12.70 9,538,655 $ 3.21 $ 2.94 $ 2.54 $10.98 9,487,380 $2.32 $2.22 $2.01 $8.26 8,438,658 $1.68 $1.68 $2.02 $6.55 2,375,807 $1.30 $1.30 $1.75 $5.33 1,187,362 $ .63 -- $ .71 $5.31 1,029,674 $ .24 -- $ .30 $3.35 ZT ETC 17124 Ethyl Corporation DIRECTORS, OFFICERS AND STAFF WALLACE F. ARMSTRONG Wca President--Manufacturing LAWRENCE E. BLANCHARD, JR. Director, Executive Vice President WILLIAM H. CHISHOLM Director, Executive Vice Preeident; Chelrmen, Oxford Peper Compeny Division S. DOUGLAS FLEET Director, Retired Vice President, Ethyl Corporation M. F. GAUTREAUX Vice President- Research A Development JAMES M. GILL Director, San/or Vice President, Chemicals Group BRUCE C. GOTTWALD Director, President FLOYD D. GOTTWALD, JR. Chairman of the Board and Chief Executive Officer FLOYD D. GOTTWALD Director, Chairman of the Executive Committee C. RAYMOND HAILEY Vice President; President, Oxford Peper Compeny Division ARTHUR W. HELWIG Secretary, Executive Committee; Director--Planning A Profit Improvement ROBERT HERZOG Director, Executive Vice President A. B. HORN, JR. Vice President- International Division GEORGE F. KIRBY Director; xacut/va Vice President, Texas Eastern Transmission Corp. JAMES H. KIRBY Controller JOSEPH M. LOWRY Director, Senior Vice President ANDREW M. MeBURNEY Director; Executive Vice President, Oxford Paper Company Division THOMAS W. McKNEW Director; Advisory Chairman of the Board, National Geographic Society FRANK J. MeNALLY Treasurer ROBERT T. MARSH, JR. Director; Retired Chairman of the Board, Pint A Merchants National Bank, Richmond, Va. MALCOLM P. MURDOCK Director, Retired Senior Vice Preside/.., Ethyl Corporation CLARENCE M. NEHER Director, Senior Vice President, Plastics Division LEWIS F. POWELL. JR. Director; Partner, Hunton, Williams, Gey, Powell A Gibson, Richmond, Va. W. THOMAS RICE Director; Chairman end Chief Executive Officer, Seaboard Coast Line Railroad Co., Richmond, Va. E. CLAIBORNE ROBINS D/racfor; Chairman of the Board. A. H. Robins Co., Richmond, Va. RICHARD K. SCALES Vice President SIDNEY BUFORD SCOTT D/racfor; Partner, Scott A Strlngfellow, Richmond, Va. THOMAS M. SMYLIE Vice President; Chairmen of the Board, Capitol Products Corporation FREDERICK P. WARNE General Counsel and Secretary ERWIN H. WILL D/racfor; Chairman of the Board, Virginia Electric A Powar Co.. Richmond, Va. LLOYD B. ANDREW, JR. Director--Financial Relations CHARLES E. COLVIN Director--Purchasing A Traffic JAMES B. LONERGAN Director- Advertising A Safes Promotion G. SAMUEL ROBERTS Chief Engineer STEPHEN B. RODI D/racfor-- Corporate Employee Relations CHARLES H. ZEANAH Director- Corporate Public Relations Member of the Executive Committee DIVISIONS Oxford Paper Company GORHAM H. SCOTT Senior Vice President HUGH H. BAIRD, JR. Vice President A Controller RUSSELL H. CHAMBLISS, JR Vice President--Sales S. D. DILLON Wee President- National Accounts, West C. RICKERT LEWIS Vice President- National Accounts, East B. FREDERICK AYER Treasurer Petrotsum Chemicals ROBERT A. DOUGLASS Divisional Vice President A General Manager JOHN F. KOEHNLE General Sales Manager R. J. OSTRANDER Technical Director Air Monitoring, inc. R. J. OSTRANDER President Ethyl International K. F. CAST General Manager--Operations W. J. RUSHER General Manager--Sales L. N. APPLEGATE Director--Exploration EthylS. A. WILLIAM J. RUSHER President A Managing D/racfor Ethyl Hellas Chemical Company S. A. ELMO F. DIEDRICH Managing D/racfor Ethyl Corporation of Canada Limited KENNETH A. FREBERG President JAMES H. MAIN Manager--Petroleum Additives ROBERT H. SHANNON Manager--Chemical Products Industrial Chemicals MERLE L GOULD General Manager ROGER A. MOSER Director--Product Management H. WARREN REES General Salaa Managar STANLEY A. HARRIS Sales Manager Plastics PAUL E. WEIMER Manager--Operations JOHN E. WILLIS D/racfor--Financial Services HARRY M. ZIMMERMAN Manager--New Market Development tmco Container Company RICHARD V. VOSBURGH Preeident RICHARD F. SANDS Executive Vice President MARION HIERMAN Vice President--Sales A Marketing JAMES W. COURT Vice President--Finance WsQueen Division HARRY C. BYRNE, JR. General Manager JOHN K. SHIFFLER General Sales Manager RICHARD W. GOODRUM Technical Director ROLAND E. McKENZIE Manufacturing Manager Potymer Division CHARLES W. MONTGOMERY General Manager ARTHUR A. SMITH General Sales Manager Pipe Division PALMER A. BROWN Manager L. RAY McCULLEY Seles Manager PVC Film and Sheet Division STEPHEN J. BARCIK Manufacturing Manager FRANK J. KELLY Sales Manager--Vinyl Packaging Film Environmental Control Division I. RICHARD SCHNEIDER General Manager JOSEPH H. BENTON Sales Manager Converted Film Products Division HOWARD L. LEVENTHAL Manager MARTIN L. WEINER Marketing Director Aluminum E. MALCOLM HARVEY President S Treasurer The William L. Bonnell Co. WILLIAM H. MORGAN General Manager-Marketing S Product Development The William L. Bonnell Company LLOYDL REYNOLDS Vice President A General Manager WARREN H. BROCKWAY Vice President A General Salas Manager DONALD A. WAGNER Wca President--Manufacturing FRANK DANIELS. JR. Assistant Treasurer Capitol Products Corporation JOSEPH T. COLL! FLOWER President GEORGE S. THUMLERT Wca President A Treasurer WALLACE FREMONT Vice President DONALD G. HORNUNG Vice President Products of Ethyl Corporation and its Subsidiaries CHEMICALS PLASTICS Alkyl aluminum halides Alpha olefins Alum Aluminum alkyl compounds Antioxidants Bromine chemicals Caustic soda Chlorinated solvents-- (perchlorethylene, trichlorethylene, 1,1,1-trichloroethane) Diesel fuel detergentcorrosion inhibitor Diesel fuel ignition improvers Distillate fuel anti-static additive Ethyl chloride Fuel oil combustion improver Gasoline antiknock compounds Gasoline detergent-deicer- corrosion inhibitors Gasoline ignition control compounds Linear primary alcohols Lubricating oil additives Metal deactivator Methyl chloride Oil soluble dyes Organic phosphorus chemicals Orthoalkylated antitoxidants Orthoalkylated phenols and anilines Special organometallics Sodium Vinyl chloride Polyethylene films for packaging and industrial, building and agricultural, pallet, shrink, and bundling, disposables Household bags Polyvinyl chloride packaging films Polyvinyl chloride rigid film and sheet Polyvinyl chloride shrink films Environmental Control Systems "Flocor" waste oxidation media "Flocor" waste clarifier media Polyvinyl chloride resins Polyvinyl chloride compounds Polyvinyl chloride containers Polyethylene containers Bottle closures and other injection molded specialty products Plastic pipe and fittings PAPER Coated Letterpress Papers for commercial printing Coated Offset Papers for book publishing, commercial printing Uncoated Letterpress Papers for book publishing, commercial printing Uncoated Offset Papers for book publishingf commercial printing Web Offset Papers-- Coated and Uncoated for magazines, book publishing, commercial printing Film Coated Papers for book publishing, commercial printing Gravure Papers-- Coated and Uncoated-- (Sheet and Roll) for magazines, commercial printing, converting Converting Papers for envelopes, business forms, paper masters ALUMINUM Aluminum shapes for windows and doors, curtain walls, boats and trailers, and tub enclosures Aluminum building shapes Aluminum products for the floor covering industry Aluminum windows and doors Residential Lawn Buildings Aluminum billets This report Is fithographed on Luxcote High Giosa Enamel (basis 100 pounds lor the text and 80 pounds tor the covers), produced C>' Oxford Paper Company. C'.LOft PHOTOGRAPHS: F`3ts 8, 12, 13, 16, 17, 18: O. WINSTON LINK fce io: international drilling company ltd. page 14: C NATIONAL GEOGRAPHIC SOCIETY PAGE 18: C. W. HOWE CCSIQN: ROBERTS, RCINHAROT A ONG, INC. Ethyl Corporation is a major chemical company which In recent years has diversified into several new product areas--plastics, aluminum products and paper. Ethyl's business is worldwide in scope and, as depicted on the covers of this report, it now maintains offices and manufacturing or product distributing fa cilities on five continents and employs more than 13,000 people. ANNUAL MEETING The annual meeting of Ethyl Corporation's shareholders will be held at the Company's corporate headquarters in Richmond, Va. at 11 a.m, on Thursday, April 27,1972. Formal notices of the annual meeting, proxies and proxy statements will be mailed on or about March 30,1972. STOCK TRANSFER AGENTS First & Merchants National Bank Richmond, Va. Chase Manhattan Bank N.A. New York. N.Y. REGISTRARS OF STOCK Bank of Virginia--Central Richmond,^a. Morgan Guaranty Trust Co. New York, N.Y. GENERAL COUNSEL Hunton, Williams, Gay & Gibson Richmond, Va. CORPORATE HEADQUARTERS 330 South Fourth Street Richmond, Va. 23219 (703)644-6081 EXECUTIVE OFFICES 451 Florida Street Baton Rouge, La. 70801 (504)348-0131 100 Park Avenue New York, N.Y. 10017 (212) 679-2000 STOCK LISTINGS New York Stock Exchange Pacific Coast Stock Exchange TICKER SYMBOL: EY NUMBER OF EMPLOYEES Approximately 13,000 TRADEMARKS The first time trademarks of Ethyl Corporation and subsidiaries appear they are in quotations and capitalized. Subsequent uses are capitalized only. CONTENTS 1 Message to Shareholders 4 Financial Results of 1971 9 Operations Review 20 Financial Statements 24 Notes to Financial Statements 26 Audilors' Report 27 Directors, Officers and Staff 28 Ten-Year Summary *3311971 Report Years Ended December 31 1971 1970 Percent Increase (Decrease) FINANCIAL HIGHLIGHTS Net Sales................................................. $577,058,000 $556,856,000 3.6 Income Before Extraordinary Items................ Net ................ 38,240,000 34,914,000 35,582,000 7.5 37,199,000 (6.1) Earnings per Share of Common Stock Income before Extraordinary Items .. Net Income ......................................... $3.36 $3.03 S3.06 $3.22 9.8 ; (5.9) i Income Taxes before Extraordinary Items 35,576,000 34,649,000 2.7 Cash Flow ............................................... 72,278,000 73,917,000 (2.2) Cash Flow per Share of Common Stock . $7.13 $7.29 (2.2) Dividends per Share of Common Stock $ .84 Depreciation, Depletion & Amortization . 32,845,000 Capital Expenditures ............................. 24,383,000 Working Capital....................................... 229,996,000 Equity per Share of Common Stock___ $20.47 $ .84 31.949,000 64,190,000 209,724,000 Si8.45 2.8 (62.0) | 9.7 10.9 TO ETHYL SHAREHOLDERS: In 1971, Ethyl had the highest sales and earnings from operations in the Company's his tory. Primary contributions to the year's performance were effective cost control programs and the results of nine years of expansion and diversification. The year ended with a 3.6% increase in net sales and a 7.5% rise in income from operations. Per-share income from operations was up 9.8% from 1970 levels. Net sales for 1971 were $577 million, compared with $556.9 million for the previous year. Income from operations for 1971 was $38.2 million, or $3.36 a share. This compared with $35.6 million, or $3.06 a share, in 1970. In the second quarter of 1971, Ethyl had an extraordinary charge of $3,326,000 for the shut down of Oxford Paper's mill at Lawrence, Mass. As a result of this special charge, the Company's net income for 1971 was $34.9 million, or $3.03 a share, compared with $37.2 million, or $3.22 a share, for 1970. Detailed information is provided in the Financial Results section beginning on page 4. Your attention is directed to the tables in this financial section. This is the third consecutive year in which we have reported on the status of the lead-ingasoline controversy. This controversy began in early 1970 when major automobile pro ducers announced plans for the future manufacture of vehicles requiring lead-free gaso line. They claimed lead might interfere with catalytic devices that might be needed to meet stringent exhaust emissions standards in 1975. Two years later, none of the automobile producers yet claims the perfection of such a catalytic device, and they are now in the process of asking for extensions of time to attempt to perfect them. We have reported to you throughout 1970 and 1971 on our efforts to present Ethyl's -side of this complex issue to the various decision makers. In addition, we have tried to keep you advised on the status of the controversy. In 1971, the controversy continued and Ethyl intensified its efforts to get regulatory bodies to understand Ethyl's position. The Company has been faced with laws or ordinances in Maryland, Orange County, Calif., New York City and Buffalo, N.Y., imposing restrictions on lead antiknocks in gasoline. However, if any federal regulations of lead antiknocks are either adopted or found unnecessary by the Environmental Protection Agency (EPA), this action will prevent states and localities from enforcing any control or prohibition concerning these fuel additives, except for the State of California which is granted a special exemption from this preemption provision. On February 22,1972, just a few days prior to the printing of this report, EPA proposed regulations that would reduce the amount of lead used in gasoline by approximately 60% by 1977 through a series of controls of various grades of gasoline. EPA has set a 90-day period for public comments on these regulations and will hold a series of hearings ground the country. Ethyl intends to continue to oppose any such restrictions on the use of lead antiknock compounds for the reasons which we have consistently stated. We still believe that any reduction or removal of lead from gasoline would have serious adverse reper cussions on this nation's economy, ecology and consuming public. Accordingly, we remain in the position of not being able to predict what will be .the final outcome of the lead controversy. Even if the proposed regulations were adopted, they would support the view which we have expressed to you over the past two years, that any reduction of lead in gasoline can only be accomplished gradually over a period of years. EPA has recognized that unless lead is removed gradually there will be a sub stantial increase in the aromatic content of gasoline. And, as Ethyl has pointed out consistently, increases in aromatics will increase photochemical smog and the emissions of certain compounds which are clearly detrimental to health. In addition, there are burden some economic penalties required for any conversion to unleaded gasolines, but par ticularly on a crash basis, and the great majority of automobiles now in operation were built to require relatively high-octane gasoline to operate efficiently. Then, too, there are substantial foreign markets for leaded gasoline which are unlikely to disappear in the fore seeable future, and may continue to grow. And, as reported in the Research & Development section on page 19, Ethyl is still making significant progress in various approaches that substantially reduce automobile emissions without sacrificing the economies of leaded gasoline. Ethyl has also developed practical inexpensive traps for automobiles which sig nificantly reduce or eliminate particulate emissions, including the small amount attributable to lead. Nine years ago Albemarle Paper Manufacturing Company, which merged with Ethyl on November 30,1962, and changed its name, reported earnings for its then fiscal year ending March 31,1963, of $4.4 million. In subsequent years, we have reported to you in our annual reports on efforts to diversify beyond being primarily a one-product company. During this period it has been advisable for us to retain earnings and put them into new enterprises, to absorb losses in early years, to endure inevitable delays and start-up costs as well as many other frustrations involved in building new businesses. We have, however, been fortunate in having available substantial cash flows and a large reservoir of talent inherited from the former Ethyl organization. And, we have had loyal stockholders who could see the advan tages of reinvesting earnings in building new businesses. In 1971, for the first time in many years, the sales of the Company's primary product declined. However, progress in the Company's long diversification efforts resulted in alltime record earnings from operations, despite this antiknock sales decline. So, 1971 was an eventful year for Ethyl. It was highlighted by these developments: ... Continued defense of lead antiknocks by the Company in the face of continued attacks on this product. ...Significant improvements in the earnings of various other products, notably plastics, specialty chemicals and aluminum. ...Renewed efforts by the Company to offset cost increases in paper production with economies in operation to put Ethyl in a sound position when the depressed paper market returns to more normal consumption levels. ... A continuing build-up of cash reserves (to a level of cash and short-term securities at year-end of more than $140 million) putting Ethyl in a position to capitalize on future invest ment possibilities. ... Constant review by the Company's management of many opportunities for further diver sification and expansion, with emphasis on areas that fit well with Ethyl and afford excellent future growth. .. .Continued effective cost controls in all areas--from telephones to computers. ... A continuation of our substantial investment in research because we believe the labora tory offers the most significant opportunities for the future. We are proud of the record accomplishments of the past year, but we are far from satis fied. Even though our principal product has been under severe attack, we are determined to continue to build the kind of forward-looking company that we think our stockholders, employees and the public expect from an organization with as great a heritage as Ethyl. Your continued loyalty and support is sincerely appreciated. Floyd D. Gottwald, Jr. Chairman ot the Board and Chief Executive Otticer February 25, 1972 2 Bruce C. Gottwald President ETC 17131 * Financial Results of 1971 Net Sales The following table sets forth Ethyl's net sales represented by each of its lines of business for the period 1967-1971: Net Sales by Lines of Business (in Thousands ot Dollars) 1971 Net Percent Sales of Total 1970 Net Percent Sales of Total 1969 Net Percent Sales of Total 1968 Net Percent Sales of Total 1967 Net Percent Sates of Total Chemicals: Domestic .. $229,605 40% $226,843 41% $214,151 42% $203,199 40% S185.691 40% Foreign ... 75,117 13 71,944 13 64,846 13 65.296 13 58.649 12 Plastics......... 111,038 19 102,748 18 95,461 19 63,034 12 40,111 9 Paper .......... 85,666 15 92,283 17 97,783 19 143,020 28 151,845 32 Aluminum .. . 75,632 13 63,038 11 37,061 7 34,523 7 32.642 7 T otal ... $577,058 100% -- $556,856 100% $509,302 100% $509,072 1--0-0- --% SJ68.938 100% Profit Contribution The following table shows, with respect to the Company's lines of business, the respective operating profits before taxes, extraordinary items and certain corporate expenses that are not practical to identify with a particular line of business: Operating Profit (Loss) by Lines of Business After Identifiable Corporate Expenses (In Thousands ot Dollars) 1971 Percent ol Operating Operating Profit Profit Chemicals: Domestic .. $ 71,966 66% Foreign ... 17.649 16 Plaslics......... 11,349 10 Paper ........... 970 1 Aluminum ... 8,021 7 Total ... $109,955 100% 1970 Percent of Operating Operating Profit Profit $66,936 68% 15,345 16 7,406 8 3,413 3 4,471 5 $97,571 100% 1969 Percent of Operating Operating Profit Profit $63,007 69% 11,664 13 7,963 9 5,228 6 3,048 3 $90,910 100% 1968 Percent of Operating Operating Profit Profit $63,459 68% 12,943 14 909 i 12,823 14 3,288 3 $93,422 100% 1967 Percent of Operating Operating P'ofit Profit SSI ,618 66% 12.076 15 (5,077) (6) 16.215 21 3 515 4 S73347 100% The operating profits used for purposes of the above table include charges for general and administrative and research and development expenses at the Corporate level which are identifiable with each line of business but do not include charges that are not practical to identify with lines of business. The latter include financing costs, net of interest earned, research and development expense in new product areas, oil and gas exploration costs and other unallocated charges--net, as shown in the following table: Nel Financing Costs................................ .... Other Unallocated Charges--Nel........... Total ................................................ ___ 1971 $12,563 23.576 $36,139 (In Thousands ol Dollars) 1970 1969 1968 $10,208 17,132 $27,340 $ 7,696 17,170 $24,866 $10,819 21.509 $32,328 1967 S11,365 15.349 $26,714 Within the chemicals line of business, petroleum and industrial chemicals often utilize joint facilities for manufacture, research and development and in many instances are interrelated in terms of raw materials, intermediates and by-products. Consequently, while sales of chemical products can be determined accurately with out allocations, it is not practicable in management's judgment to make turther allocations within the chemicals line of business which would be meaningful in determining with any degree of accuracy the relative contribution to the Company's operating profits by classes of chemical products. Because lead antiknocks (the principal contributor to chemical sales and profits) are interrelated with certain other 4 in33 substantial reduction or elimination of the use of lead antiknocks in gasoline would adversely affect the costs and profitability of the Company's other present chemicals business as well. Net Sales by Classes of Similar Products (In Thousands of Dollars) For a number of years, the Company has reported a breakdown of its net sales by classes of similar products, determined by the use to which a class of product is put. The following table sets forth the amounts and percentages of net sales of each of its classes of similar products for the 1967-71 period: Ci.-sses of Similar Products 1971 Net Percent Sales of Total 1970 Net Percent Sales of Total 1969 Net Percent Sales of Total 1968 Net Percent Sales of Total 1967 Net Percent Sales of Total Cnemicals: Petroleum . $222,166 39% $229,119 41% $213,840 42% $210,807 42% $199,310 42% Industrial .. 82,556 14 69,668 13 65,157 13 57,688 11 45,030 10 Pasties........ 111,038 19 102,748 18 95,461 19 63,034 12 40,111 9 Paper .......... 85,666 15 92,283 17 97,783 19 143,020 28 151,845 32 Aluminum ... 75,632 13 63.038 11 37,061 7 34,523 7 32,642 7 Total ... $577,058 100% $556,856 100% $509,302 100% $509,072 100% $468,938 100% "' Lead antiknock compounds (which comprise substantially all of the Petroleum Chemicals sales shown above) remain the Company's principal product and contrib ute to operating profits a substantially higher percentage than their 36% contribution to net sales. Income and Earnings Per Share from Operations Reach Record Highs Income from operations for 1971 amounted to a record $38,240,000 compared with income from operations of $35,582,000 for 1970. The 1971 income from operations was equal to a record $3.36 per share, based on the average of 10,141,000 shares of common stock outstanding during 1971, treating common stock options and warrants as common stock equivalents. It compares with income from operations of $3.06 per share for 1970, on the basis of the average of 10,138,000 shares of common stock outstanding during the year, on the same basis. Net Income After Extraordinary Items The 1971 income from operations is before an extraordinary charge of $3.3 million for the shutdown of Oxford Paper's mill at Lawrence, Massachusetts. Net income for 1971 after the extraordinary charge amounted to $34,914,000 or $3.03 a share. This compares with the 1970 net income of $37,199,000 or $3.22 a share which reflects a net extraordinary credit of $1.6 million. Dividends Common stock dividends for 1971 were paid at the quarterly rate of 21 cents a share or 84 cents for the year. Cash Flow Cash Flow, which consists of net income plus depreciation, depletion and amortization and other non-cash charges, amounted to $72.3 million in 1971, compared with a cash flow of $73.9 million in 1970. The 1971 cash flow was sufficient to provide for all fixed charges and dividends and to provide substantial funds for capital expenditures and working capital. Working Capital At December 31, 1971, working capital was $230 million and the ratio of current assets to current liabilities was'4.22 to 1. This compared with working capital of $209.7 million and a ratio of 4.54 to 1 at December 31, 1970. Working capital at December 31, 1971 included cash and short-term securities of $143.7 mil lion of which approximately $20 million is required for the normal needs of the busi ness leaving more than $120 million available for internal and external investments. 5 Capital Expenditures During 1971, $24.4 million was spent on capital projects for new plants, expansions and modernizations compared with $64.2 million in 1970. A major factor in the decrease was cancellation of the NTA project as a result of gov ernment actions in considering substitutes for phosphates in detergents. Internal Revenue Service Examination Nine years after the merger in 1962 of the former Ethyl Corporation into the Company, the Internal Revenue Service completed its examination of the Company's first three taxable periods. It has proposed a tax increase with interest for the three periods ended December 31, 1964 amounting to $13 million, resulting primarily from differences in the valuation of assets acquired in the merger and the allocation of values between tangible and intangible assets. If the IRS position were to be sustained, it would result in an estimated additional $22 million in taxes and interest for the seven taxable years after 1964. The Company based its asset valuation on an appraisal by independent appraisers made at the time of the merger. The IRS valuation of assets was made by a govern ment engineer during the course of its examination. It is the opinion of the Company's counsel that the tax increase proposed by the IRS is far in excess of any tax which ultimately will be payable by the Company on the basis of a reasonable asset valua tion. The Company does not accept the IRS proposal and will contest it as necessary. Compensation for Expropriated Property The Company is engaged in litigation with respect to compensation for certain timberlands of a subsidiary which were expropri ated by the Canadian Province of New Brunswick. At the conclusion of the Land Compensation Board proceedings, an award in excess of $10 million, including interest, was handed down in favor of the Company. The Company believes that the amount of $10 million is not adequate compensation and is currently appealing the decision. How Ethyl Used the Revenues It Received During 1971 (Millions oi Dollars) $582.7 100.0% WAS RECEIVED BY ETHYL from all sources THESE RECEIPTS WENT: $289.9 49.8% To suppliers for materials, services, etc. $155.8 26.7% To employees for payrolls, employee benefits 8.0% For income and other taxes 3.1% For interest expense 2.2% To Ethyl shareholders 10.2% For use in the business, including excansion, modernization, working capital, dec; repayments and sinking fund payments 6 ETC 17135 I e ** if Long-Term Debt As of December 31,1971, the long-term portion of Ethyl's debt was $244.7 million, equal to 46% of the Company's total capitalization. Debt repayments during 1971 amounted to $9.6 million. These consisted of payments of S2,500,000 on the 53A% Subordinated Notes, due 1972; $1,250,000 on the 4%% Promissory Notes, due 1983; $5,000,000 on the Term Promissory Notes, due 1975; and $820,000 on Miscellaneous Debt. Summary of Long-Term Debt 7.5% Senior Notes (B106 million--due 1974-86) and 71/2% Promissory Notes ($50 million--due 1973-83) ............................................................. The Prudential Insurance Company of America The Equitable Life Assurance Society of the United States The Northwestern Mutual Life Insurance Company New York Life Insurance Company Term Promissory Notes*--due 1972-75 .............................................................................. Five Banks 5%% Subordinated Notes--due 1972 ................................................................................ The Prudential Insurance Company of America The Equitable Life Assurance Society of the United States New York Life Insurance Company 5%% Subordinated Notes--due 1979-82 .......................................................................... Various Institutional Investors 4~'a% Promissory Notes--due 1972-83 .............................................................................. Miscellaneous.......................................................................................................................... Total Debt at December 31, 1971 ............................................................... Current Portion of Debt................................................................................ Long-Term Debt............................................................................................. $156,000,000 17,500,000 2,485,000 50,000,000 24,000,000 3,869,000 253,854,000 9,202,000 $244,652,000 ' Bear interest at the rate of Vi of 1 % in excess of the prime commercial rate. Summary of Debt Maturities to 1981 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 5V*% Subordinated Notes Due 1972 and 1979-82 7.6% Senior Notes Due 1986 7Vi % Promissory Notes Due 1983 $2,485,000 8,000,000 8,000,000 8,000,000 $12,000,000 12,000,000 12,000,000 12,000,000 22,000,000 3,000,000 3,000,000 3,000,000 $2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 7,000,000 7,000,000 7,000,000 Term Promissory Notes .Due 1975 $5,000,000 5,000,000 5,000,000 2,500,000 47a % Promissory Notes Due 1983 Misc. Debt Maturities to 1992 $1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250.000 1,250,000 1,250,000 1,250,000 1,250,000 $467,000 505,000 245,000 249,000 254,000 258,000 263,000 224,000 94,000 100,000 Total Annual Amount $ 9,202.000 9,255,000 20,995,000 18,499,000 16,004,000 16,008,000 26,013,000 19,474,000 19,344,000 19,350,000 Etc 7 ^^1 |\^| I Ethyl's domestic chemicals sales continued upward in 1971 even ^ though there were downward pressures I lOlilRSTIf: on the sales o< lead antiknock com" pounds. Sales totaled $229.6 million, an increase of 1.2% over 1970. They represented 40% of Ethyl's total sales. Sales of antiknock compounds in the U.S. through the Petroleum Chemicals Division continued at a satisfactory level, although down somewhat. Antioxi dant sales for various petroleum products remained strong and greater interest in diesel emissions sparked the sale of multi-purpose additives for diesel fuels. The Industrial Chemicals Division had record sales in 1971, underscoring Ethyl's growth in this part of the chemical industry. Capacity of the synthetic alcohols plant at Houston, Texas, was increased by about 15% early in 1971 to meet added market demands for detergent intermediates. New markets were developed for alcohols in industrial detergents and several other end uses. Ethyl's alpha olefins plant, following a successful start-up, operated well throughout the year. Its products are for the plasticizer, detergent and lube additive markets. Expansion is underway at this plant to produce and refine Cj2-Cis olefins for the domestic and foreign detergent intermediates market. Sales, product lines and plant capacity were expanded in the pesticide inter mediates market. These intermediates are based on orthoalkylation of phenols and anilines and various combinations of phosphorous and aluminum alkyls chemistry where Ethyl has special know-how and patents. Antioxidant sales for plastics and rubber improved in 1971 and an expansion of production capacity was completed at Orangeburg, S.C. Several new appli cations in plastics were developed during the year. Ethyl maintained its position in 1971 in the sales of chlorinated hydrocar bons. Chlorinated solvents pricing was weak, primarily because of a lack of growth in the market and an oversupply of the key raw material--chlorine. Manufacturing costs of solvents were reduced during the year. Sales of aluminum alkyl catalysts were slow early in 1971, but by year-end had increased over 1970, especially for use in synthetic rubber and plastics. Newly developed aluminum alkyl uses show good growth potential. Investigation of the use of bromine in new products was intensified in 1971. Primary emphasis was placed on flame-proofing and agricultural chemicals. A $2 million vinyl bromide plant went into production in Magnolia, Ark., during the fourth quarter to produce this chemical in multi-million pound quantities. Vinyl bromide's major use is as a flame retardant in fibers. Air Monitoring, Inc. (AMI) established a good market position for exhaust emission analytical instruments and systems. AMI is a prime contractor to the major automotive manufacturers in the U.S. and Canada. PRODUCTS: ALKYL ALUMINUM HALIDES / ALPHA OLEFINS / ALUM / ALUMINUM ALKYL COMPOUNDS / ANTIOXIDANTS / BROMINE CHEMICALS / CAUSTIC SODA / CHLORINATED SOLVENTS / DIESEL FUEL DE TERGENT- CORROSION INHIBITOR / DIESEL FUEL IGNITION IMPROVERS / DISTILLATE FUEL ANTi-STATiC ADDITIVE / ETHYL CHLORIDE / FUEL OIL COMBUSTION IMPROVE? / GASOLINE ANTIKNOCK COMPOUNDS / GASOLINE DETERGENT-DEICER CORROSION INHIBITORS / LINEAR PRIMARY ALCOHOLS / LUBRICATING OIL ADDITIVES / METAL DEACTIVATOR / METHYL CHLORIDE / OH SOLUBLE DYES / ORGANIC PHOSPHOR OUS CHEMICALS / OnTHOALKYLATED ANTIOXIDANTS / ORTHOALKYLATED PHENOLS AND ANILINES / SPECIAL ORGANC-METALLICS / SODIUM / VINYL BROMIDE / VINYL CHLORIDE PLANTS: BATON ROUGE. LA / FERNDALE. MICH / HOUSTON, TEXAS / MAGNOLIA, ARK / ORANGEBURG, S C Top: Production capacity tor pesticide intermediates was completed at Orangeburg, S.C., in 1971. Bottom Leit: The Orangeburg alkylation production facilities as seen from the distillation columns. Bottom Right: A $2 million vinyl bromide plant went into production in Magnolia, Ark., in the fourth quarter of 1971. OPERATIONS REVIEW ETC 17139 Sales outside the United States in f 1971 rose to an all-time high of lvrl I II^^Ollw $75.1 million, up 4.4% over 1970 and equal to 13% of Ethyl's total sales. The Interna tional Division sells and distributes the Company's products throughout the world, except the U.S. and Canada. Sales in Canada are made by Ethyl Corpo ration of Canada Limited. Ethyl of Canada's sales of antiknock compounds declined in 1971. However, Canadian putjjic acceptance of no-lead or low-lead gasolines continued to be minimal. No petroleum company introduced a no-lead or low-lead product during the year that was not on the market in 1970. Sales of other products to the petroleum and chemical industries in Canada were about equal to 1970. Ethyl of Canada supplied 100% of the Canadian requirements of aluminum alkyls and halides for synthetic rubber and plastics. Ethyl of Canada began in 1971 the marketing of Ethyl's primary alcohols for plasticizers. Substantial growth is expected in this product line in the future. In 1971, the International Division surpassed its 1970 sales and earnings records. Operations benefited from improvements in product distribution and marketing networks, continued strong demand and further improved manu facturing costs at the Ethyl Hellas plant in Greece. Increased demand for antiknock compounds was prevalent in the Euro pean, Mid-Eastern, African, Latin American and Far-Eastern markets. An addi tional antiknock terminal in South America is planned for late 1972. Marketing efforts to increase Ethyl's overseas sales of specialty chemicals were successful in 1971. Ethyl International substantially increased aluminum alkyl sales and gained a strong foothold in the marketing of special alcohols and heavy olefins. In December, Ethyl announced plans to build a multi product aluminum alkyl plant in Europe. The location and size are under study. The plant will be sized and located to fit customer requirements and Ethyl's European aluminum alkyl distribution system, established in 1971. Ethyl Development Corporation, a wholly owned subsidiary, continues the International Division's participation in oil and gas exploration by the Laura- Tenneco group in the Dutch North Sea. Ethyl has a one-sixth interest in the group, which holds 12 blocks totaling 1.2 million acres. Drilling in 1971 empha sized wildcat exploration at three locations, but no commercial oil or gas discoveries were made. In 1972, drilling will resume near the two wells which tested significant amounts of oil in 1970. Oil and gas exploration in Canada is being conducted jointly by Ethyl Devel opment Corporation and British Petroleum Oil and Gas Limited. Drilling in 1971 resulted in one gas discovery well capable of producing gas from two zones. Additional drilling is required to evaluate fully the ultimate potential of these gas reserves. The joint venture continues to acquire petroleum and nat ural gas leases. It currently has interests in 700,000 acres in Western Canada. PRODUCTS: FULL RANGE OF ETHYL'S CHEMICALS PLANTS: THESSALONIKI, GREECE (ETHYL INTERNATIONAL) / SARNIA. ONTARIO. CANADA (ETHYL CORPO RATION OR CANADA) ETHYL TERMINALS: CADIZ. SPAIN / DORDRECHT, HOLLAND / GUANTA. VENEZUELA / TALARA, PERU Top: Manufacturing costs at the Ethyl Hellas antiknock plant at Thessaloniki, Greece, were further improved in 1971. Center Left: Modem control panels are used at the Greek plant, built in 1966. Center right: A specially designed antiknock tank truck, which is moved on a rail car to certain points in Europe, is unloaded at a railroad terminal. Bottom: The Silver EID. one of three specially built tankers used by Ethyl, takes on a shipment of antiknock compounds for Ethyl International customers. Sales of Ethyl's plastics products rose to a record high of $111 million, up 8.1% over 1970. Plastics accounted for 19% of the Company's total sales. The Plastics Division's operating profit contribution in 1971 was at record levels. (See page 4.) Increased sales, combined with improved product mix and stronger cost reduction programs, brought about improved earnings. The "VISQUEEN" Division, which makes Ethyl the world's largest poly ethylene film producer, had an increase in sales, despite slowness .of the economy and added competition in packaging markets. Specialty films for food, non-food, disposables, packaging and pallet shrink sys tems, were primary growth areas. Construction of a specialty film plant to serve the Midwestern markets of VISQUEEN was completed in the fourth quarter in Manchester, Iowa. The "IMCO" Container Company Division posted sales gains and improved its profitability in 1971. Manufacturing cost controls and technical develop ments were important factors in increases. IMCO remained the top U.S. sup plier of polyethylene and PVC specialty bottles and containers in 1971. Sales of resins and compounds through the Polymer Division rose in 1971. In the first quarter, an agreement was signed with The Standard Oil Company (Ohio) to produce a new polymer for Sohio in a portion of Ethyl's PVC plant at Baton Rouge, La. This high-barrier resin is primarily for plastic bottles for carbonated beverages. Bottles made from this resin can be burned without adverse ecological effects. In addition to making this resin for Sohio, the Company will manufacture and use it for Ethyl's own film, bottles and injection molded products. This resin has excellent growth potential. PVC plastic pipe and fittings had a good year in 1971 in terms of sales, earn ings and production. Sales kept pace with the growth of the PVC pipe industry as a whole. In late December, plans were approved to build Ethyl's second PVC pipe products plant. The new facility in Columbia, Miss., is scheduled for completion in the third quarter of 1972. Sales of PVC film increased in 1971 although there were some production problems. Price weakness in the meat and produce markets was experienced. Concentration on specialty vinyl film markets was stepped up. The Converted Film Products Division increased its penetration of the private label polyethy lene refuse bag market. In 1971, "FLOCOR," Ethyl's plastic waste treatment media, was marketed by the Environmental Control Division. Ethyl's sales of FLOCOR continued to experience rapid growthin an industry where sales were well above 1970 levels. PRODUCTS: POLYETHYLENE FILMS FOR PACKAGING AND INDUSTRIAL. BUILDING AND AGRICULTURAL PALLET AND BUNDLING, DISPOSABLES / POLYETHYLENE SHRINK SYSTEMS / HOUSEHOLD BAGS ' POLYVINYL CHLORIDE PACKAGING FILMS / POLYVINYL CHLORIDE RIGID FILM AND SHEET / POLYVINYL CHLORIDE SHRINK FILMS / FLOCOR WASTE OXIDATION MEDIA ' FLOCOR WASTE CLARlFiER MEDIA POLYVINYL CHLORIDE RESINS AND COMPOUNDS i POLYVINYL CHLORIDE CONTAINERS / POLYETrvLENE CONTAINERS ! BOTTLE CLOSURES AND OTHER INJECTION MOLDED SPECIALTY PRODUCTS ; PLASTIC PIPE AND FITTINGS. PLANT*: BATON ROUGE. LA (2) / BELVIDERE, NJ / BYESV.LLE, OHIO / CANANDAIGUA NY / CAR50NDAIE PA COLUMBIA MISS DOWNSVIEW ONTARIO CANADA EXCElSIOR SPRINGS MO . FLEMING- TON NJ . FREMONT CALIF / GOlETA CALiF. / HARRISONBURG VA i 7 A 3 C A ILL - J E F FE= SONY. L. E i\D ' KANSAS CITY mo \2] : LAGRANGE 6A / L A V ; R AD A CALIF ' L 0 U i S N 1L l_ E KY V a *,C h E 5"c - l-OWA MISSISSAUGA ONTARIO CANADA .' PLAlNriELD N J PEMiNG'ON YA , ROCKA..VAY NJ . SANDsTON VA ! SOUTH GRAFTON MASS / TERRE HAUTE |ND / TiPTONViiLE TNN UNION Clit C A L Ic / vAND&lIA |LL Top: A large "bubble" of polyethylene lilm is checked as it is extruded at the LaGrange, Ga., VISQUEEN plant. This film is sold for building and agricultural uses. Bottom Lett: Colored polyethylene film is examined on a cast line during an experimental run. Top Right: IMCO blow-molded bottles are checked for clarity, a key feature, and shape. Bottom Right: Polyvinyl chloride plastic siding is cooled as it comes out of an extruder. Runs conducted in 1971 resulted in improved siding compounds. OPERATIONS REVIEW ETC 17143 The paper industry in 1971 experienced a slowdown in sales which began the previous year. Ethyl's Oxford Paper Company Division was affected by this general industry trend--resulting in the closing of its Lawrence, Mass., mill. Oxford's sales during the year totaled $85.7 million, or 15% of Ethyl's total sales. Oxford developed a new, streamlined paper grade structure during the first half of the year. It was introduced in August. The new structure, which included some 30 basic grades, covers papers used in all four end-use markets served by Oxford--commercial printing, book publishing, periodicals and converting. This new grade structure, backed by intensified advertising, promotion and marketing, is expected to improve Oxford's competitive position in 1972. The Lawrence mill was closed in May. The weak paper market and studies which indicated that the Lawrence operations would not be profitable, even with major capital expenditures and improved work practices, were the rea sons for the shutdown. Oxford's complete product line is now produced at the Rumford, Maine, mill and the smaller plant in West Carrollton, Ohio. The West Carrollton mill made news in 1971 with development of a 100% recycled paper grade called "EARTHTONE." It is an integral part of the new grade structure. EARTHTONE places Oxford among the leaders in conserva tion through recycling. Although the recycling concept is new to many, the West Carrollton mill has been producing papers containing from 25 to 60% recycled fiber for 43 years. Vigorous cost reduction programs have been carried out within the Oxford Paper Division. Improvements in operations at both mills continue. A major improvement at the Rumford mill in 1971 was the November consolidation of the wood rooms and wood yards into a single efficient operation. Installation of a new high-speed finishing machine is among major improve ments scheduled for completion at Rumford in 1972. Plans are also underway for projects to improve pulp quality levels and to expand finishing, storage and distribution facilities. Construction is well underway on a $2.4-million bark burner, which will solve a solid waste disposal problem by disposing of all bark residue from the Rum ford mill pulping operation. The new facility will also produce additional heat ing and process steam for the mill's operation. Oxford is continuing its program of modernization and improvement of existing paper machines through several additional projects to be completed in 1972. PRODUCTS: COATED LETTERPRESS PAPERS FOR COMMERCIAL PRINTING / COATED OFFSET PAPERS FOP SOOK PUBLISHING. COMMERCIAL PRINTING / UNCOATED LETTERPRESS PAPERS FOR BOOK PUBLISHING. COMMERCIAL P=INTING / UNCOATED OFFSET OARERS FOR BOOK PUBLISHING, COMMERCIAL PRINTING / COATED AND UN'CO-TED WEB OFFSET PAPERS FOR MAGAZINES, BOCK PUBLISHING. COMMERCIAL PRINTING ! FILM. COATED PAPERS FOR BOOK PUBLISHING, COMMERCIAL PRINTING / UNCOATED AND COATED PAPERS (SHEET AND ROLL) FOR MAGAZINES, COMMERCIAL PRINTING. CONVERTING / CON VERTING PAPERS AND ENVELOPES. BUSINESS FORMS. PAPER MASTERS PLANTS: RUMFORD. MAINE / WEST CARROLLTON. OHIO. Top: A spool of paper is moved to the supercalender room at Oxford's Rumford, Maine, mill where it will undergo polishing and smoothing associated with the fine quality of Oxford's printing papers. Lower Left: A Rumford mill operator checks on paper quality via a computer read-out. Modern computer equipment is utilized during many phases of Oxford's paper production. Lower Right: Employees at Rumford confer on details of filling a customer order. This report is lithographed on "LUXCOTE" High Gloss Enamel (basis weight 100 pound text and BO pound cover;, produced by Oxford Paper Company. 15 OPERATIONS REVIEW AV ETC 17145 Sales in 1971 of Ethyl's aluminum subsidiaries--The William L. Bonnell Com pany, Inc., and Capitol Products Corporation--totaled $75.6 million, up 20% over 1970. The increase in home building during the second half of 1971 was a factor since the construction industry is a major market for Ethyl's aluminum products. Aluminum sales accounted for 13% of Ethyl's total sales in 1971. Aluminum operating earnings reached record levels. (See page 4.) The William L. Bonnell Company, Inc. Housing construction rose to an annual rate of over two million starts during the last half of 1971, contributing to record sales of soft alloy extrusions for Bonnell. M | _ ___ ______- An electrostatic paint line installed in || ||^^||^| late 1970 at-the Newnan, Ga., plant I III IvmI I I exceeded expectations in sales and productivity. Bonnell's extruded aluminum shapes and fabricated windows and windshields for the marine market showed a rise in sales volume in the second half. The addition of new sales outlets contributed to the rise in sales of Bonnell's products to the mobile home industry in 1971, and an increase of sales to this market is expected in 1972. A major market for aluminum extrusions for Bonnell is the transportation industry. This industry continued to be depressed in 1971, but it is expected to re-gain former levels during 1972. Indications are that the construction industry will be strong in 1972. There fore, Bonnell's total sales are expected to continue to grow, and plans for further capacity increases are under study. Capitol Products Corporation As one of the leading U.S. suppliers of fin ished aluminum windows and sliding doors to producers of manufactured homes and to builders of apartment complexes and multiple housing projects, Capitol Products also felt the favorable impact of the upturn in construction. With no increase in facilities, Capitol's 1971 sales of windows and doors climbed to record highs. An important factor in Capitol's sales gain was its rolling window series, introduced in mid-1970. These windows incorporate optimum features for both residential and apartment use. In other product lines, Capitol's extrusion business rose moderately and the sales of residential lawn buildings con tinued to increase. At year-end, plans were approved for a multi-million dollar extrusionfabrication plant at Kentland, Ind. This facility will allow Capitol to improve its service to the growing Midwestern market for extrusions, windows and doors. PRODUCT8: EXTRUDED ALUMINUM SHAPES FOP WINDOWS AND DOORS. STORE FRONTS AND CURTAIN WA _ L S SCATS. TRUCKS AND TRAILERS, TUB ENCLOSURES / DECORATIVE ALUMINUM PRODUCTS FOR THE FLOOR COVERING AND HOME BUILDING INDUSTRIES / ALUMINUM WINDOW'S AND DOO = S RESIDEN TIAL LAWN BUILDINGS ALUMINUM BILLETS. PLANTS: Ca = '-aGE TSN\ . NEWNAN Ga 'BONNE.Li ` HA?d:SB'JRG ca . KENTLAND IND C-'rD = D =a MECHA.NiDSSURG EA 'CAFiTOl oR0DoC*S' NEW Far Lett: Aluminum extrusions rest on a cooling table as they are cut to proper length at Bonnell's Carthage, Tenn., plant. Top Right: Bonnell operators at the Newnan, Ga.. plant show samples of the windows they make tor different boat builders. Middle Right: A Bonnell work crew checks out the fit of an aluminum window and windshield on a boat deck templet. Bottom Right: Capitol Products' employees assemble painted aluminum windows at the Mechanicsburg, Pa., plant. ti. I, ; f [ tv L a t. 17 i; E:- ETC 17146 Expenditures for research and de Research &velopment at Ethyl in 1971 neared emphasis in 1971. A newly discov ered alkylation technique should $20 million, with more than half in new products. Ethyl gained Developmentmore than 90 U.S. patents and broaden Ethyl's unique capa bility to produce specified alkylated products. approximately 100 foreign pat The program on flame re ents--bringing the total to more than 1,300 U.S. patents tardants for the plastics, fibers and textiles industries was and about 800 foreign patents. Ethyl's research and de expanded in 1971. The potential for success in flame re velopment center at Baton Rouge, La., focuses on indus tardants is based upon Ethyl's manufacturing know-how trial chemicals and areas not related to existing products. and technical experience with bromine and organic Automotive emissions and new petroleum chemicals phosphorous compounds. research is emphasized at Detroit. In 1971, Ethyl consoli Research in polyvinyl chloride in 1971 emphasized dated most plastics research in new facilities at Baton expansion of Ethyl's line for growth and new profit oppor Rouge to strengthen product applications work. In addi tunities. Advanced profile and siding compounds and tion, plastic film research is conducted at Terre Haute, improvements in injection molding and bottle compounds Ind., and.plastic bottle research is based in Kansas City, strengthened Ethyl's leadership. Mo. Paper research is done at Richmond, Va., and Rumford, Maine. Market development and pilot produc tion of new specialty chemicals is coordinated at Orange burg, S.C. Automotive Emissions Research Reducing automotive exhaust emissions remained a key phase of Ethyl's re search in 1971. The Company's findings were described world-wide to governmental agencies dealing with en New Products Research In line with Ethyl's diversifica vironmental quality. The cooperative engine modification tion program, work was intensified in 1971 in new product program with Chrysler Corporation contributed signifi areas such as minerals and metals, instrument analyz cantly to Ethyl's work to demonstrate that air quality ers, agricultural and pharmaceutical intermediates, re standards can be met in the future without sacrificing ducing agents and many other chemicals. high-performance engines or leaded gasoline. Ethyl has leased a titanium mineral deposit which was Ethyl's experimental Lean Reactor Cars do not yet fully defined by exploration and drilling in 1971. Mineral sepa meet the 1975-76 standards. However, they are reducing rations were developed to pilot plant scale in 1971 to emissions of hydrocarbons and carbon monoxide by produce large test samples for potential customers in the about 95% from uncontrolled car levels. Nitrogen oxides titanium pigment industry. Recovery methods for other have been reduced by more than 80%. The goals are ap heavy minerals in the deposit are being developed. proached by refinements in induction, ignition, exhaust Ethyl's new aluminum and nickel processes were im reactor and exhaust gas recirculation systems while proved further in 1971. They will be important R&D areas maintaining good fuel economy and drivability. A Lean in 1972. Application of these processes to specific ore Reactor Car, under test by the California Air Resources raw materials is progressing. The Company's extensive Board since November, 1970, continues to perform well chemical processing background triggered investigation and shows the practicality of reaching very low emissions of new copper production techniques. using leaded fuels. New products for gasoline and lubricants continued to The study relating fuel composition and additive con be an important research activity for Ethyl in 1971. Sev centration to the content and amount of emitted exhaust eral of these products are in various stages of testing gases continued in 1971. Ethyl research showed that and market development. Road performance data on substituting aromatics for lead antiknocks to maintain Ethyl's engine cleanliness additives demonstrated emis octane quality increases emissions of undesirable air sions reduction and other benefits. Synthetic lubricant contaminants--some of which enter into atmospheric and viscosity control additives arp under development. reactions to form eye and respiratory irritants and photo Diversification of Ethyl's detergent interests continued chemical smog. in 1971. New uses for alpha olefins have advanced to the Ethyl's work on particulate traps continued to yield market development stage. New detergent intermediates significant results in 1971. These simple inexpensive de and processing to produce increased quantities of deter vices could replace existing mufflers on new and used gent olefins were also areas of effort. cars and keep about 70% of the lead in gasoline from Market development progressed on new phosphorus escaping into the atmosphere. More advanced devices chemicals in 1971. Strong customer interest has been offer promise of retaining almost 100% of the lead in shown for agricultural chemicals and flame retardants. gasoline. Experimental "final filters" can eliminate nearly A 1971 addition to Ethyl's line of aluminum alkyls was all particulates, including lead, from automobile exhaust. the new reducing agent OMH-1. It has had excellent Work with lead-resistant exhaust catalysts continued in market acceptance in pharmaceutical, flavor, fragrance 1971. Container designs for these catalysts have prob and fine chemical applications. lems which are common to all catalysts whether com Orthoalkylated phenol and aniline intermediates for patible with lead or not. Solution of these problems could new degradable herbicides was another area of R&D make these materials practical for use. Top Lett: An Ethyl researcher experiments with an electrostatic separator used for separating ore components. ~op Right: A crucible of molten metal is removed from an experimental metal furnace orior to casting. Bottom: Aluminum alkyl research continued to be an important area for Ethyl R&D m 1971. 19 ETC 17148 Consolidated Balance Sheets ASSETS December 31 Current assets: Cash and short-term securities............................ Accounts and notes receivable............................ Inventories............................................................... Prepaid expenses................................................... Total current assets.............................. 1971 1970 $143,733,000 72,432,000 81,376,000 3,939,000 301,480,000 $105,307,000 73,990,00b 85,851,000 3,789,000 268,937,000 Property, plant and equipment, at cost: Land and land improvements................................ Development costs, producing properties............ Timberlands and standing timber........................ Buildings................................................................. Machinery and equipment.................................... 23,618,000 5,288,000 10,681,000 77,837,000 387,977,000 505,401,000 23,755,000 5,147,000 10,301,000 79.764,000 393.068,000 512.035,000 Less, Accumulated depreciation, depletion and amortization................................................. Net property, plant and equipment .... 221,723,000 283,678,000 213.264,000 298.771,000 Deferred charges and other assets.......................... 19,283,000 17.569,000 Excess of cost of investments over equities in businesses acquired and other intangibles.......... 35,395,000 $639,836,000 35.743,000 $621.020.000 The accompanying notes are an integral part ol these statements. ETC 17149 ETHYL CORPORATION AND SUBSIDIARIES LIABILITIES December 31 Current liabilities: Accounts payable and accrued expenses Dividends payable.................................... Notes payable .. .................................... Long-term debt, current portion.............. Income taxes............................................ Total current liabilities............ Long-term debt: Senior .................................. Subordinated........................ Deferred income taxes............ Provision for employee benefits Minority interests .................... SHAREHOLDERS' EQUITY Capital stock: Cumulative First Preferred Stock, par $100 per share: 6% Series A...................................... 5% Series B...................................... Cumulative Second Preferred Stock, $2.40 Convertible Series A, par $10 per share (aggregate liquidation price $68,501,000 on 1,630,974 outstanding shares, after treasury stock).............. Common, par $1 per share.................... Capital surplus .......................................... Retained earnings...................................... Less, Treasury stock at cost.............. Total shareholders' equity 1971 1970 $ 45,062,000 3.158.000 3,000,000 9.202.000 11,062,000 71.484.000 $ 39,095,000 3.244.000 2.931.000 9.264.000 4.679.000 59.213.000 194,652,000 50,000,000 26.939.000 6.136.000 1.166.000 201,675,000 52.485.000 27.544.000 4.535.000 1.409.000 3,126,000 3,239,000 2,000,000 19.621.000 10.136.000 44.041.000 229.359.000 306.283.000 16.824.000 289.459.000 $639,636,000 19.600.000 10.088.000 43.562.000 207.097.000 285.586.000 11.427.000 274.159.000 $621,020,000 The accompanying notes are an integral part ot these statements. 21 CONSOLIDATED STATEMENTS OF _____ _____ Income & Retained Earnings Years Ended December 31 Income: Net sales................................................................. Miscellaneous income, net.................................... Cost and expenses: Cost of goods sold................................................. Selling and general expenses.............................. Interest and financing costs.......... ;...................... Income taxes........................................................... Income before extraordinary items.......... Extraordinary items..................................................... Net income..................................................... Retained earnings at beginning of year.................... Deduct, Cash dividends: Series A, 6% First Preferred Stock, $6.00 per share Series B, 5% First Preferred Stock, per share, $2.50 in 1971 and $5.00 in 1970 ...................... $2.40 Second Preferred Stock, $2.40 per share .. Common Stock, $.84 per share............................ Retained earnings at end of year.............................. Earnings per share of Common Stock and common stock equivalents: Income before extraordinary items.................. Extraordinary items ........................................... Net income..................................................... Pro forma earnings per share of Common Stock and common stock equivalents assuming conversion of $2.40 Second Preferred Stock. (If the Second Preferred Stock were converted, its dividend would become $1.09 per share at the present common dividend rate, as against the present $2.40 preferred dividend). Income before extraordinary items.................. Extraordinary items............................................ Net income..................................................... 1971 1970 $577,058,000 5,642,000 582,700,000 S556,856,000 8,437,000 565,293,000 419,722,000 70,476,000 18,686,000 35,576,000 544,460,000 38,240,000 (3,326,000) 34,914,000 207,097,000 410,973,000 65,804,000 18,285,000 34,649,000 529,711,000 35,582,000 1,617,000 37,199,000 1-82,875,000 175,000 44,000 3,974,000 8,459,000 12,652,000 $229,359,000 187,000 140,000 4,189,000 8,461,000 12,977,000 $207,097,000 $3.36 (.33) $3.03 $3.06 .16 $3.22 $3.09 (.27) $2.82 $2.85 .13 $2 98 The accompanying notes are an integral part of these statements. 22 ETC 17151 CONSOLIDATED STATEMENTS OF ___ Changes in Financial Position Source of Funds: Years Ended December 31 Operations: Income before extraordinary items.................... Expenses not requiring outlay of working capital: Depreciation, depletion and amortization ... Deferred iribome taxes.................................. Working capital provided from operations . Extraordinary items................................................ Add provisions which did not require working capital (net of deferred income taxes in 1971 of $1,980,000)........ ... Working capital (used) provided from extraordinary items................................ Issuance of long-term debt.................................. Other items--net.................................................... Total.................................................... 1971 1970 $38,240,000 $ 35,582,000 32,845,000 1,257,000 72,342,000 (3,326,000) 31,949,000 3,173,000 70,704,000 1,617,000 3,262,000 1,596,000 (64,000) 2,017,000 $74,295,000 3,213,000 40,703,000 3,774,000 $118,394,000 Application of Funds: Additions to property, plant and equipment........ Reduction of long-term debt.......... ..................... Cash dividends...................................................... Acquisitions of consolidated subsidiaries............ Capital stock reacquired or redeemed................ Increase in working capital.................................. Total.................................................... $24,383,000 9,508,000 12,652,000 7,480,000 20,272,000 $74,295,000 $ 39,136,000 16,694,000 12,977,000 13,173,000 3,189,000 33,225,000 $118,394,000 Increase In Working Capital: Increase (decrease) in current assets: Cash and short-term securities........................ Accounts and notes receivable........................ Inventories ........................................................ Prepaid expenses.............................................. Increase (decrease) in current liabilities: Accounts payable and accrued expenses........ Dividends payable ............................................ Notes payable.................................................... Long-term debt, current portion...................... Income taxes...................................................... Increase in Working Capital............ $38,426,000 (1,558,000) (4,475,000) 150,000 32,543,000 $(17,995,000) (630,000) 6,735,000 1,202,000 (10,688,000) 5,967,000 (86,000) 69,000 (62,000) 6,383,000 12,271,000 $20,272,000 (15,664,000) (36,000) (25,139,000) 1,393,000 (4,467,000) (43,913,000) $ 33,225,000 The accompanying notes are an integral part of these statements. CONSOLIDATED STATEMENTS OF Capital Surplus Years Ended December 31 Balance at beginning of year.................................... Excess of proceeds over par value of 9,600 shares of Common Stock issued upon exercise of warrants.................................................................. Excess of cash received over par value of shares of stock issued under stock option plans: 39,077 and 27,890 shares of Common Stock ... 1,163 and 750 Shares of $2.40 Second Preferred Stock.............................................. Excess of par value over cost of 1,130 shares of 6% Series A First Preferred Stock cancelled___ Excess of par value of 86 shares of $2.40 Second Preferred Stock over par value of 111 shares of Common Stock issued upon conversion, less cost of fractional shares of Common Stock purchased Excess of award amount over par value of 971 and 1,279 shares of $2.40 Second Preferred Stock issued under the Oxford Incentive Compensation Plan ......................................................................... Balance at end of year................................... 1971 $43,562,000 1970 $43,243,000 34,000 358,000 30,000 26,000 248,000 12,000 20,000 1,000 30,000 $44,041,000 39,000 $43,562,000 Notes to Financial Statements 1. Consolidation Principles: The accompanying financial statements include the ac counts and operations of ail wholly-owned subsidiaries, and the accounts and operations of Bromet Company, in which Ethyl Corporation has an 80% partnership interest. The excess of cost of investments over equities in busi nesses acquired is not being amortized. 2. Short-Term Securities: Short-term securities, stated at cost plus earned discount which approximates market value, amounted to $133,983,000 at December 31, 1971 and $90,696,000 at December 31,1970. 3. Inventoriea: Inventories include: Finished goods.............................. Raw materials and work in process Stores, supplies, etc...................... 1971 $33,525,000 33,005,000 14,846.000 $81,376,000 1970 $34,912,000 36,323,000 14,616,000 $85,851,000 Inventories are stated at the lower of cost or market with cost being determined on the last-in, first-out basis with respect to approximately $37,186,000 at December 31, 1971, and $43,158,000 at December 31,1970, and generally on either an average cost or first-in, first-out basis with respect to the balance. 4. Deferred Charges and Other Assets: Deferred charges consist principally of unamortized discount on long-term debt and other deferred financing expenses. Other assets include a receivable applicable to certain timberlands of a subsidiary which have been expropriated by the Canadian Province of New Brunswick. The Corpora tion is engaged in litigation with respect to compensation for the expropriated timberlands. At the conclusion of the Land Compensation Board proceedings, an award in excess of $10 million, including interest, was handed down in favor of the Corporation. The Corporation believes that the amount of $10 million is not adequate compensation and is currently appealing the decision. 5. Internal Revenue Service Examination: The Corporation has received the report of the Internal Revenue Service proposing additional income taxes for the three taxable periods ended December 31, 1964. See cap tion "Internal Revenue Sen/ice Examination" in the Financial Results Section (page 6) of this report for further information. 6. Long-Term Debt: 9. Stock Option Plans: Reference is made to captions "Summary of Long-Term At December 31, 1970, under the Corporation's restricted Debt" and "Summary of Debt Maturities to 1981" in the stock option plan, there were outstanding options to officers Financial Results Section (page 7) of this report for infor and other key employees for the purchase of 108,949 shares mation concerning the Corporation's long-term borrowings. of common stock at prices ranging from $9.42 to $33.12. 7. Capital Stock: Transactions in capital stock during 1971 were as follows: During 1971, there were no options granted, options for 39,077 shares were exercised, and options for 2,473 shares were cancelled, leaving outstanding at December 31, 1971 Issued Treasury options covering 67,399 shares at prices ranging from $9.42 Cumulative First Preferred (authorized^. 1,000,000 shares): Series A: January 1, 1971 .......... Purchases ................ Cancelled ................ December 31, 1971 Shares Amounts Shares Amounts 32,393 S 3,239,300 (1,130) (113,000) 31,263 S 3,126,300 1,658 S 2,140 (1,130) 2,668 t 133,028 159,627 (87,464) 205,191 Series B: January 1, 1971 .......... 20,000 $ 2,000,000 2,350 $ 235,000 Purchases................ 17,650 1,765,000 Cancelled ................ (20,000) (2,000,000) (20,000) (2,000,000) December 31, 1971 _________ |_________ _______ S to $33.12 (of which options for 59,459 shares were exercis able at that date). No further shares are available for grant under this plan. Under the Corporation's qualified stock option plan, 300,000 shares of unissued common stock are reserved for issuance to officers and other key employees at 100 per cent of fair market value on the date granted. No options to purchase shares under this plan have been granted. At December 31,1970, under the stock option plans as sumed by the Corporation in the merger with Oxford Paper Cumulative Second Company, there were outstanding options to purchase 6,714 Preferred (authorized, 10.000.000 shares): January 1, 1971 .......... Issued under stock option plan .. 1,960,011 1,163 619,600,110 11,630 232,000 610,950,750 shares of $2.40 Second Preferred Stock at prices ranging from $34.25 to $59.75. During 1971, options for 1,163 shares were exercised and options for 2,551 shares were cancelled, Issued under incentive compensation plan. Purchases ................ leaving outstanding at December 31, 1971, options cover 971 9,710 99,085 3,963,400 ing 3,000 shares at prices ranging from $34.25 to $59.75 (all Cancelled ................ ............ [86) _______[860) _______ December 31, 1971 1,962,059 619.620,590 331,085 614,914,150 Common (authorized of which were exercisable at that date). No further shares are available for grant under these plans. 25.000.000 shares): January 1, 1971 .......... 10,087,346 610,087,346 3,280 6108,33170. Retained Earnings Restriction: Purchases ................ Forfeited under em ployee bonusplan . 75,200 133 1,592,200 4,362 The Corporation's articles of incorporation and note agree ments contain restrictions, among others, against the pay Issued under stock option plan.......... 39,077 39,077 ment of cash dividends. At December 31,1971, $18,699,000 Issued upon exercise of warrants.......... Issued upon conversion 9,600 9,600 of retained earnings is free of such restriction under the agreement presently most restrictive. of cumulative second preferred .. ______ U1 _______ U1 _______ December 31,1971 10,136,134 610,136,134 78,613 6 1,704,899 11. Retirement Income Plans: The Corporation and its subsidiaries provide retirement benefits for substantially all of their employees, including The Cumulative First Preferred, Series A, is redeemable at certain employees in foreign countries, under several differ $101 at the option of the Corporation and is preferentially ent plans funded with insurance companies or corporate entitled to par value in involuntary liquidation and the re trustees. Plan contributions, based upon actuarial calcula demption price in voluntary liquidation. Annual sinking fund tions, are irrevocably devoted to the payment of retirement payments of approximately $114,000 are required for man and other benefits for employees. Total costs of retirement datory redemption. income plans for 1971 were approximately $8,200,000 Each share of Cumulative Second Preferred is convertible which includes amortization of prior service costs generally into 1.3 shares of common stock. The voluntary or involun over periods ranging up to 40 years. The policy of the Cor tary liquidation value of the Cumulative Second Preferred poration and its subsidiaries is to fund pension costs Stock is the greater of (1) $42 per share, or (2) an amount accrued. equivalent to the book value of that number of shares of Under one of the plans, the actuarially computed value of common stock into which such preferred stock is con vested benefits as of the end of the plan year, for active vertible. The aggregate excess of liquidation price over employees not yet retired, exceeded the total pension fund par value on shares of outstanding stock is approximately allocable to the active group. The excess amounted to $52,191,000 as of December 31, 1971. These shares are $9,300,000 with full funding anticipated in the valuation callable after August 1, 1972 at $75 per share, plus accrued method by the time each employee becomes eligible to dividends. retire. 8. Warrants: At December 31, 1971, there were outstanding warrants exercisable on or before November 1, 1982, which entitle the holders thereof to purchase 36,000 shares of unissued common stock at $4.58 per share. During 1971, warrants for 9,600 shares were exercised. 12. Depreciation, Depletion and Amortization: Depreciation and depletion charged to income amounted to $31,700,000 and $30,796,000 in 1971 and 1970, respec tively. Amortization of intangibles and of deferred discount and financing expenses charged to income amounted to $1,145,000 and $1,153,000 in the respective years. Deple- ETC 17154 25 NOTES TO FINANCIAL STATEMENTS tion of timberlands is provided by charges to income at unit amounts estimated as adequate to apportion the cost of each tract, less residual value of land and young growth, to the cost of timber cut from such tract. 13. Deferred Income Taxes: Depreciation computed on accelerated methods for income tax purposes exceeds book provisions based principally on the straight-line metnud. This excess, together with timing differences in intangible drilling and development costs and other expenses, resulted in reductions of current income tax payable of $1,257,000 in 1971 and $3,173,000 in 1970 for which the Corporation has provided deferred income taxes. In addition, certain of the charges relating to the termina tion of the Lawrence paper mill operations in 1971 have previously been deducted or are not currently deductible resulting in an increase in current income taxes payable ot $1,980,000which reduced non-current deferred incometaxes. 14. Investment Credit: The Corporation's provision for income taxes was reduced (and net income increased) by investment credits of $696,000 and $432,000 in 1971 and 1970, respectively, accounted for by the "flow-through" method. 15. Extraordinary Items: Extraordinary items include: Adjustment of provision for write-down of investment in Ethyl-Dow Chemical Company (net of income taxes of $819,000).......... .1971 1970 $ 1,519,000 Net credit from reorganization of administrative and selling operations including capital gain on sale of office lease (net of capital gains tax of $604,000 less ordinary income tax reduction of $572,000 applicable toexpenses) 909,000 Provision for further write-down to realizable value of Pittsburg, California plant (net of income taxes, $785,000).............. Provision for costs of terminating the Lawrence, Massachusetts, paper mill operations, including pension and other benefits for qualified former employees and write-down of plant investment to realizable value (net of income taxes of $3,070,000).............. $(3,326,000) (811,000) $(3,326,0001 |^lj617j009 16. Earnings per Share: Earnings, and pro forma earnings, per common share are computed using the weighted average number of shares of common stock and common stock equivalents (common stock options and warrants) outstanding during the year. Proceeds from common stock equivalents are assumed to be used to purchase outstanding shares of the Corporation's common stock. Auditors' Report To the Board ot Directors and Shareholders ot Ethyl Corporation: We have examined the consolidated balance sheet of Ethyl Corporation and Subsidiaries as of December 31,I97fand the related consolidated statements of income and retained earnings, capital surplus and changes in financial position for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the Corporation's consolidated financial statements for the year ended December 31,1970. In our opinion, the aforementioned statements present fairly the consolidated financial position of Ethyl Corporation and Subsidiaries at December 31,1971 and 1970, and the consolidated results of their operations and the consolidated changes in financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Suite 1000 Seventh and Franklin Bldg. Richmond, Virginia 23210 February 14,1972 LYBRAND. ROSS BROS. & MONTGOMERY Directors, Officers and Staff ETHYL CORPORATION AND SUBSIDIARIES Divisions H WALLACE F. ARMSTRONG Vice President--Manufacturing * LAWRENCE , BLANCHARD, JR. DIRECTOR; Executive Vice President S. DOUGLAS FLEET DIRECTOR; Retired Vice President M. F. GAUTREAUX DIRECTOR; Vice President- Research A Development JAMES M. GILL DIRECTOR; Senior Vice PresidentChemicals Group BRUCE C. GOTTWAID DIRECTOR; President FLOYD D. GOTTWALD DIRECTOR; Chairman--Executive Committee FLOYD D. GOTTWALD. JR. DIRECTOR; Chairman of the Board, Chief Executive Officer C. RAYMOND HAILEY Vice President; PresidentOxford Paper Company Division HOWARD E. HESSELBERG Vice President--Air Conservation ROBERT HERZOG DIRECTOR; Executive Vice President A. B. HORN. JR. DIRECTOR; Vice President- International Division GEORGE F. KIRBY DIRECTOR; President, Texes Eastern Transmission Corp., Houston, Texas JOSEPH M. LOWRY DIRECTOR; Senior Vice President ANDREW M. McBURNEY DIRECTOR; Executive Vice President-- Oxford Paper Compeny Division THOMAS W. McKNEW DIRECTOR; Advisory Chairmen of the Board, National Geographic Society, Washington, D.C. FRANK J. McNALLY Treasurer ROBERT T. MARSH. JR. DIRECTOR; Retiree Chairman of the Board, First & Merchants National Bank, Richmond, Va. MALCOLM P. MURDOCK DIRECTOR. Retired Senior Vice President CLARENCE M. NEHER DIRECTOR; Senior Vice PresidentPlastics Division MELVIN M. PAYNE DIRECTOR; President, National Geographic Society. Washington, D.C. LEWlS F. POWELL. JR. DIRECTOR; Partner, Hunfon. Williams, Gey, Powell A Gibson. Richmond, Va. W. THOMAS RICE DIRECTOR; Chairman A Chief Executive Officer, Seaboard Coast Line Railroad Co., Richmond. Va. E. CLAIBORNE ROBINS DIRECTOR; Chairman of the Board, A. H. Robins Co.. Richmond. Va.\ SIDNEY BUFORO SCOTT DIRECTOR; Partner, Scott A Stringtellow, Richmond, Va( THOMAS M. SMYLIE Vice President--Aluminum FREDERICK P. WARNE General Counsel and Secretary ERWIN H. WILL DIRECTOR; Honorary Chairman of the Board, Virginia Electric A Power Co., Richmond. Va. LLOYD B. ANDREW. JR. Director--Financial Relations CHARLES E. COLVIN Director--Purchasing A Traffic ARTHUR W. HELWIG Secretary--Executive Committee; Director--Planning A Profit Improvement JAMES H. KIRBY Controller JAMES G. LONERGAN Director--Advertis mg A Sales Promotion G. SAMUEL ROBERTS Chief Engineer STEPHEN B. RODI Director--Corporate Employee Relations CHARLES H. ZEANAH Director--Corporate-Public Relations Member of fhe Executive Committee ^Retired as a Director January 27, 1972 Resigned December 31, 1971, to become Associate Justice, United States Suoreme Court. Oxford Paper Company GORHAM H. SCOTT Senior Vice President HUGHH. BAIRD. JR. Vice President & Controller RUSSELL H. CHAMBLISS, JR. Vice President--Sales S. D. DILLON Vice President- National Accounts. West C. RICKERT LEWIS Vice President-- Netional Accounts, East Petroleum Chemicals ROBERTA. DOUGLASS Divisional Vice President A Genera/ Manager JOHN F. KOEHNLE General Sales Manager R. J. OSTRANDER Technical Director Air Monitoring, tnc. R.J. OSTRANDER President Industrial Chemicals MERLE L. GOULD General Manager ROGER A. MOSER Director-Marketing Management H. WARREN REES Genera/ Sales Manager STANLEY A HARRIS Sa/e$ Manager Ethyl International M. WHITLOCK Manager--Operations W. J. RUSHER General Manager--Sales L. N. APPLEGATE Director--Exploration Ethyl S.A. W. J. RUSHER President A Managing Director Ethyl Hellas Chemical Company S.A. R. R. DOWNEY Managing Director Ethyl Corporation of Canada Umitad KENNETH A. FREBERG President JAMES H. MAIN Manager-Petroleum Additives ROBERT H.SHANNON Manager--Chemical Products Plastics PAUL E. WEIMER Director--Financial Controls Imco Container Company RICHARD F. SANDS President ROBERT D. BISHOP Vice President- Sales A Marketing MARION HIERMAN President--Imco of Canada ROBERT X. HAFELE Technical Director HANCEL B. BONDS Vice President--Operations JAMES W. COURT Vice President--Finance Films Group HARRY C. BYRNE. JR. General Manager VisQueen JOHN K. SHIFFLER General Sales Manager RICHARD W. GOODRUM Technical Director ROLAND E. McKENZIE Manufacturing Manager PVC Film and Sheet FRANK J. KELLY Sales Manager Converted Film Products MARTIN L. WEINER Manager Polymer Division CHARLES W. MONTGOMERY General Manager RAY WILKINS. JR. Genera/ Sales Manager Pipe Products Division ARTHUR A. SMITH General Manager L. RAY McCULLEY Sales Manager Environmental Control Division I. RICHARD SCHNEIDER General Manager JOSEPH H. BENTON Sales Manager Aluminum E. MALCOLM HARVEY President A Treasurer The William L. Bonnell Co, WILLIAM H. MORGAN Genera/ Manager--Marketing A Product Development The William L. Sonne// Company LLOYD L. REYNOLDS Vice President A General Manager WARREN H. BROCKWAY Vice President A General Sales Manager DONALD A. WAGNER Vice President--Manufacturing FRANK DANIELS. JR. Assistant Treasurer Capitol Products Corporation JOSEPH T. COLUFLOWER President GEORGE S. THUMLERT Vice President A Treasurer WALLACE FREMONT Vice Pres/deni DONALO G.HORNUNG Vice President ETC 17156 27 Ten Year Summary SALES AND INCOME Net sales (after deducting freight cost).............. Income before taxes and extraordinary items.............................. Depreciation, depletion and amortization ........................................ Income taxes before extraordinary items Income before extraordinary items___ Net income............................................... Cashflow ................................................. Years Ended December 3t 1971 1970 $577,058,000 $556,856,000 j \ 1969 | | $509,302,000 73,816,000 70,231,000 66.044,000 32,845,000 35,576,000 38,240,000 34,914,000 72,278,000 31,949,000 29,562,000 34,649,000 33,020,000 35,582,000 t ,, 33,024,000 37,199,000 29,524,000 73,917,000 67,193,000 FINANCIAL CONDITION Working capital .................... .............. Ratio of current assets to current liabilities............................................... Property, plant and equipment (Net) ... Capital expenditures.............................. Long-term debt ...................................... 229,996,000 $4.22 to $1.00 283,678,000 24,383,000 244,652,000 209,724,000 $4.54 to$1.00 298,771,000 64,190,000 254,160,000 176,499,000 $2.71 to$1.00 ; 293,200,000 ! 53,312,000 ^ 230,152,000 COMMON STOCK Number of shares outstanding.............. Earnings per share............................... Pro forma earnings per share, assuming conversion of the Second Preferred Stock (3) ............ Income taxes per share ........................ Equity per share (*).............................. 10,057,521 $ 3.36* $ 3.09* $ 3.51 $20.47 10,084,066 $ 3.06* $ 2.85* $ 3.42 $18.45 10,059.444 $ 2.77* $ 2.61* $ 3.25 $16.01 I ! f ! Before extraordinary items. Alter extraordinary Items, would be $3.03 and $2.82 in 1971 $3.22 and $2.98 in 1970 and $2.43 and $2.33 in 1969, respectively. (1) Includes Oxford operations tor entire year. All prior years ended December 31 reflect the merger of Oxford into Ethyl on a pooling of interests basis. (2) Includes 4 months of combined Albemarle paper and Ethyl chemical operations. (3) If the Second Preferred Stock were converted. Its dividend would become $1.09 a share at the present common dividend rate, as against the present $2.40 preferred dividend. (4) Reflects a deduction tor the liquidating value of the Second Preferred Stock, and is based on the number of shares outstanding atlhe end of each year, treating warrants and common stock options as common stock equivalents. Adjusted tor stock splits. 28 ETHYL CORPORATION AND SUBSIDIARIES f I 1968 1967f3 1966 1965 1964 1963 Year Ended March 31 1963f23 300 $509,072,000 $468,938,000 $465,823,000 $375,837,000 $335,663,000 $292,878,000 $ 94,294,000 300 61,094,000 51,633,000 62,876,000 48,306,000 41,004,000 32,526,000 8,964,000 oO oo r~\ " 31,076.000 29,592,000 300 31,502,000 300 31,502,000 300 65,027,000 30,749,000 21,971,000 29,662,000 29,662,000 62,876,000 28,411,000 25,570,000 37,306,000 37,306,000 68,107,000 25,233,000 20,317,000 27,989,000 27,989,000 55,918,000 22,161,000 19,945,000 21,059,000 21,059,000 46,172,000 19,886,000 16,099,000 16,427,000 16,427,000 39,052,000 6,556,000 4,583,000 4,381,000 4,381,000 12,117,000 300 176,302,000 129,757,000 107,244,000 92,840,000 103,194,000 86,267,000 63,001,000 00 $3.47to$1.00 '00 269,761,000 '00 -- 64,158,000 100 215,121,000 $3.52to $1.00 301,345,000 26,943.000 206,419,000 $2.83 to$1.00 306,073,000 59,116,000 219,464,000 $3.07 to $1.00 280,112,000 57,654,000 223,639,000 $3.19to$1.00 240,216,000 35,876,000 225,992,000 $3.43to$1.00 227,583,000 33,370.000 226,427,000 $2.75to$1.00 150,959,000 4,839,000 196,375,000 44 10,027,510 9,927,793 9,538,655 9,487,380 $ 2.61 $ 2.41 $ 3.21 $2.32 $ 2.46 $ 2.91 $14.56 $ 2.29 $ 2.16 $12.70 $ 2.94 $ 2.54 $10.98 $2.22 $2.01 $8.26 8,438,658 $1.68 $1.68 $2.02 $6.55 2,375,807 $1.30 $1.30 $1.75 $5.33 1,187,362 $ .63 -- $ .71 $5.31 ETC 17158 ETHYL CORPORATION 330 South Fourth Street Richmond, Va. 23219 Ethyl Corporation ^ Changing ...to Sen/e a Changing World Ethyl Corporation is a major chemical company which in recent years has diversified into several new product areas. These include plastics, aluminum products and paper. Ethyl's business is worldwide in scope and it maintains offices, manufacturing and product distribut ing facilities on five continents, employing approximately 13,000 people. In North America, there are offices, plants and laboratories in 21 U.S. states and four provinces of Canada.